Financial Speculation in Capacity Markets Undermines the Energy Transition

Abatify Summary

Nature & Climate Perspective

**Financial speculation in fossil-heavy capacity markets delays the phase-out of high-emissions assets, directly threatening biodiversity and ecosystem recovery by prolonging reliance on extractive industries. **

Fossil fuel extraction incentivized by capacity market signals continues to fragment sensitive habitats and degrade local biodiversity through continued infrastructure expansion.
Prolonged methane leakage from natural gas infrastructure, sustained by speculative market volatility, accelerates short-term warming and compromises the integrity of LULUCF sequestration projects.
Speculative capital bubbles in non-renewable capacity divert essential funding away from nature-based solutions that provide long-term environmental stability and climate resilience.

Market & Policy Outlook

**Price volatility and speculative behavior in energy capacity markets distort price signals for I-RECs and low-carbon investments, creating systemic risk that misaligns with SBTi-verified transition pathways. **

Regulatory instability within capacity markets undermines the predictable revenue streams required for high-integrity Article 6.4 project financing and the cross-border exchange of ITMOs.
Financial speculation increases the cost of capital for renewable transitions, making it harder for corporations to achieve Scope 3 decarbonization targets through grid-connected infrastructure.
In contrast to ICVCM Core Carbon Principles, the current lack of integrity in energy capacity markets allows for 'carbon leakage' where speculative profits from fossil assets disincentivize technical innovation in long-duration storage.

Compounding their significant climate and environmental harms, fossil fuels are also volatile commodities. In 2022, Russia’s invasion of Ukraine disrupted the supply of natural gas, causing prices to spike. More recently, the United States’ war on Iran resulted in the closure of the Strait of Hormuz, one of the most important oil and gas chokepoints […]

Financial Speculation in Capacity Markets Undermines the Energy Transition

Abatify Summary

Nature & Climate Perspective

Market & Policy Outlook

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