Market News

 May 25, 2007
Carbon market reaches $30 billion

 Washington, D.C., USA (GLOBE-Net) -- The worldwide carbon market grew in value to an estimated US$30 billion in 2006, three times greater than the previous year, says a new report from the World Bank.

The most recent State of the Carbon Market report was released at Carbon Expo, an international trade fair and conference sponsored by the World Bank and the International Emissions Trading Association (IETA). The rate of growth and the $30 billion figure are signs of strength, and Environmental Finance reports that some market participants believe the carbon trade may be worth up to 25% more.

According to the report, the market was dominated by the sale and re-sale of European Union Allowances (EUAs) at a value of nearly $25 billion under the EU Emissions Trading Scheme (ETS), up from $8.2 billion in 2005.

The ETS is a legislative framework under which certain industrial sector firms are allocated a set amount of emissions credits and must purchase to cover excess emissions or can sell any surplus. It has so far been the driving force behind the global carbon market, but an over-allocation of credits during the first phase from 2005-2007 resulted in a price collapse, and trading is now focused on the next phase in which stricter caps are expected.

Other important carbon trading systems are the project based Clean Development Mechanism (CDM) and Joint Implementation (JI) programs of the Kyoto Protocol. The CDM and JI allow organizations from industrialized nations implement emissions reducing or offsetting projects in developing countries or other industrialized countries, respectively, to earn carbon credits.

Trading of these project-based credits grew sharply to a value of about US$5 billion in 2006, compared to $2.7 billion for 2005. Demand was highest for CDM credits, which accounted for around 450 million tonnes (Mt) traded, while JI credits contributed around 16 Mt. Project-based credits experienced more price stability than the ETS, with the vast majority of CDM credits trading in the range of US$8-14 per tonne.

European buyers dominated the primary CDM & JI market with an 86% market share (versus 50% in 2005), while Japanese purchases were sharply down at only 7% of the primary market in 2006.

Since 2002, the bank estimates that direct carbon purchases have leveraged an additional $16 billion in associated investments supporting clean energy in developing countries, on top of $8 billion in new resources for such countries generated by the CDM. The voluntary market for reductions by corporations and individuals also grew strongly to an estimated US$100 million in 2006. Two pioneering voluntary markets, the Chicago Climate Exchange (CCX) and the New South Wales Market (NSW), saw record volumes and values traded in 2006.

Canadian firms have been somewhat active in the voluntary credit market, accounting for 18% of volumes traded on the Chicago Climate Exchange (CCX), possibly in preparation for a domestic trading scheme.

However, Canadian firms have largely dropped out of the CDM and JI market, after some initial activity when previous government plans called for a domestic cap and trade system. Now that a federal climate plan has been tabled which includes allowances for a carbon market compatible with the Kyoto Mechanisms, there may be increased Canadian participation, says the report.

As well, with the development of regional cap-and-trade systems by U.S. states (with British Columbia and possibly Ontario), expectations of a North American market are leading to increased interest by firms on both sides of the border.

The report shows a high proportion of market participants (90%) believe that the GHG Market is an established instrument that will continue after the Kyoto Protocol expires in 2012. More than 65% of those surveyed by the IETA also believe a global market will be established in the next 10 years.

Read State of the Carbon Market 2007 (PDF).

To view this markets growth over the past few years please visit the news section of 2005 and 2006 or Carbon market doubles in size to $22 billion.