Global carbon market on the horizon

The volume of carbon being traded this year is likely to soar, but the value of the sector will rise at a much more modest rate, according to an in depth analysis of the market.

>Carbon 2007, an overview of last year’s carbon market and predictions for the year ahead, was published by Point Carbon this week.

According to the document, while the tonnage of carbon traded is likely to be up 50% on last year’s figure, the value of the international market will only go up by 5% or so.

Point Carbon finds that the international carbon market in 2006 saw a total of 1.6 billion tonnes of carbon dioxide equivalent (CO2e), worth approximately ¬22.5 billion in transactions.

Its forecast for 2007 suggests that volumes in the market could reach 2.4 billion tonnes CO2e, which, at current prices in the various market segments, would be valued at ¬23.6 billion. This would mark a marked increase in volume combined with marginal growth in value, based on today’s prices.

While as might be expected the European Emissions Trading Scheme (EU ETS) was the main act for carbon traders, a secondary carbon market was also seen to be emerging.

The company also conducted an extensive survey of those involved in the market and found that turning carbon into a commodity had encouraged businesses to introduce emission abatement policies, challenging the argument that carbon trading does not lead to any reduction in emissions in real terms.

Those quizzed were also generally upbeat about the future of a global market, with almost three quarters of respondents to the survey saying they believed the next President of the USA would introduce tough climate change laws and be more likely to sign up to an international emissions treaty.

“The results from the analysis going into this report bring forward three important conclusions,” said Kristian Tangen, director of Point Carbon.

“Firstly, the market is moving on despite there being severe problems with the allocation of allowances in the first phase of the EU’s emissions trading scheme. The price collapse in the EU ETS resulted in massive criticisms from politicians and market participants alike, not only because of the results but also the way the results were revealed to the market.

The lessons from the 2005 verification have not been lost on (most) policy makers, and the allocations for the next phase of the EU ETS are considerably stricter than what has been the case so far.

“Secondly, the results from our survey suggest that the EU ETS is starting to work as it should, by initiating internal abatement and bringing companies to the market to benefit from these abatements.

“Whereas last year only about 15% of respondents answered that the EU ETS had initiated internal abatement projects in their company, a whole 65% of respondents claimed it had done so this year.”

“Finally, we now find it increasingly likely that we will see a truly global carbon market emerging soon. Developments in USA and Australia suggest that we will soon see operational emission trading schemes established in these countries.

“With every one of these systems relying on offset opportunities from projects in other parts of the world, it is inevitable that we will soon see the emergence of a common carbon prices.

“It will still take some years before we see exactly what this market will look like, but its contours are quickly becoming visible.”

Sam Bond

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