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News : International Last Updated: Apr 24, 2009 - 5:31:05 PM


Global carbon trading market grew to $64 billion in 2007
By Finfacts Team
May 9, 2008 - 3:59:44 AM

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Location of Clean Development Mechanisms (CDM) Projects - - Companies that need to purchase pollution permits to stay within EU carbon limits are fuelling a big carbon market growth but the central piece of the market — investment in emission-reducing projects in the developing world like China and Africa — is stagnating after years of growth.

Last month in a report on the Clean Development Mechanism, the Wall Street Journal said that in recent months, UN regulators who administer the program have objected to dozens of developing-world projects, ranging from hydroelectric plants to wind farms, questioning whether the projects would produce a real environmental payoff. The regulators were reported to be concerned that some independent auditors of these projects, who are responsible for vetting their environmental legitimacy, have been letting project developers push through ventures of questionable environmental value.

The Journal said that the crackdown challenges a plank of the world's campaign against climate change: that polluters can pay someone else to clean up the mess. If the approach were to be discredited, curbing emissions could cost companies and consumers significantly more.

The World Bank report on carbon trading, reported on below, says it can easily take two and a half years for new projects to pass through the pipeline from application to final approval. That’s putting the damper on clean-energy projects right where they’re needed right when they’re needed most.

The Wall Street Journal says that regulators are questioning the actions of two main players in the carbon market: Project developers, who put together projects in order to sell the credits to Western industrial buyers; and the auditing firms that inspect and certify to the UN that the projects are environmentally legitimate.

It's an area that has great potential for abuse. "There is a high incentive" for companies to put together environmentally questionable carbon-credit projects, "because there is a lot of money that can be earned," an executive at a Norwegian auditor told the Journal. "People are getting more inventive, so it's getting harder to detect the black sheep."

The global carbon market grew to $64 billion (€47 billion) in 2007, more than doubling over 2006, according to a new report from the World Bank highlighting the state and trends of the global carbon market. The European Union Emission Trading Scheme (EU ETS) also saw a doubling of both value and number of allowances transacted to the tune of $50 billion (€37 billion).

The report’s data shows that the global carbon market doubled or tripled in value for all segments, except for projects in developing countries which saw a leveling off of market volumes transacted under the Clean Development Mechanisms (CDM)—from 537 million tons of carbon dioxide equivalent (MtCO2e) in 2006 to 551 MtCO2e in 2007. The report’s analysis cautions that market momentum may be at a crossroads for many developing countries just as they are beginning to reap the benefits of carbon finance and are stepping forward to show that they are making efforts to mitigate climate change through advancing clean energy technology. The report says that the CDM is delivering on clean energy—energy efficiency and renewable energy accounted for nearly two-thirds of the transacted volumes in the project-based market.

“Sixty-eight developing countries participate in the CDM,, among them Jamaica, Kenya, Mali and Madagascar, which offered climate-friendly projects for the market for the first time in 2007. But, at a time that global cooperation to reduce the risk of climate change is more important than ever before, the prospects for developing countries benefiting from the carbon market are in question. It would be a shame for the world to lose this momentum now”, said Karan Capoor, senior World Bank carbon markets expert and main author of the State and Trends of the Carbon Market Report 2008.

 
Deutsche Bank Research published a report this week, on the development of a carbon trading market in the US: Cap and Trade in America: US climate policy at a crossroads

The World Bank says that the overall data in the report masks some key vulnerabilities—especially for developing countries. All developing countries face a demand gap sometime in 2008 when buyers realize that there is not enough time to fulfill Kyoto commitments with new projects, and demand will have not yet kicked in from emerging markets in the US and Australia that are expected to be players in a future market after 2012. Added to that is the fact that the European Commission has proposed freezing new demand for projects from developing countries in
commitments to reduce greenhouse gas emissions after 2012. The success of the CDM is also weighed down by procedural delays as more than 2000 projects out of more than 3000 have not yet been processed through the CDM approval cycle.

“Projects for renewable energy and energy efficiency, as well as investments in poorer developing countries make up the bulk of the projects this year and it is these projects that are losing out as a result of procedural delays and bottlenecks in the CDM, putting their eventual implementation into question,” said Philippe Ambrosi, also of the World Bank, and co-author of the report.

The State and Trends of the Carbon Market 2008 reviews the trends of the carbon market based on material provided by carbon market analysts and brokers Evolution Markets Inc. and Natsource LLC, and on interviews with a large number of market participants. The report is based on data from the trading of EUAs under the EU ETS and from transactions completed under the Kyoto Protocol’s flexible mechanisms—the CDM and Joint Implementation (JI)—that allow industrialized countries to purchase greenhouse gas emission
reductions in developing countries and in countries with economies in transition and also includes data from voluntary markets.

“A doubling in the size of the carbon market is significant growth, but the market is nowhere near meeting its full potential," said Andrew Ertel, President & CEO of Evolution Markets, one of the contributors to this year's report. “Lack of clarity post-2012 and a leveling off of primary CDM volume is countering growth of commoditized markets such the EU ETS and secondary CDM trading. The market is truly at a crossroads as market participants fully appreciate the complexity and risks of carbon trading. Where we go
from here is up to market players and their perception of the regulatory risk in all of these markets.”

“Carbon trading market data in 2007 reflects the ability of market mechanisms to mobilize capital to address climate change”, said Jack Cogen, CEO of Natsource LLC, a leading emissions and renewable energy investment bank. “In order to continue market growth and investment in clean energy, policy-makers need to send the project development and buying sectors a clear signal that these mechanisms will continue to be an important policy tool in the post 2012 policy framework to address climate change and improve their performance. In addition, all those participating in the U.S. climate policy debate should draw important lessons from the world’s efforts to develop carbon markets and apply them in U.S. legislation,” said Cogen.

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