The global carbon market grew six per cent last year, despite facing tough trading conditions, according to a report released today by the World Bank.
The bank said the value of the
carbon market increased to £100 billion in 2009 from £93 billion in 2008, despite a fall in demand for carbon assets and plummeting industrial output brought on by the world recession.
According to the report – '
State And Trends Of The Carbon Market 2010’ – the level of activity in carbon offsets under the Kyoto Protocol declined substantially both in terms of volume and value in 2009, as rich nations cut back their funding of carbon-cutting projects in developing nations.
Project-based transactions declined by 54 per cent to £2.3 billion in 2009, the report said. Worst hit was the Clean Development Mechanism (CDM), where the value of transactions fell by more than half to £1.8 billion from £4.5 billion in 2008. In terms of volume, this equated to 211 million tonnes of CO2 equivalent traded in 2009 compared to 404 million tonnes in 2008. The price of the average transaction was £9.
"The carbon market endured its most challeging year to date in 2009," the report said. "The financial crisis spurred financial institutions and private investors to deleverage and redirect their positions away from risky
investments and toward safer assets and markets."
"Capital inflow to developing countries fell dramatically, while already internalised
resources flowed out. As a result, many project developers found it impossible to lock in
finance and project origination effectively ground to a halt."
EU ETS
The
European Union Emissions Trading Scheme (EU ETS), the world’s largest carbon market, remained "the engine of the global carbon market" according to the report, with over six billion European Union Allowances transacted in 2009 compared to three in 2008. The value of those transactions rose to £82 billion, up from £69 billion in 2008.
AAUs
Meanwhile, Assigned Amounts Units (AAUs), a cheaper alternative for buying carbon offsets for countries with compliance needs under the Kyoto Protocol, increase seven-fold to £1.4 billion from £196 million in 2008. The report said this was due to countries looking for "sizeable and predictable assets" as forcasts for Certified Emission Reductions (CERs) and Emission Reduction Units (ERUs) offsets looked "increasingly somber".
The report predicted demand for Kyoto offsets before 2012 – the year the current treaty expires – will come to 230 million tonnes. A large share of the demand for offsets under the EU Climate and Energy Package remains to be contracted, thus theoretically sustaining future demand and prices, it said.
"Ironically, the same issues that have hindered the project-based mechanisms may ultimately be the silver lining that sets the stage for a stronger post-2012 market," said Alexandre Kossoy, co-author of the report. "Nonetheless, clear
policy and regulatory signals must be provided urgently if a stronger global market is to emerge."
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Related links:
www.worldbank.org
