Global Carbon Trading Stalls, but Voluntary Market Offers Bright Spot
<p>Regulatory uncertainty and a backlash against cap-and-trade schemes contributed to a stagnant carbon market last year.</p>
The global carbon market sputtered last year for the first time since 2005 as regulatory uncertainty sapped demand and investment.
A small silver lining can still be seen in the market for voluntary carbon offsets: Last year brought higher transaction volume driven by sustainability efforts and forestry projects, according to two reports published this week.
The World Bank released its annual snapshot of the global carbon market on Wednesday at Carbon Expo 2011 in Barcelona. Ecosystem Marketplace and Bloomberg New Energy Finance partnered to unveil a separate assessment (PDF) of the voluntary carbon market on Thursday, based on non-compliance carbon offset purchases.
Overall, the global carbon market was worth about $141.9 billion in 2010, down from $143.7 billion in 2009. That 1 percent decline may seem small, but it's noteworthy in light of the market's meteoric rise. Between 2005 and 2008, carbon markets more than doubled in value every year; growth slowed to just 6 percent in 2009 and the market contracted in 2010.
The World Bank notes that even as those markets are losing steam, global warming is picking up its pace, with 2010 being the warmest year on record.
The World Bank cited several reasons for the stall:
1. Post-Kyoto Uncertainty. There is still no resolution on the future of the Kyoto Protocol, which expires in 2012. This is taking a toll on the Clean Development Mechanism (CDM) market, where emissions reduction projects in developing nations earn credits sold to industrialized countries to meet their Kyoto commitments. The value of the primary CDM market sank 44 percent.
2. Cap-and-Trade Loses Steam. Emissions trading schemes are facing stiff resistance in some regions, including the U.S., Australia and Japan, where governments have been wrestling over cap-and-trade legislation. Even in Korea, which adopted a law that would include cap-and-trade program, has postponed the scheme to 2015, from early next year.
3. Lingering Recessionary Effects. Though many economies around the world picked up in 2010, demand isn't where it could be. Lower emissions mean less demand for carbon trading.
The second report issued this week on the state of carbon markets, by Ecosystem Marketplace and Bloomberg New Energy Finance, suggests that the voluntary market fared better in 2010. Even though last year saw the Chicago Climate Exchange -- one of the market's major players -- shut its doors, the groups estimated the value of voluntary market at $424 billion, up 2 percent from $415 million in 2009. Trading volume surged 34 percent.
The report also notes:
• The average price for a ton of carbon dioxide equivalent (CO2e) on the over-the-counter market declined to $6 in 2010, from $6.50 the year before.
• Forestry projects, also known as Reducing Emissions from Deforestation and forest Degradation (REDD), accounted for 29 percent of transactions, in part due to improved methodologies experts say will boost large-scale efforts.
• The industry largely believes the voluntary carbon market will continue improving in 2011 as the economy rebounds and the market matures. "In comparison," the report said, "suppliers were overly cautious in their estimate of the size of the 2010 market -- underselling its performance by a full 47 million metric tons CO2e (MtCO2e) less than was actually tracked."