The carbon market has continued to attract capital and grow strongly despite the financial turmoil of recent months, according to new analysis, while the UN climate chief says the crisis offers unique opportunities for transitioning to a low-carbon world.
New Carbon Finance (NCF) in its quarterly Carbon Market Roundup. The analysts say the carbon markets around the world grew by 81 per cent over the first nine months of this year to reach $87 billion by the end of September.
NCF estimates that the size of the world carbon market will continue to grow strongly this year to reach $116 billion compared to 2007’s $64 billion. In volume terms, the estimate is that 2007’s 3bn tonnes of emissions transacted will climb to almost 4bn tonnes by the end of 2008.
The analysis was released on October 10 but its forecasts do not appear to take account of the near-meltdown conditions of that week which has seen unprecedented intervention by governments in the banking sector to underpin the global financial system.
Despite the financial crisis and prospects for recession in the developed world, NCF expects carbon markets growth to continue in 2009 “driven by a combination of tighter targets in Europe, higher carbon prices and increased maturity leading to greater churn rates”.
“The introduction of a federal cap and trade in the US would also have profound growth implications for the world carbon market,” the NCF analysis states. “Without a US scheme we project that the carbon market will reach $550bn by 2012 and a little over $2 trillion by 2020. With a federal US scheme these figures increase to $680bn by 2012 and over $3 trillion by 2020.”
The secondary market in Kyoto carbon credits, CERs, continues to grow strongly since it began in earnest in mid-2007. While 68 per cent of all carbon market transactions are in EUA carbon emission permits under the EU ETS, secondary CERs now account for 12 per cent of global transactions, up from 8 per cent last year.
The primary CER market – projects in development yet to issue credits – has fallen in both volume and value terms this year. The number is of new projects coming through the pipeline has not declined, but the average size of projects is now smaller, NCF says.
The secondary CER market has so far remained only loosely correlated to the world’s free-falling financial markets,
suffering only moderating declines in recent weeks. This has prompted some to suggest carbon markets might offer a safe haven for investors. Fund managers warned, however, investors would have to accept a whole new set of uncertainties that apply to relatively young carbon markets at the mercy of political negotiations over a future climate action.
The UN’s climate chief, Yvo de Boer, said on Friday that the credit crisis offered a unique opportunity to speed up the transition to a low-carbon economy in the developed and developing world. He said the crisis rebuilding of the world’s financial system on a more sustainable growth footing, creating policy to put greater onus on private sector competition in clean technology and its transfer to poor countries.
But "if available global capital is used primarily to re-float the financial world, we literally will sink the futures of the poorest of the poor”, Reuters reports de Boer saying at a news conference.
Related stories:
Ominous signs for clean tech sector?