Dramatic growth in carbon market in 2005 – report

Environmental Finance, 2 March 2006 - Some €9.4 billion ($11.3 billion) worth of carbon was traded on the international market last year, up from an estimated €377 million in 2004, according to a new report.

Carbon 2006, from Norwegian consultancy and analysis company Point Carbon, found that around 362 million tonnes (Mt) of carbon dioxide (CO2) were traded in the EU Emissions Trading Scheme last year, and contracts were signed for reductions of 397 Mt of CO2e from Clean Development Mechanism (CDM) projects. The figures for 2004 were 17 Mt and 188 Mt respectively.

"Carbon is becoming like a real commodity market," said Kristian Tangen of Point Carbon, addressing a conference in Copenhagen on Tuesday. "We expect continued growth, as the EU ETS is gaining momentum.

"We also see massive growth in the CDM and [Joint Implementation, JI]," he added, referring to the Kyoto Protocol's two project-based mechanisms, which allow investors in projects in, respectively, developing countries and industrialised ones to earn carbon credits.

The figures were based on Point Carbon's transaction and projects database. The company also conducted a web-based survey, which attracted 800 respondents, and interviews with 67 selected market participants.

Tangen said that the company was surprised that the CDM still accounted for a larger volume of carbon than the EU ETS. "We were taken by surprise – we would have assumed a slower growth," he said.

The EU ETS, meanwhile, began operating in January 2005, and sets carbon dioxide emissions caps on around 12,000 installations across Europe, in the electricity generation, oil refining, building materials, pulp and paper and ferrous metals sectors. It is designed to help move the EU towards meeting its Kyoto targets, and has helped drive demand for credits from CDM and JI projects.

"It's role as a market driver cannot be exaggerated," Tangen said. "Through kick-starting CDM and JI, it has started a process that will lead to massive reductions in the long-term."

Within the EU ETS, some 79% of the volume was conducted bilaterally, via the broker market, with the remainder traded on exchanges, of which the European Climate Exchange is the largest.

The report did not provide hard figures on Point Carbon's expectations for growth in the carbon market in 2006, although it noted that more than 91Mt had traded in the EU ETS by 10 February.

It also featured the results of a survey of price expectations, with 51% of respondents expecting allowance prices to be higher in a year's time than in December (when the survey was conducted), when they traded just above €20/tonne. One in five expected them to be lower.