Isra-Mart srl : Global carbon: volumes decline but Europe holds its own

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Isra-Mart SRL news:

Analysis by Bloomberg New Energy Finance shows that the quantity of carbon traded across the world fell by 14% in Q3 2010 (1.5bn tonnes of CO2) compared to the same quarter last year (1.8bntCO2). In terms of dollar value the market fell by 9%, with Q3 2010 posting $28bn compared to the same quarter last year ($31bn).

Over the first three quarters of the year the value of world carbon transactions fell by 8% to $91bn and volumes by 10% to 5.3bntCO2, compared to the same period for 2009. Compared to Q2 2010, the value and volume traded in Q3 2010 has fallen by 28% – but Q3 is always quieter than Q2 because of the summer lull.

The single biggest factor behind the decline in activity from 2009 is the collapse of trading in the Regional Greenhouse Gas Initiative (RGGI) scheme in the US. In the first three quarters of 2009, RGGI accounted for 11% of world carbon transactions at 656MtCO2 (including auctioned volume). This all but ground to a halt in Q3 2010 due to the systematic surplus in the scheme combined with the lack of progress on a US federal cap-and-trade programme, which could have provided an outlet for undervalued RGGI carbon allowances. RGGI turned over only 36Mt in Q3 2010 – a 90% reduction on Q3 2009’s figure of 327Mt, and over the first three quarters of 2010 represented just 3% of world volume.

The decline however is not uniform. Trading activity in the EU European Emissions Trading Scheme increased in the third quarter of 2010 from a year earlier, rising by 8% (or 96MtCO2). The volume of carbon allowances traded in the EU ETS in the first three quarters of 2010 has been virtually unchanged from 2009 at 4.2bntCO2.

Global trading volumes have also been weighed down by uncertainty in the international carbon market – the market for carbon credits created under the Clean Development Mechanism of the Kyoto Protocol. Bloomberg New Energy Finance estimates that transactions in these credits (on both the primary and secondary markets) in Q3 2010 fell by 16% (to 239MtCO2) compared to the same quarter in 2009. This contraction is due to the prolonged uncertainty over a post-Kyoto international framework and the role of the CDM, and pending restrictions on their use in the EU Emissions Trading Scheme.

However, in the year to date in 2010 the volume of carbon credits transacted under the CDM has still been up on 2009 by 7%. This is mainly due to a strong performance in the first half of the year.

In spite of the reduced trading volumes overall in Q3, Bloomberg New Energy Finance maintains its forecast that the value of the world carbon markets will be only slightly down in 2010 as a whole at $122bn, compared to $127bn in 2009. The value will be driven by continued strong trading activity and firming carbon prices in the EU ETS.

Guy Turner, director of carbon market research at Bloomberg New Energy Finance, commented, “These data show that Europe continues to be epicentre of the world carbon market. In spite of the uncertainty in global climate policy we expect the value of the world carbon market to end 2010 only slightly down on last year at $122bn”.