Isra-Mart srl: Carbon markets surf price fluctuations to top €50bn

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The value of the global carbon market has increased, hitting €50bn during the first half of 2011, despite wild price volatility during the first six months of the year.

The value of the market expanded five per cent year-on-year, according to a new analysis published today by Thomson Reuters Point Carbon that also reveals the volume of carbon credits traded fell five per cent on the same period last year.

The EU's emissions trading scheme (EU ETS) maintained the largest segment of the global market, exchanging a total €41bn of EU Allowances (EUAs) from January to the end of June, although the volume of trades was down seven per cent on 2010.

"Despite the overall reduction in the volume of carbon traded during the first six months of this year, the value of the transactions still increased due to higher carbon prices, indicating that global carbon markets as a whole continue to perform well, despite significant global economic turmoil," said Carina Heimdal, author of the report.

"On the policy side, we continue to think that the most likely outcome of EU discussions on emissions reductions targets will result in a 25 per cent reduction target for 2020, and expect a decision on this in the first half of 2012 during the Danish EU presidency."

The UN's Clean Development Mechanism (CDM) was the second-largest carbon market, worth around €8.3bn in the first half of the year. The UN-backed carbon offsetting scheme registered six per cent and four per cent increases in volume and value respectively over the period.

The rush to register projects before possible disruption to the scheme in 2013, which could occur if an international climate change deal is not reached, saw around 20 per cent more projects start the CDM validation process since January than during the same period last year. Around 400 projects have been registered so far this year, up 54 per cent on the same period last year.

Point Carbon said that ongoing price fluctuations in the global carbon markets had been driven by a raft of factors, including the EU's draft Energy Efficiency Directive, the refusal of new EU president Poland to extend emissions reduction targets beyond 20 per cent, worries over levels of Greek debts, and the fall-out from the Fukushima crisis.

Despite this volatility, Heimdal said the plans for an Australian carbon market and South Korea's adoption of sector-level emission reduction targets should ensure the carbon market will continue to expand in the coming years.

"Global carbon markets over the first six months of this year have been buffeted by major global events, causing considerable price volatility," she added. "Despite these events, however, the overall value of global carbon markets was up and encouraging developments in emerging environmental markets, such as Australia, South Korea and California, mean that we predict the size of global carbon markets will continue to grow over the next years."