Recession helps double global carbon trading – Point Carbon
08 July, 2009
Volumes in the global carbon markets jumped 124% in the first half of this year, compared with the same period last year, according to Point Carbon – with the EU Emissions Trading Scheme (ETS) accounting for the bulk of the growth, as recession-hit industrials sold allowances to raise cash.
Trading in the EU ETS – which accounted for 75% of global carbon volumes – was up 140%, to 3.1 billion tonnes of carbon dioxide (CO2), although the value rose just 39%, to €39 billion ($54 billion), given lower carbon prices compared with last year.
The Norway-based analysis firm predicts that volumes are likely to remain strong for the rest of the year, despite a less-dire economic outlook, as emitters begin trading forward to hedge their emissions for the next phase of the EU ETS, which begins in 2013.
However, the news is less good for developers of emission reduction projects outside the EU – while the volumes traded of certified emission reductions (CERs) generated by Clean Development Mechanism (CDM) projects were up 28% year-on-year, their value fell 28%, to €5.4 billion.
While total CER volumes rose, the volume of primary CER transactions – purchases of CERs directly from projects shrunk 36%. Volumes were already down last year, according to World Bank numbers, dropping 30% between 2007 and 2008. The smaller market in credits from Joint Implementation (JI) projects – mainly sited in former Soviet-bloc countries – fell even more sharply in value terms, down 42%, to €161 million.
Last year, prices for secondary CERs rose above €20 and EU allowances touched €30. However, they respectively plumbed lows this year of €7 and €8, although they have since recovered somewhat.
The volume of trading in the EU ETS has surprised analysts – with Point Carbon estimating at the start of this year that a total of 3.8 billion tonnes would change hands in the whole of 2009.
However, Henrik Hasselknippe, Point Carbon’s global head of carbon analysis, told Carbon Finance that the firm expects “to see similar volumes [in the EU ETS] in the second half of the year”. He said that industrial emitters still have surplus allowances, despite their heavy selling earlier this year, because the economic slowdown means they are likely to emit less than expected.
While sales of allowances from these sectors – such as steel and cement – are likely to decline as the global economy begins to recover, Hasselknippe argued that power companies will increase their trading to hedge emissions from 2013. From that date, the sector will no longer receive free allowances, requiring them to trade more actively.
Point Carbon gives a number of reasons for the accelerating slowdown in the Kyoto project markets, noting that “CER and JI markets are particularly exposed to the economic slowdown ... as a result of lower emissions among project hosts – a reduction that depresses supply – and lower emissions in buyer countries – with lower demand as a result.”
Uncertainty about how – and indeed if – the CDM and JI will be incorporated into a post-2012 climate change agreement is also weighing on investment, Point Carbon notes. Sales of Assigned Amount Units – the emissions unit allocated directly to governments under Kyoto – are also reducing demand for CERs and ERUs.
Finally, the company notes that “cap-and-trade schemes issue actual permits to pollute, while mechanisms such as the CDM and JI rely on current finance to produce forward streams of carbon units. Thus, the economic slowdown appears to be fostering a focus on tangible allowances and less appetite for investing in future credits.”
