as a Commodity
The Kyoto Protocol’s efforts to mitigate climate
change have resulted in an international carbon market
that has grown tremendously since the entry into force
of the Protocol in 2005. While previously, the relatively
small market consisted mostly of pilot programmes either
operated by the private sector or by international financial
institutions such as the World Bank, the market experienced
strong growth since 2006. The total traded volume of emissions
increased from 1.6 billion tons of CO2 in 2006 to 4.9
billion tons in 2008, reaching a value of €92 billion
in 2008, with the average world carbon price at around
€19 per ton of CO22).
the international carbon market has expanded to include
a wide variety of project types and market partici¬pants,
it has to date been dominated by the EU
Emissions Trading System (ETS)
and the CDM.
EU emissions trading scheme continues to account for around
two thirds of the global carbon market volume (3.1 bn
tCO2) and around three quarters of the value (€67bn).
One ton of CO2 traded at between €13.5 and €29.43).
In December 2008, European institutions reached an agree¬ment
on the EU’s new energy and climate package, which
includes a revision of the EUETS. Key elements include
the cap, the credit limit, the level of auctioning and
new sectors and gases included. With the agreement on
the package, the EUETS took a significant step towards
better long-term stability.
CDM market increased dramatically to 1.6 bn tCO2 worth
€24bn in 2008, making up a third of the physical
and 26% of the financial market. The UN international
transaction log was, on 16 October 2008, linked with the
EU emissions trading registry, which allowed for CER credits
to be transferred to the EU market. This represented an
important step for the CDM market as it reduced the delivery
risk into the EUETS. In addition, the new EU climate package
has provided certainty about the overall use of CER’s
in the EUETS until 20204).
The JI market, while still small, also finally started
to take off in 2007, nearly doubling in volume to 38 MtCO2
and more than tripling in value to €326 million.
In 2008, according to World Bank statistics, the JI global
market reached about 30 Mt CO2 in volume, with a face
value of €200 million.
key elements are shaping global carbon markets in 2009:
the economic downturn, the UN climate negotiations and
developments in the US. Experts predict that the economic
crisis will result in a leveling off of the carbon trading
activity in 20095). While the EUETS will remain the dominant
market, both CDM and JI markets are likely to be affected
by a lack of investments, as well as uncertainty over
the structure of the post-2012 carbon markets and declining
emissions in many countries6). However, many experts believe
that this downturn will be temporary and that investment
in CDM will pick up again later in the year.
that the price for carbon is high enough, the carbon market
is a powerful tool for attracting investment, fostering
cooperation between countries, companies and individuals
and stimulating innovation and carbon abatement world¬wide.
In theory, at least, the price of carbon should more or
less directly reflect the rigorousness of the economy-wide
caps of the Annex B countries. The reality is, however,
more complicated, since there is only one real ‘compliance
market’ at present, which is the EUETS, while the
CDM and JI markets are just getting started. It is also
not clear what role Canada, Japan and Australia will play
in the carbon market during the first commitment period;
and of course, the original conception and design of the
carbon market was predicated on the fact that the United
States would be a large buyer, which has not turned out
to be the case, at least not for the first commitment
negotiating the post-2012 climate agreement seem committed
to ‘building carbon markets’ and ‘keeping
the CDM’, but it appears certain that the CDM will
undergo changes in the post-2012 framework. Figure 2 shows
a survey of carbon market practitioners conducted by Point
Carbon at the end of 2008 about the price of carbon in