XML FeedsGlobal carbon market shrinks in Q3, but activity in North America and in the international credit market sees continued growth
By CostBenefit on Nov 6, 2009 | In General, Climate Change GHG Carbon CO2, Companies,CSR,Business,Finance, Newspaper/Mag/TV/Media Story, Contamination Cost, Press Release (May be biased) | Send feedback »
Link: http://carbon.newenergyfinance.com/download.php?n=GCQ_2009_091.pdf&f=fileName&t=NCF_downloads
According to the latest analysis by New Energy Finance, the value of the world carbon market fell by 21% from Q2 to Q3. This is largely due to a drop in activity in the European emissions market compared to Q2. Traded volumes in the North American and international offset market have continued to increase, although not enough to compensate for the reduction in volumes in Europe. By the end of 2009 we expect the global carbon market to be worth $122bn – a 3% increase on 2008 – and $1.9tr by 2020.
Key messages from New Energy Finance’s Q3 analysis of the world carbon market are:
1. They expect the value of the world’s carbon markets to reach $122bn by year end 2009 and $1.9trillion by 2020. Their forecast for 2009 marks a significant slowdown in year on year growth, given that the market traded $119bn in 2008 and a mere $65bn in 2007. This slowdown is largely due to the recession, which has lowered demand for emission allowances and reduced prices across all carbon products relative to 2008. Volume-wise however the market in 2009 is likely to post a 107% increase over 2008 to trade 7,588MtCO2, driven by increased liquidity across all markets. Their longer term projections indicate that the global carbon market could be turning over up to $1.9 trillion per year by 2020, pending safe passage of cap-and-trade legislation in the US, Australia and Japan.
2. The EU Emissions Trading Scheme (EU ETS) remains the hub of the global carbon market, but other markets are making inroads. The EU ETS still account for 71% of emissions traded and 83% of value traded in the world carbon market. This share has however declined from Q2 when the EU ETS represented 88% of the world market by value and 80% in terms of volume. The main cause of this reduction in market share compared to Q2 was the identification of a VAT carousel fraud - primarily linked to Bluenext, the French based exchange which had carried the majority of the EUA spot market. Between April and May 2009 traded spot EUA volumes increased by 63% on Bluenext. At its peak daily traded volumes hit 19.2 million spot contracts on 2 June, relative to a daily average of 2.2 million transactions for the rest of the month. Following identification of the fraud, French authorities took action on 8 June to exempt both EUAs and CERs from the 19.6% VAT. Trading volumes subsequently fell off, and June trading figures were down 57% on May.
3. The market for international offsets registered under the UN (Certified Emission Reductions, or CERs) gained ground for the first time this year. The volume of secondary CERs traded increased by 36% on Q2 with an increase in value of 46% as CER prices held their ground throughout the period. Traded volumes of secondary CERs have tended to increase quarter on quarter since the start of 2008 as more CERs are gradually issued by the UN and exchanges have introduced spot as well as futures products. The Bluenext exchange launched its spot CER contract in Q4 2008, followed by the European Climate Exchange in Q1 2009. Interest in CERs has also picked up for speculative reasons, as near term CER supply concerns have increased interest in December 2009 CERs. This has resulted in higher CER prices in 2009 than in future years and increased trading activity.
4. The US carbon market increased in volume by 8% over the last quarter, but this run may not last. The US Regional Greenhouse Gas Initiative (RGGI) has seen increased levels of trading activity in Q3, following on from the rapid ramp up in trading activity across RGGI in Q2. In anticipation of the 5th auction of RGGI credits, trading activity increased slightly, by 8% on Q2. This is in spite of prices decreasing, leading to a decline in the overall value of the market by 10%. Trading activity increased on the approach to the 5th auction held on 9 September, with some 11,348 short tons(st) traded on the actual day, 54% higher than the daily average traded through August 1. RGGI prices however fell in anticipation of the auction and immediately following the results. Average traded prices hit $2.56/st in September falling 24% from that in June, at $3.39/st. In spite of this growth, the future of the US RGGI market is uncertain. New Energy Finance expects to see a further decline in price, towards the auction reserve price ($1.86/st) as we are unable to identify any bullish factors for the RGGI market. This in turn could lead to a reduction in general market activity.
Guy Turner, Head of Carbon Market Research at New Energy Finance said “These figures show that the carbon markets have not been immune from the recession. However, pending the passage of legislation in the US, Japan and Australia – all of which are within reach – the global carbon market should see continued growth post 2012.”
New Energy Finance Limited; www.newenergyfinance.com
Press Release dated October 26, 2009
http://carbon.newenergyfinance.com/download.php?n=GCQ_2009_091.pdf
