Friday, June 17, 2011

Carbon traders’ confidence still recovering from Copenhagen
Market sentiment is recovering slowly after the lows post Copenhagen and traders admit that future carbon credit prices alone are not expected to be high enough to reach the 2 degrees goal or EU’s 80% GHG emission reduction target.

The views of traders in the annual IETA Green House Gas (GHG) market sentiment report conducted by PwC, and released at the start of Carbon Expo 2011 in Barcelona, paints a gloomy picture, showing that respondents thought that prices need to be over €60 to reach the EU’s 80% reduction goal, but average prices expected in Phase 3 are only €30.

Opinion is still divided on whether Cancun had a positive impact on the carbon markets and looking forward, only piecemeal progress is expected in Durban, but not the implementation of legally-binding emissions targets.

Richard Gledhill, partner, carbon markets and climate change services, PricewaterhouseCoopers LLP said:

“In any market, uncertainty undermines investment and trading volumes. It would be naive to expect that carbon markets are any different, but the reality is that continued uncertainty is undermining a key plank in our bridge to a low carbon economy.”

“Clearly, market sentiment hasn’t recovered since Copenhagen. Restrictions in the EU and lack of progress in the climate negotiations will limit investment in low carbon projects”

Opinion was split equally, on whether Cancun’s outcome was positive for the carbon markets. Not surprisingly, the reaction to Cancun was less negative than to the previous summit in Copenhagen. Despite the proposal for REDD+, reforms to the CDM and new mechanisms, unless there is demand from national or regional schemes growth in these markets will be limited. The survey also found that the spate of carbon frauds and thefts has knocked confidence in the market.

However, price and volume expectations were bullish. Survey respondents generally expect trading volumes to be up during the period 2012-2020, though sentiment is mixed. Nearly three quarters of respondents thought that EU allowance volumes would increase.

In the secondary CER market, 56.5% of respondents think volumes will increase, whereas 24.9% think the opposite, possibly reflecting a feeling that EU eligibility restrictions, and the emergence of new markets and executive board reform, are pushing the market in opposite directions. Over half the respondents believe that the EU eligibility restrictions will have some, or a significant, negative impact on CDM investment.

Henry Derwent, president and CEO, IETA, commented:

“Emissions trading had a hard time in 2010. A combination of the recession, slow progress with the international negotiations, and pessimism about the US engagement with climate policy have taken their toll on the market confidence.”

“But in the minds of businesses, the ideas of a price on carbon and flexibility in the application of carbon regulation are still very much alive.”

“This is our sixth survey of the views of our membership and other major players in the carbon market worldwide, and we believe these results provide an important barometer of carbon market opinion - not only of past and current performance, but expectations of the future from the people who will shape that future.”

The IETA Sixth Annual GHG Market Sentiment Survey had 328 respondents. Respondents were primarily based in Europe and North America, with 54% and 17% respectively. A further 8% of respondents are based in China and India, with 6% based in Central and South America. The remaining 15% is split across regions including Africa, Eastern Europe and Russia, Japan, South Korea and Australasia.

Download the IETA Annual Carbon Market Sentiment Survey

PricewaterhouseCoopers (PwC)
Press Release dated June 1, 2011

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