Carbon trading increases in first half of 2009

Trading volume is up, but it's largely thanks to activity in Europe.

The headline news looks good: The global carbon market in the first half of 2009 grew by 124% in terms of volume and by a healthy 22% in terms of value, according to Point Carbon, a provider of market intelligence and advisory services for the energy and environmental markets.

The financial value of the global carbon market rose to €46 billion ($65 billion) in the first six months of the year.

However, one of the reasons for the increased trading is because the global financial crisis is prompting people to sell their surplus allowances.

"Prices are lower due to the economic slowdown but volumes are much higher as many depressed industry sectors in Europe have decided to trade their surplus carbon allowances illustrating how the economic slowdown is, in effect, increasing market activity in the carbon sector," said Henrik Hasselknippe, global head of carbon analysis at Point Carbon Trading Analytics and Research.

The Kyoto Protocol on climate change, which entered into force in February 2005, resulted in the launch of the European Union's Emissions Trading Scheme (EU ETS), which is the world's first international emissions trading scheme. It works on a cap-and-trade basis, where the total allocation is set at the start of a trading period.

It is this scheme -- the EU ETS -- that remains the dominant market, generating some 75% of the total global carbon market volume in the first half of 2009, worth €39 billion, which is up 29% on the same period last year.

The next largest segment of the global carbon market, the Clean Development Market, which involves many projects out of Asia, generated €5.4 billion in volume, but that was down 28% compared with the same period last year. Volumes traded within the Primary Certified Emissions Reductions (CERs) market fell by 36% compared with the first half of 2008. CERs are project credits generated from emission reduction countries in developing countries.

"These reductions in volume and value reflect the fact that the economic downturn has seen future demand for (and supply of) these types of credits declining in favour of allowances which have already been issued. In addition, the project market appears uncertain given the lack of clear policy signals emerging from the current round of climate negotiations set to conclude in Copenhagen later this year," noted Hasselknippe.

World leaders will meet in Copenhagen in December to discuss if and how they will continue the Kyoto Protocol.

For more on carbon trading see our upcoming July issue of FinanceAsia.

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