Carbon trading will survive the credit crunch

Given the global economic downturn, one might expect participants at a carbon trading conference to be downbeat.

After all, an alarming 60% of respondents to a recent carbon market survey, all of whom work within companies with carbon trading operations, report having scaled back, delayed or cancelled investments in projects as a consequence of the slowdown. The survey was conducted by Point Carbon, a provider of market intelligence, news, analysis and advisory services, and the organisers of the Carbon Markets Insights 2009 conference in Copenhagen this week. The survey garnered 3,319 responses from people in 116 countries.

Illustrating how the downturn has resulted in real reductions in industrial activity, the respondents reported a reduced need, versus a year ago, to buy European Union Allowances (EUAs) in addition to their full credit limits. The percentage of respondents reporting they have surplus EUAs to sell has increased to 24% this year from 15% last year.

However, almost 90% of participants in the Point Carbon survey say they believe that the US will embark on its own cap-and-trade style emissions trading scheme by 2015. And this was repeatedly put forth as a likely outcome in the conference as well. This optimistic outlook is down to the election of President Barack Obama -- his name is invoked at nearly every session at the conference, as he is far more open to discussions about a global solution than his predecessor.

Several conference speakers pointed to the new US president's draft budget plan. It has a revenue line item from a federal cap-and-trade scheme amounting to $79 billion in 2012 and $646 billion by 2019. Such a proposed allocation is good news for market participants even if it is the source of a few jokes. "This must surely be one of the first instances in which there is a revenue line item in a budget plan for a scheme that still needs to have legislation developed and passed," writes Barclays Capital analysts in their March 6 Monthly Carbon Standard report.

Meanwhile, hopes for a long-term recovery are high -- with participants at the conference noting that carbon trading markets are behaving just as the debt and equity markets and a rebound is inevitable.

Perhaps the positive outlook at the conference this week is down to where it is being held -- in Copenhagen, at a convention centre boasting a windmill out front, trees inside the centre and an abundance of natural light to soothe the soul. Holding an event in a carbon emissions reduction-friendly centre is a good start. (And for those who have questioned the sensibility of folks flying to a conference, fear not. The carbon asset management company South Pole is the exclusive climate neutral sponsor of the conference. It used Gold Standard verified emission reduction credits from the Everbright Landfill Gas to Energy project to offset the emissions of the conference. The project is located in Jiangsu province in China, and utilises landfill gas for electricity generation.)

But there is still a touch of irony here. Respondents to Point Carbon's survey are not optimistic that the United Nations' climate negotiations, which will be held in Copenhagen in December, will produce a global climate agreement. Just 59% of survey participants expect an agreement to be reached, against 71% thinking this was possible last year. Point Carbon experts say they think the global economic slowdown, as well as the slow progress made in the post-2012 negotiations, may be to blame for this pessimism.

Delegates at the conference are not keen to forecast the outcome but rather are calling upon political leaders to try to understand one another's views. And they are remarkably upbeat about a process that redefines the term bureaucratic. After all, a year ago many market participants said that a lack of an agreement could destroy the market. Now participants are soldiering on, confident that while resolutions may not be easily achieved this year, the world is moving in the right direction and, as a result, a carbon market of some shape or form is here to stay.