Global carbon market to slump 32 per cent

The size of the global carbon market will fall 32 per cent in 2009 to €62.6bn (£55.7bn) as the economic recession continues to dampen demand for carbon credits, according to the latest projections from industry analyst Point Carbon.

The global trade in officially sanctioned carbon credits such as the EU's EUAs and UN backed CERS enjoyed a record year during 2008 with the market worth €92bn.

However, the price of both EUAs and CERs has more than halved in recent months as industrial output has slumped and companies covered by the EU emissions trading scheme (ETS) have found themselves with excess credits that they can now sell.

According to new research released this week by Point Carbon, the fall in prices means that the value of the market will contract for the first time in its history this year, despite predictions that the volume of credits traded will increase 20 per cent in 2009 to 5.9 billion tonnes.

Endre Tvinnereim, senior analyst at Point Carbon, said that the increase in trading volumes would be primarily driven by industrial firms selling off EUAs that they no longer require as a result of the impact of falling industrial output on their emission levels.

The report, Carbon Market Analyst: Outlook for 2009, predicts that while trading volumes in the ETS will rise 24 per cent this year, the value of the market will contract by a third of €45.2bn.

The outlook for the UN's Clean Development Mechanism (CDM) and Joint Implementation (JI) carbon offset schemes is graver still with the report predicting that the global economic downturn and tightening credit conditions will result in a significant fall in the number of new emission reduction projects coming online. It estimates that as a result the number of CERS being generated by CDM projects will fall 45 per cent on last year.

However, Tvinnereim predicted there were still reasons to be optimistic ab out the market, predicting that it will recover swiftly once industrial output begins to climb again and noting that this year should see significant expansion in emerging carbon markets in the US and Australia.

"We are predicting a very strong upturn in the size of the US RGGI [Regional Greenhouse Gas Initiative] as it is its first full year of compliance operation, " he said. "And we'll see the market outside Europe expand."

According to the report, the RGGI, which covers 10 eastern US states, will see 339 million tonnes traded this year, which is an almost five-fold increase on 2008.

Meanwhile, Australia's federal Carbon Pollution Reduction Scheme market is expected to see 24 million tonnes transacted this year, and the market in Assigned Amount Units (AAU), which enables countries with emissions lower than their Kyoto targets to sell surplus allowances, is forecast to increase five-fold from 18 million tonnes last year to 95 million tonnes in 2009.