Global carbon market to top €121bn in 2010

The global carbon market will grow by a third during 2010 to €121bn, according to a new report released today by analyst firm Point Carbon.

The research predicted that the EU Emissions Trading Scheme (ETS) will remain the world's largest carbon market, accounting for 64 per cent of all transactions by volume and totalling €95bn ($134bn) in value, up 34 per cent from €69bn ($100bn) during 2009.

Similarly rapid expansion is expected from the United States' Regional Greenhouse Gas Initiative (RGGI), a mandatory cap-and-trade system covering the power sector for 10 North Eastern and Middle Atlantic states. Point Carbon predicts 985m tonnes of CO2 will be traded through the RGGI during 2010, increasing the value of the market 29 per cent year-on-year to $2.2bn (€1.6bn).

As a result the RGGI is expected to account for 12 per cent of the global carbon market by the end of the year, further fuelling optimism that the US can emerge as a major player in the carbon trading sector, almost regardless of whether Congress passes legislation enabling a national cap-and-trade scheme.

"The overall picture is that cap-and-trade systems such as the EU ETS and RGGI will see stable or growing volumes," observed Endre Tvinnereim, senior analyst with the Point Carbon.

However, he added that the market in projects that generate carbon offsets under the UN's Clean Development Mechanism (CDM) scheme are "suffering from post-2012 uncertainty".

The market for Certified Emissions Reductions (CERs) from the CDM is still expected to grow 11 per cent this year to €22bn, but Point Carbon said that the rate of expansion was slower than had been anticipated in the run up to last month's Copenhagen Summit.

CDM project developers had hoped that the Copenhagen Summit would deliver a clear indication on how the scheme would be reformed when the Kyoto Protocol expires in 2012. However, any reforms are now unlikely to be finalised until the end of this year at the latest and, as a result, developers are reluctant to invest in emission reduction projects when they remain unsure if the CDM will continue in its current guise or whether they will be able to issue carbon credits.

Beyond 2010, the report notes that a major driver for global carbon markets will be the creation of a US emissions trading system, which will most likely see American trading activity eclipse that of the EU within a few years.

But the analyst group added its voice to those observers who are increasingly doubtful the Senate will pass the necessary legislation, predicting that it has only a one-in-five chance of being passed this year.