Carbon traders pessimistic over global expansion

Carbon traders are increasingly sceptical that major new cap-and-trade schemes will emerge over the next five years, although they remain bullish over the prospects for existing carbon trading schemes such as the European emissions trading scheme (ETS).

That is the central conclusion of a major annual survey of nearly 4,800 carbon market participants operating in 118 countries undertaken by analyst Point Carbon.

Taken prior to Republican senator Lindsey Graham's declaration that plans for a US cap-and-trade scheme were "dead", the poll revealed that confidence in the prospect of a national US carbon market was already dwindling, with just 61 per cent of respondents predicting that a US scheme would be in place by 2015, down from 81 per cent last year.

Similarly, there was growing scepticism that the UN will deliver a binding international climate change treaty at the end of this year at its summit in Cancun, with only 37 per cent of respondents predicting a deal will be reached, a fall on the 59 per cent who were confident a deal would be delivered at last year's Copenhagen summit.

Dwindling confidence that the global carbon market will expand as originally anticipated led carbon traders to downgrade their estimates for the price of carbon in 2020 from last year's prediction of €35 (£32) a tonne to €31 a tonne.

Endre Tvinnereim, senior analyst at Point Carbon and one of the authors of the report, predicted that the weaker price outlook was likely to undermine some clean technology investments. "To what extent this anticipated reduction in carbon prices may affect investment in the longer term is not yet clear, but 47 per cent of respondents representing companies covered by the EU Emissions Trading Scheme (ETS) cited the long-term carbon price as a decisive factor for new investment," he said.

However, pessimism about the prospects for the global market was offset by a gathering sense that the EU ETS is finding its stride and predictions that Japan would soon launch its own national emissions trading scheme.

Eight out of 10 respondents said they expected a national Japanese cap-and-trade scheme to be in place by 2015, up from just 61 per cent a year ago.

Meanwhile, for the first time a clear majority of respondents to the survey said the EU ETS has caused visible emission reductions in the companies they represent. Moreover, 43 per cent of respondents said the EU ETS is the most cost-effective mechanism for reducing EU emissions, against 20 per cent who disagree.

"Failure to get a deal at the Copenhagen COP in December and the Obama administration’s failure to land a US cap-and trade programme may have knocked the momentum in carbon markets," observed report co-author Kjetil Røine. "But the survey also confirms that the EU ETS gains in maturity each year and we predict that it will continue to grow both in volume and value this year and next."