Updated: Global carbon market moves closer with Obama victory

Investors in the carbon market are likely to be celebrating after the historic election of Barack Obama as US president brought the prospect of a global carbon market a major step closer to reality.

Both Obama and his rival for the presidency, John McCain, had pledged to introduce a Federal carbon emissions cap-and-trade scheme across the US. But Obama's victory coupled with the Democrat's expected dominance of the Senate and House of Representatives brings with it the prospect of a more ambitious and far-reaching carbon market than that proposed by McCain.

The president-elect is now expected to begin work on developing a cap-and-trade market modelled on the existing EU scheme that would aim to cut emissions to 1990 levels by 2020 and then deliver deep reductions of 80 per cent by 2050.

The introduction of a US-wide carbon cap-and-trade scheme would represent a major boost to both the size and liquidity of the global carbon market, according to Endre Tvinnereim, an analyst at research firm Point Carbon.

He added that any US scheme would likely be linked to the EU market and similar proposed schemes in countries such as Australia and Japan, raising the prospect of carbon credits being traded round the clock in formal cap-and-trade schemes and laying the foundation for a genuinely global market.

"The aim of carbon trading is to deliver emission cuts at the lowest possible cost, so it would make sense to link markets in different regions and allow trading between them," said Tvinnereim.

Alessandro Vitelli of analysts IDEAcarbon agreed that a US cap-and-trade scheme would form a key stone of a global market. However, he warned that anyone expecting rapid progress would be likely to be disappointed.

"You are unlikely to get a Federal US scheme within a two year time frame," he said. "The legislation needs to be finalised, all the plants included in the scheme will need to be assessed, legal challenges from affected industries will need to be faced down, and a way to incorporate the existing regional US trading schemes will need to be developed. I wouldn't expect the scheme to launch much before 2012."

Experts also expressed optimism that an Obama victory made a deal at next year's UN climate change negotiations in Copenhagen more likely, noting that the President Elect is proposing a climate change package at least on a par with that being put forward by the EU.

But Vitelli again offered a word of caution, warning that the chances of a post-Kyoto deal being agreed still largely depended on the willingness of developing countries to agree to emissions targets.

"Obama is much more likely than his predecessor to make a morally-based statement recognising that the developed world is primarily responsible for climate change and it is therefore incumbent on us to lead the way back down," he said. "But at the same time, I don't think that he'll let up the pressure on developing countries to sign up to tangible commitments."