Thereafter global carbon markets to enter first decline in volumes since EUETS was launched

Oslo (22 February 2012)

This year, the volume of carbon traded globally will continue to grow, by 13%, reaching 9.5 Gt CO2e, despite depressed prices, according to analysis by Thomson Reuters Point Carbon, the leading provider of market intelligence, news, analysis, forecasting and advisory services for the energy and environmental markets.

Most of this year’s growth in volumes will come from the 7bn EU Allowances (EUAs) and 2.2bn Certified Emissions Reductions (CERs) that will change hands this year, up from 6bn and 2bn in 2011. Activity within the EU ETS will be higher as utility hedging and portfolio management transition from phase 2 of the scheme, which ends this year, to phase 3. From phase 3, CERs from industrial gas projects are banned, which should lead to higher secondary trading of the credits this year.

However, come next year, volumes traded on global carbon markets will stall as the market awaits the next wave of emission reduction programmes in 2015 and Thomson Reuters Point Carbon forecasts the overall value of the markets will drop this year to €61bn ($80bn), a 36% reduction compared to 2011.

“Current price levels in the main carbon market segments – the EUA and CER markets – are low, and we expect them to remain depressed for some time. However, we expect that policy uncertainty, especially related to the “set-aside” proposal, will return as a key driver of EUA prices this year. Two different documents serve to renew calls to cut supply in the European carbon market. Both will need the approval of the member states, which we think will be difficult to get”, said Carina Heimdal, Editor, Crediting Mechanisms and Emerging Carbon Markets, Thomson Reuters Point Carbon and author of the analysis . “Next year activity in the secondary CER markets is set to drop by 40% while in the primary credit market we foresee limited activity for the next three years”, she added.

“The picture is not entirely gloomy, however”, Heimdal said. “Although within Europe, prices are low, look to be heading downwards and the market will shrink, globally, emerging carbon markets are growing, providing some optimism for the long-term, especially from the markets in North America, which will see the highest growth in relative terms, with traded volume reaching nearly 200 Mt in 2012, twice the previous year’s, worth an estimated €607 million”.

Heimdal added, “We expect both California and Quebec to ramp up their pre-compliance activity ahead of the launch of two new markets next year and the review of the North American Regional Greenhouse Gas Initiative (RGGI) is likely to lead to a tightening of the cap for the second compliance period, from 2012 to 2014”. She also points to Australia, China and South Korea as countries that will take key policy decisions this year ahead of the planned launch of their own national emissions trading schemes in 2015. “Hence, traded volumes in carbon markets should grow again in 2015 as the next wave of programmes kicks in”, Heimdal concludes.

Note to editors 

• The Kyoto Protocol to the UN Framework Convention on Climate Change entered into force in February 2005. The Kyoto Protocol motivated the launch of The EU Emissions Trading Scheme (ETS). The world’s first international emissions trading scheme, the EU ETS works on a cap-and-trade basis, where the total volume of permitted emissions (the “cap”) is set at the start of a trading period. EU Allowances (EUAs) are the tradable units under the EU ETS, each representing a permit to emit one metric tonne of carbon dioxide equivalent (CO2e). Up to a certain limit, companies regulated by the EU ETS are also allowed to use carbon credits from third countries (CERs and ERUs) instead of EUAs.
• The second phase of the EU ETS runs from 2008-12 and coincides with the Kyoto Protocol commitment period. The third phase will run from 2013-20.

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