Global Demand

Kyoto & Post Kyoto Market

According to the Point Carbon special report “2007 Carbon Market in Review” the value of the Global Carbon markets grew 80% up from 33 billion in 2006 to 60 billion USD in 2007. The total traded volume in the global carbon market reached 2.7 billion metric tonnes in 2007 up from 1.6 billion metric tonnes in 2006, a 64% jump in the same period.

Important strides were also made towards domestic emission trading in the U.S. in particular.  “While the global carbon markets have experienced significant growth the past year we are further encouraged that the U.S. has finally joined the global community in recognizing the importance of establishing a viable market for emissions trading,” said Kjell Olav Kristiansen, Director Advisory Services, Point Carbon, North America. 

Key financial players; banks, hedge funds and exchanges, including the New York Mecantile Exchange (NYMEX) have begun entering the U.S. markets in earnest.  This indicates a growing confidence that GHG emission trading will soon take off in the U.S. whether it is at the state or federal level. 

“The 2007 numbers show that greenhouse gas emission trading has become a commodity market in its own right,” said Endre Tvinnereim, senior analyst at Point Carbon.  “The remarkable growth in the secondary CDM market, for example, shows that companies are ready to invent new, creative tools for managing present and future carbon constraints.”

As outlined by the EBRD the demand for carbon credits is expected to grow for the following reasons:

• Because of projected shortfalls and higher relative carbon abatement costs, it is anticipated that the Organization for Economic Cooperation and Development (OECD) countries will fail to meet their Kyoto target by 2012.  The higher the relative emissions abatement costs in these countries mean that they will find it attractive to buy carbon credits generated elsewhere.

• Private companies in industrialized countries will increasingly be subject to “cap and trade” mechanisms, such as the EU Emission Trading Scheme which started on January 1st 2005 (although this will initially cover only 50 percent of emissions).  The EU scheme is separate from the Kyoto Protocol but the “Linking Directive” of 2004 allows a European company to buy Kyoto Protocol carbon credits to comply with their obligations under the EU Emission Trading Scheme.

• Governments will also have to buy carbon credits because the “cap and trade” mechanisms will initially only apply to a fraction of each state’s economy and Governments are responsible under the Kyoto Protocol for meeting their country’s targets.  OECD Governments and European companies subject to the EU Emission Trading Scheme will therefore be the main buyers of carbon credits. 

Voluntary Market

In 2007 the Voluntary Market saw a total of 332 million USD worth of carbon credit transactions according to the annual Ecosystem Market Place report up from 100 million USD the year before.  Although carbon offset providers have been operating since the early 1990’s, the market for voluntary carbon offsets has experienced its most rapid growth in the past couple of years.  Several factors have contributed to this increase in interest.   First, there has been a rise in environmental reporting, which has raised awareness among the general public and business community of global impact, issues and the offenders responsible.  The increasing prominence of the Corporate Social Responsibility (CSR) agenda has led to more firms becoming concerned about sustainability and the projection of a responsible image to the public.

Many large firms will include an analysis of their climate impact and mitigation strategies in their annual sustainability reports or in the CSR section of their websites. National and International policy developments, such as Kyoto coming into force and the launching of the EU ETS, the Regional Greenhouse Gas Initiative (RGGI), the Western Climate Initiative (WCI) and the new California Climate Action Reserve, have received significant publicity and also been important for raising awareness of climate change issues.

Action Reserve, have received significant publicity and also been important for raising awareness of climate change issues. Overall heightened public awareness of the importance of climate change issues and impacts, as well as awareness of offsets as a viable mitigation strategy, appear to be key factors driving the market.