The overall market for carbon credits was worth €86 billion at the end of 2008, twice the value of the previous year, said a report released at yesterday's (27 May) Carbon Expo 2009 conference.
The EU emissions trading scheme (EU ETS) was the driving force behind the figures, accounting for 73% of the market with transactions worth €63 billion. The second trading period, which started in mid-2008, reduced the allowed emissions by 10% and forced EU countries to slash their suggested targets.
By contrast, the Kyoto Protocol's offset markets suffered the full force of the economic downturn as financing for projects became "extremely difficult to obtain," the World Bank argued. According to the report, transactions for both primary Certified Emissions Reduction (CER) credits and the Joint Implementation (JI) scheme declined. Primary CER credits are bought directly from entities in developing countries under the Clean Development Mechanism (CDM).
The secondary market for CER credits, however, increased five-fold in both value and volume in 2008 compared to the previous year, accounting for 1.072 tonnes of carbon. The authors of the report concluded that buyers showed a "strong preference for option and futures contracts for guaranteed assets in the EUA [ETS allowances] and [secondary] CER markets".
CDM to evolve
However, the report sees a future for CDM credits, albeit in a different form. It said that the EU's commitment to upgrade its 20% emissions reduction target to 30% below 1990 levels, in the event of an ambitious global climate agreement in Copenhagen in December, could create demand for credits to cover for an additional 300 Mt of CO2 per year over 2013-2020.
Moreover, the Waxman-Markey climate bill in the US, currently being debated in Washington, would oblige the country to cut its greenhouse gas emissions to 17% below 2005 levels. The World Bank argued that taken together, EU and US demand for credits would provide developing countries with an opportunity to scale up their supply of emissions reduction credits.
"This is a golden opportunity which challenges the international community to develop new thinking on how to scale up climate mitigation to promote sustainable development," said report co-author Karan Capoor. He said average demand would likely be around 560 million tons of CO2e per year from 2012-20, while about 80 million tons of CO2e were registered in the CDM even in its best year.
The World Bank clearly acknowledges that the CDM will not live on in its current format. The EU would like to see advanced developing countries move from project-based credits to a sectoral crediting mechanism, which would require entire sectors meet a certain benchmark before credits are generated. Further debates are taking place in the context of global climate negotiations, where delegates are exploring the possibility of expanding the scope of international mitigation activities to agriculture (EurActiv 10/04/09) and using forest credits (EurActiv 20/04/09).
Joëlle Chassard, who manages the World Bank's carbon finance business, told EurActiv in an interview that there must be a rethink on how to scale up the use of market mechanisms to achieve large-scale emission reductions (EurActiv 19/05/09).
"What we are working on – and we see it really as an evolution – is to move from projects to programmes, and eventually to help individual countries to adopt national mitigation plans," she said, supporting the EU's idea of a sectoral approach.
