CARBON BANK
Background
In the recent time the world economies have grown at an incredible rate with spurt in
technological innovations. This growth has lead to rise in manufacturing especially in
the BRIC
(Brazil, Russia, India, china)
Countries. With the growing industrialization, there has been an increase in
energy consumption globally. This growth has lead to increase in green house gases
including carbon dioxide, methane, nitrous oxide, sulphur hexafluoride.
According to one study, 60-70% of Green House Gases emission is through fuel
combustion in industries like cement, steel, textiles and fertilizers. Science has
correlated climate over the ages with core samples from ice sheets and found that
carbon dioxide levels fluctuate with climatic events. Only recently has science been
able to understand how this CO2 actually works to trap the heat in the atmosphere
and by calling it the greenhouse effect gives us the basic understanding of what goes
on.
These gases are released as by-products of certain industrial process, which
adversely affect the ozone layer, leading to global warming.
These harmful gases have lead to various environmental imbalances. Melting
glaciers, freak storms and stranded polar bears which have been witnessed in recent
times playing the mascots of climate change affecting our planet.
More fuel to fire
According to “The Intergovernmental Panel on Climate Change 2007”
assessment report said world temperatures are likely to rise between 1.1 to
6.4 degrees Celsius by 2100, triggering more frequent floods, droughts,
melting of icecaps and threatening species extinction.
An estimated 30 per cent of the world’s total greenhouse emissions in 1997
came from wildfires in Borneo, which destroyed one million hectares of
forests.
Worldwide carbon dioxide emissions in 2005 are estimated to be slightly more
than 24 billion tonnes. Every litre of gasoline or petrol used in motor vehicles
produces 2.4 kilograms of carbon dioxide emissions. For diesel fuel, every liter
produces 2.7 kilograms carbon dioxide.
The World Health Organization has estimated that climate change leads to
more than 150,000 deaths every year and at least 5 million cases of illness.
Global sea levels will increase by 11 to 13 inches by 2100, according to 2006
estimates by Australia's science research agency CSIRO.
Ten countries account for two-thirds of global forest area, according to the UN
Food and Agriculture Organization: Australia, Brazil, Canada, China, The
Democratic Republic of Congo, India, Indonesia, Peru, Russia and United
States.
The Earth’s carbon absorbing capacity is finite and delectable and that growth
of GHG emissions, even at their present level poses a threat to humankind.
The per capita GHG emission is strongly correlated with economic prosperity.
Further, it is recognized that without increase in GHG emissions or access to
appropriate alternative technology options, developing countries would not be
able to pursue their socio-economic goals. Kyoto Protocol is a global
cooperative attempt to address both these issues.
Thus, fear of increased sea level and lower agricultural yield have made people
around the world to want to reduce consumption and lower their personal shares of
global emissions. With growing concerns among nations to curb pollution levels while
maintaining the growth in their economic activities, the emission trading (ET)
industry has come to life. Thus, the conception of Kyoto Protocol was formed.
The Kyoto Protocol
Concept
The Kyoto Protocol is a protocol to the United Nations Framework Convention on
Climate Change (UNFCCC or FCCC), an international environmental treaty produced
at the United Nations Conference on to achieve "stabilization of greenhouse gas
concentrations in the atmosphere at a level that would prevent dangerous
anthropogenic interference with the climate system."
Purpose
The Kyoto Protocol is established to legally bind for the reduction of four greenhouse
gases (carbon dioxide, methane, nitrous oxide, sulphur hexafluoride), and two groups
of gases (hydrofluorocarbons and perfluorocarbons) produced by "Annex I"
(industrialized) nations, as well as general commitments for all member countriesThe
agreement aims to lower overall emissions from a group of six greenhouse gases by
2008-12, calculated as an average over these five years. Cuts in the three most
important gases - carbon dioxide (CO2), methane (CH4), and nitrous oxide (N20) -
will be measured against a base year of 1990. Cuts in three long-lived industrial
gases - hydrofluorocarbons (HFCs), [[perfluorocarbon]s (PFCs), and sulphur
hexafluoride (SF6) - can be measured against either a 1990 or 1995 baseline." The
target agreed upon at the summit was an average reduction of 5.2% from 1990
levels by the year 2012.
National limitations range from 8% reductions for the European Union and some
others to 7% for the United States, 6% for Japan, and 0% for Russia. The treaty
permitted GHG emission increases of 8% for Australia and 10% for Iceland.
Members
As of January 2009, 183 parties have approved the protocol, which was initially have
been adopted for use on 11 December 1997 in Kyoto, Japan and which entered into
force on 16 February 2005.
Working
Kyoto initiated "flexible mechanisms" such as Emissions Trading, the Clean
Development Mechanism and Joint Implementation to allow Annex I economies to
meet their greenhouse gas (GHG) emission limitations through financial exchanges,
projects that reduce emissions in non-Annex I economies, from other Annex I
countries, or from Annex I countries with excess allowances.
Under Joint Implementation (JI) a developed country with relatively high costs
of domestic greenhouse reduction would set up a project in another
developed country.
Under the Clean Development Mechanism (CDM) a developed country can
'sponsor' a greenhouse gas reduction project in a developing country where
the cost of greenhouse gas reduction project activities is usually much lower,
but the atmospheric effect is globally equivalent. The developed country
would be given credits for meeting its emission reduction targets, while the
developing country would receive the capital investment and clean
technology or beneficial change in land use.
Under International Emissions Trading (IET) countries can trade in the
international carbon credit market to cover their shortfall in allowances.
Countries with surplus credits can sell them to countries with capped emission
commitments under the Kyoto Protocol.
In real this means that Non-Annex I economies have no GHG emission restrictions,
but have financial incentives to develop GHG emission reduction projects to receive
"carbon credits" that can then be sold to Annex I buyers, encouraging sustainable
development. In addition, the flexible mechanisms allow Annex I nations with
efficient, low GHG-emitting industries, and high prevailing environmental standards
to purchase carbon credits on the world market instead of reducing greenhouse gas
emissions domestically. Annex I entities typically will want to acquire carbon credits
as cheaply as possible, while Non-Annex I entities want to maximize the value of
carbon credits generated from their domestic Greenhouse Gas Projects.
What is Carbon credit?
The Kyoto Protocol has created a mechanism under which countries that have been
emitting more carbon and other gases (greenhouse gases include ozone, carbon
dioxide, methane, nitrous oxide and even water vapour) have voluntarily decided
that they will bring down the level of carbon they are emitting to the levels of early
1990s.
Thus,Carbon credit can be defined as a permit that allows the holder to emit one ton
of carbon dioxide. Credits are awarded to countries or groups that have reduced
their green house gases below their emission quota. Carbon credits can be traded in
the international market at their current market price.
Developed countries, mostly European will bring down the level in the period from
2008 to 2012. In 2008, these developed countries have decided on different norms to
bring down the level of emission fixed for their companies and factories.
A company has two ways to reduce emissions. One, it can reduce the GHG
(greenhouse gases) by adopting new technology or improving upon the existing
technology to attain the new norms for emission of gases. Or it can tie up with
developing nations and help them set up new technology that is eco-friendly, thereby
helping developing country or its companies 'earn' credits.India, China and some
other Asian countries have the advantage because they are developing countries.
Any company, factories or farm owner in India can get linked to United Nations
Framework Convention on Climate Change and know the 'standard' level of carbon
emission allowed for its outfit or activity.
They are key component of national and international attempts to mitigate the
growth in concentrations' of greenhouse gases (GHGs).
There are two distinct types of Carbon Credits: Carbon Offset Credits (COC's) and
Carbon Reduction Credits (CRC's). Carbon Offset Credits consist of clean forms of
energy production, wind, solar, hydro and biofuels.
Carbon Reduction Credits consists of the collection and storage of Carbon from
atmosphere through reforestation, forestation, ocean and soil collection and storage
efforts. Both approaches are recognized as effective ways to reduce the Global
Carbon Emissions crises.
How It Works
Emissions limits and trading rules vary country by country, so each emissions-
trading market operates differently.
For nations that have signed the Kyoto Protocol, which holds each country to
its own C02 limit, greenhouse gas-emissions trading is mandatory.
Another fast-growing voluntary model is carbon offsets. In this global market, a set of
middlemen companies, called offset firms, estimate a company’s emissions and then
act as brokers by offering opportunities to invest in carbon-reducing projects around
the world. Unlike carbon trading, offsetting isn’t yet government regulated in most
countries; it’s up to buyers to verify a project’s environmental worth.
Offsets are typically achieved through financial support of projects that reduce the
emission of greenhouse gases in the short- or long-term. The most common project
type is renewable energy, such as wind farms, biomass energy, or hydroelectric
dams. Others include energy efficiency projects, the destruction of industrial
pollutants or agricultural byproducts, destruction of landfill methane, and forestry
projects. Some of the most popular carbon offset projects from a corporate
perspective are energy efficiency and wind turbine projects.
The Advantages
Companies in different industries face different costs to lower their emissions.
A market-based approach allows companies to take carbon-reducing
measures that everyone can afford.
Reducing emissions and lowering energy consumption is usually good for the
core business.
Buying into the carbon market boom now suggests significant dividends later
on. Carbon credits are relatively cheap now, but their value will likely rise,
giving companies another reason to participate.
The Disadvantages
As with any financial market, emissions traders are vulnerable to significant
risk and volatility.
Carbon offset firms in the United States and abroad has been caught selling
offsets for normal operations that do not actually take any additional C02 out
of the atmosphere, such as pumping C02 into oil wells to force out the
remaining crude.
The lack of offset regulations has also made marketing problematic.
How buying carbon credits can reduce emissions
Carbon credits create a market for reducing greenhouse emissions by giving a
monetary value to the cost of polluting the air. Emissions become an internal cost of
doing business and are visible on the balance sheet alongside raw materials and
other liabilities or assets.
For example, consider a business that owns a factory putting out 90,000 tonnes of
greenhouse gas emissions in a year. Its government is an Annex I country that enacts
a law to limit the emissions that the business can produce. So the factory is given a
quota of say 70,000 tonnes per year. The factory either reduces its emissions to
80,000 tonnes or is required to purchase carbon credits to offset the excess. After
costing up alternatives the business may decide that it is uneconomical or infeasible
to invest in new machinery for that year. Instead it may choose to buy carbon credits
on the open market from organizations that have been approved as being able to sell
legitimate carbon credits.
We should consider the impact of manufacturing alternative energy sources. For
example, the energy consumed and the Carbon emitted in the manufacture and
transportation of a large wind turbine would prohibit a credit being issued for a
predetermined period of time.
One seller might be a company that will offer to offset emissions through a
project in the developing world, such as recovering methane from a swine
farm to feed a power station that previously would use fossil fuel. So although
the factory continues to emit gases, it would pay another group to reduce the
equivalent of 20,000 tonnes of carbon dioxide emissions from the atmosphere
for that year.
Another seller may have already invested in new low-emission machinery and
have a surplus of allowances as a result. The factory could make up for its
emissions by buying 20,000 tonnes of allowances from them. The cost of the
seller's new machinery would be subsidized by the sale of allowances. Both
the buyer and the seller would submit accounts for their emissions to prove
that their allowances were met correctly.
Carbon Tax as a supplement to Emissions Cap & Trade
At present, emissions cap & trade is the principal international policy framework
providing incentives to mitigate the impact of global warming. Emissions cap & trade
refers to the global system of national caps on greenhouse-gas emissions and
tradable permits (e.g. Carbon credits), based on the emissions targets and timetables
created by the Kyoto Protocol (1997).
Today, one of the hottest and most contested debates is the validity of emissions cap
& trade versus the validity of emission tax. It is argued that emission taxes have an
important advantage over cap-and-trade systems in that they result in a stable price
for emissions (cap-and-trade policies seek to stabilize the quantity of emissions, but
allow prices to fluctuate). Stable prices for emissions are critical for firms making
long-term decisions about investment and innovation in low-emission technologies.
However, given the practical impediments to the internationalization of emissions or
carbon taxes, a more likely scenario seems to be one where national level initiatives
on carbon taxes could supplement the international cap and trade system.
Carbon credits V/s Carbon taxes
A criticism of tax-raising schemes is that they are frequently not hypothecated, and
so some or all of the taxation raised by a government may be applied inefficiently or
not used to benefit the environment.
By treating emissions as a market commodity it becomes easier for business to
understand and manage their activities, while economists and traders can attempt to
predict future pricing using well understood market theories. Thus the main
advantages of a tradable carbon credit over a carbon tax are:
the price is more likely to be perceived as fair by those paying it. Investors in
credits have more control over their own costs.
the flexible mechanisms of the Kyoto Protocol ensure that all investment goes
into genuine sustainable carbon reduction schemes, through its
internationally-agreed validation process.
if correctly implemented a target level of emission reductions is achieved with
certainty, while under a tax the actual emissions would vary over time.
it provides a framework for rewarding people or companies who plant trees or
otherwise sequester carbon.
The advantages of a carbon tax are:
Fewer complexes, expensive, and time-consuming to implement. This
advantage is especially great when applied to markets like gasoline or home
heating oil.
Perhaps some reduced risk of certain types of cheating, though under both
credits and taxes, emissions must be verified.
Reduced incentives for companies to delay efficiency improvements prior to
the establishment of the baseline if credits are distributed in proportion to
past emissions.
When credits are grandfathered, this puts new or growing companies at a
disadvantage relative to more established companies.
It is clear what effect the policy has on the price of energy.
Theory of Supplementarity
The principle of Supplementarity within the Kyoto Protocol means that internal
reduction of emissions should take precedence before a country buys in carbon
credits.
However it also established the Clean Development Mechanism as a Flexible
Mechanism by which capped entities could develop real, measurable, permanent
emissions reductions voluntarily in sectors outside the cap.
Many criticisms of carbon credits stem from the fact that establishing that an
emission of CO2-equivalent greenhouse gas has truly been reduced involves a
complex process. This process has evolved as the concept of a carbon project has
been refined over the past 10 years.
The first step in determining whether or not a carbon project has legitimately led to
the reduction of real, measurable, permanent emissions understands the CDM
methodology process.
Theory of Additionality
The concept of additionality studies whether the project would is feasible even in the
absence of revenue from carbon credits. Only carbon credits from projects that are
"additional to" the business-as-usual scenario represent a net environmental benefit.
Carbon projects that yield strong financial returns even in the absence of revenue
from carbon credits; or that are compelled by regulations; or that represent common
practice in an industry are usually not considered additional, although a full
determination of additionality requires specialist review.
It is generally agreed that voluntary carbon offset projects must also prove
additionality in order to ensure the legitimacy of the environmental stewardship
claims resulting from the retirement of the carbon credit (offset). According the World
Resources Institute/World Business Council for Sustainable Development
(WRI/WBCSD) : "GHG emission trading programs operate by capping the emissions of
a fixed number of individual facilities or sources. Under these programs, tradable
'offset credits' are issued for project-based GHG reductions that occur at sources not
covered by the program.
Each offset credit allows facilities whose emissions are capped to emit more, in direct
proportion to the GHG reductions represented by the credit. The idea is to achieve a
zero net increase in GHG emissions, because each tonne of increased emissions is
'offset' by project-based GHG reductions.
The difficulty is that many projects that reduce GHG emissions (relative to historical
levels) would happen regardless of the existence of a GHG program and without any
concern for climate change mitigation. If a project 'would have happened anyway,'
then issuing offset credits for its GHG reductions will actually allow a positive net
increase in GHG emissions, undermining the emissions target of the GHG program.
Additionality is thus critical to the success and integrity of GHG programs that
recognize project-based GHG reductions."
Issues in Carbon mitigation:
Carbon market is not new to world, there are being several activities
prevailing since approx. 25 years but the most efficient mile stone in carbon market
was achieved in 2005 when EUETS & Kyoto came into existence. Although carbon
trading is the only sector which is growing at robust speed (having potential 60 to 70
billion USD annually) and covering whole world as united for its growth for mitigating
climate change, there are lots of issues existing which are left unexplored or if
explored than not much attention is being given, here I will be highlighting some
issues known to me which need immediate consideration for proper action.
1. Due to excessive non-sustainable consumption of resources and belching of
pollutants in environment, the temperature of world is increasing gradually
from several decades, as a result sea level is increasing due to melting of
glaciers, depletion of ozone layer but know the most alarming situation has
come according to NASA team on climate change, the life on earth will
finishes up by 2015 because now the blue ice have also started melting
which was as it is from last 10000 years having a terrible increase in sea level
and disturbing the ratio of land and water on earth and by 2015 water will
cover the left 30% land portion by it.
2. Continuity of Kyoto after 1st compliance period that is in Second Compliance
Period is not being confirmed in Bali action Plan & if it came into existence
than what about transfer of credit among them is not cleared which has
created lots of question mark on CDM and affecting its prices.
3. Non Availability of linkage between CITL & ITL (Community transaction log &
international transaction log). Hence no linkage between several schemes and
also non availability of spot transfer of Carbon credits among some major
schemes.
4. There is lot of Procedure delay in registering Project as CDM projects-
It can take between one and two years for a project to go from validation to
registration and technical delays. This does not even include the six months or
so that it is taking to book the services of a DOE. Project delays cost project
developers valuable financial resources, cost buyers valuable emission
reductions and can delay desired environmental outcomes. Clearing
bottlenecks and accelerating the application of necessary procedures has
become a priority challenge
5. Standard methodology for Jatropha CDM project is not available, hence
project developer wanting to develop CDM project by using Jatropha as a fuel
has to create a new methodology and get it approved by Executive board
which is very time consuming.
6. International events e.g., 2005 Gleneagles G8 Summit, 2006 World Cup,
football, Olympic emits carbon like on an average 5500 tons of CO2 is emitted
by Olympic Torch Rally, hence contributing to global warming considerably.
7. Soon India’s ICWA will be launching separate accounting standard for
Revenue from Carbon trading as up till now it is recorded under other income.
Therefore people are opposing that their income from carbon trading will no
more tax free.
8. New South Wales green house gas abetment scheme does not except
credits from other markets.
9. Sellers are unable to sell there CERs in adverse market condition as buyer
terminate the contract and all the losses have to be faced by CER project
developers.
10. SF6 have highest warming potential which is being leaked from power grids &
line hence must be protected
Shortcomings in the working of carbon market
The Kyoto mechanism is the only internationally-agreed mechanism for regulating
carbon credit activities, and, crucially, includes checks for additionality and overall
effectiveness. Its supporting organisation, the UNFCCC, is the only organisation with
a global mandate on the overall effectiveness of emission control systems, although
enforcement of decisions relies on national co-operation. The Kyoto trading period
only applies for five years between 2008 and 2012.
Several countries responsible for a large proportion of global emissions (notably USA,
Australia, and China) have avoided mandatory caps, which means that businesses in
capped countries may perceive themselves to be working at a competitive
disadvantage against those in uncapped countries as they are now paying for their
carbon costs directly.
Establishing a meaningful offset project is complex: voluntary offsetting activities
outside the CDM mechanism are effectively unregulated and there have been
criticisms of offsetting in these unregulated activities.
Suggestions to reduce carbon emission in Oil & Gas industries
Emissions in Environment from the oil and gas industry include substances that
contribute to global impacts on the climate and others that have local effects, such
as acidification of lakes and forests. The impacts of these emissions also take some
time to become apparent, which can make it difficult to identify them and link them
directly to oil and gas activities.
Estimating and reporting greenhouse gas (GHG) emissions is extremely complex for a
highly integrated industry such as the oil and natural gas industry with its wide
diversity of business structures under a corporate umbrella. The oil and gas industry
is the world’s second-biggest air emission producer. Each year it emits over 150
billion cubic meters of environmentally-damaging air emissions through venting,
flaring or fugitive leaks and is responsible for 300 millions tones of C02 emissions
being released into the atmosphere.
Now faced with the realities of consequential environmental damage, stricter
governmental emission legislations and reduction incentives, oil and gas companies
are looking for proven strategic and technical solutions that will minimize
environmental damage and maximize production and profit. There some major issues
on which oil and gas industries must take action.
Fire flaring in oil and gas industries have very adverse affect on environment they
have very high potential in polluting the environment so gas or fire flaring should be
prevent by managing proper supply of gas in line, preventing break down in system
and utilizing waste heat also this will prevent flaring. The practice of gas flaring adds
about 350 million tonnes of CO2e annually to global GHG emissions. The potential for
local economic development and for emission reduction is significant, if only there
were a way to create viable local markets for the gas, such as for power generation
or Liquefied Petroleum Gas (LPG) for domestic cooking use. However, many barriers
exist as the example below demonstrates, and carbon finance has the potential to
help mitigate some of these risks.
Refinery emits huge GHG gases so they must prevent it to fullest extent, avoid
leakage from pipeline prevent heat wastage apply Euro 3 & 4 and get it audited for
environment safety.
Oil recovery: Carbon dioxide is used in enhanced oil recovery where it is injected into
or adjacent to producing oil wells, usually under supercritical conditions. It acts as
both a pressurizing agent and, when dissolved into the underground crude oil,
significantly reduces its viscosity, enabling the oil to flow more rapidly through the
earth to the removal well. In mature oil fields, extensive pipe networks are used to
carry the carbon dioxide to the injection points. Hence they must plant trees to
remove there CO2 excretion in environment.
Some Measures to prevent emission by Oil & Gas industries
Reducing Air Emissions in Oil & Gas is the region’s leading industry-focused
environmental event that features exclusive expert presentations and case studies
that reveal successful stories, procedures, solutions, technologies and strategies that
have not only effectively reduced emissions but have benefited production and
increased profits.
Create a long-term emission-reducing framework for future legislative
standards
Successfully incorporate technology that will reduce emission levels and
deliver instant ROI
Achieve zero routine, flaring and increased cost savings
Safely capture and store CO2 for the long-term
See increased production and profit through CO2 injection strategies
Create an effective business case for technological investment
Minimize the risk of fugitive leaks
Carbon market and India
The sudden boom in the carbon market has greatly helped Indian industries to cash
in on the carbon trading business. India certainly being the preferred location for
carbon credit buyers or project investors because of its strategic position in the world
today.
India is considered as the largest beneficiary, claiming about 31 per cent of the total
world carbon trade through the Clean Development Mechanism (CDM). It is expected
to rake in at least Rs 22,500 crore to Rs 45,000 crore over a period of time and Indian
companies are expected to corner at least 10 per cent of the global market in the
initial year. Carbon Trading has potential of exploring Indian market worth 18000 Cr.
Under the Kyoto Protocol, between 2008 and 2012, developed countries have to
reduce emissions of greenhouse gases to an average of 5.2 per cent below the 1990
level. They can also buy CERs from developing countries, which do not have any
reduction obligations, in case their industries are not in a position to lower the
emission levels themselves. One tonne of carbon dioxide reduced through the Clean
Development Mechanism (CDM) project, when certified by a designated entity,
becomes a tradable CER.
Developed countries have to spend nearly $300 to $500 for every tonne reduction in
CO2, against $10 to $25 to be spent by developing countries. In developing countries
like India, the emission levels are much below the target fixed by the Kyoto Protocol.
So, they are excluded from reduction of GHG emission. On the contrary, they are
entitled to sell surplus credits to developed countries. The European countries and
Japan are the major buyers of carbon credits.
The UNFCCC divides countries into two main groups: A total of 41 industrialized
countries are currently listed in the Convention‟s Annex-I, including the relatively
wealthy industrialized countries that were members of the Organization for Economic
Co-operation
India comes under the third category of signatories to UNFCCC. India signed and
ratified the Protocol in August, 2002 and has emerged as a world leader in reduction
of greenhouse gases by adopting Clean Development Mechanisms (CDMs) in the past
few years.
According to Report on National Action Plan for operationalizing Clean Development
Mechanism (CDM) by Planning Commission, Govt. of India, the total CO2-equivalent
emissions in 1990 were 10,01,352 Gg (Giga grams), which was approximately 3% of
global emissions. If India can capture a 10% share of the global CDM market, annual
CER revenues to the country could range from US$ 10 million to 300 million
(assuming that CDM is used to meet 10-50% of the global demand for GHG emission
reduction of roughly 1 billion tonnes CO2, and prices range from US$ 3.5-5.5 per
tonne of CO2). As the deadline for meeting the Kyoto Protocol targets draws nearer,
prices can be expected to rise, as countries/companies save carbon credits to meet
strict targets in the future. India is well ahead in establishing a full-fledged system in
operationalising CDM, through the Designated National Authority (DNA). Other than
Industries and transportation, the major sources of GHG‟s emission in India are as
follows:
Paddy fields
Enteric fermentation from cattle and buffaloes
Municipal Solid Waste
Of the above three sources the emissions from the paddy fields can be reduced
through special irrigation strategy and appropriate choice of cultivars; whereas
enteric fermentation emission can also be reduced through proper feed
management. In recent days the third source of emission i.e. Municipal Solid Waste
Dumping Grounds are emerging as a potential CDM activity despite being provided
least attention till date.
Outlook of carbon market
The total traded volume in global carbon markets in 2008 was 2.7 Gt, valued at just
over €40 bn. We expect this to grow to 4.2 billion tonnes CO2e in 2009, up 56
percent from 2008. The EU ETS maintains its position as the largest market. Traded
volume in the EU ETS is expected to be 2.6 Gt in 2009. At current prices, this would
be equivalent to €63bn.
The expected increasing traded volumes will continue as the global market becomes
more mature and sophisticated. An increase in contract types, more players and
markets and greater competition between market players (such as exchanges and
brokers) will together generate momentum for higher volumes. As a consequence,
liquidity providers will be attracted to this market. On the other hand, turbulence in
global financial markets may contribute to less vigorous growth in transacted
volumes.
The expected 2009 carbon market will differ from 2008 in several ways.
The EU ETS Phase 2 is considerably tighter than Phase 1. Moreover, the start
of short-term prompt trading for Phase 2, where only forward trading was
seen previously, is expected to contribute to increased traded volumes.
The EU climate and energy package, launched on 23 January 2009, has sent a
potentially bearish long-term signal to the project markets by placing
uncertainty on the future of the Clean Development Mechanism.
New policies in key countries such as the US and Australia imply that we will
see trading in new markets. This will be accelerated by the ongoing
negotiations under the Bali action plan.
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