Carbon market triples in value in 2006 – World Bank

Cologne, 3 May: The global carbon market tripled in size to $30 billion in 2006, from $10 billion the previous year, according to a report from the World Bank. But some market participants believe that figure to be an underestimate, putting the real size of market as much as 25% higher.

State of the Carbon Market 2007, released at Carbon Expo on 2 May, found that the carbon market is still dominated by the trading of EU allowances (EUAs) in the region's emissions trading scheme (ETS). More than 1.1 billion EUAs were traded in 2006, worth almost $25 billion, compared with 321 million tonnes traded in 2005, worth just under $8 billion. One EUA is equivalent of one tonne of carbon dioxide.

Project-based activities, such as the Clean Development Mechanism (CDM) and Joint Implementation (JI), accounted for almost $5 billion in 2006, more than double the previous year, the report said. The market for certified emission reductions (CERs) from the CDM dominated with around 450 million tonnes (Mt) traded. Emission reduction units (ERUs) from JI projects accounted for about 16Mt, the Bank said.

However, Andrew Ertel, president of New York-based broker Evolution Markets said that the World Bank's figures are approximately 25% too low. This is because it is difficult to get information on trades from market participants, he said. "There are option trades taking place where no information is available … and a lot of Japanese demand [for carbon credits] is hard to quantify," he added.

Ertel predicted that the market could be worth $100 billion in three years time.

The World Bank report also found strong growth in the voluntary market for carbon, with more than 50 companies offering offsets. It estimated that this market could be worth as much as $400 million in 2010.

The Bank estimates that, since 2002, direct carbon purchases have leveraged an additional $16 billion in associated investments supporting clean energy in developing countries, on top of $8 billion in new resources for such countries generated by the CDM.

"These numbers are relevant because they demonstrate that the carbon market has become a valuable catalyst for leveraging substantial financial flows for clean energy in developing countries," said Warren Evans, World Bank director of environment.

The report found that prices for primary carbon credits are up across the board. The weighted average for CERs was $10.90 in 2006, representing a 52% increase on the previous year. CERs ranged in price from a low of $6.80 up to $24.75.

The report's findings were based on interviews with market participants, analysis of the World Bank's confidential project database and reviews of published literature. The Bank was assisted by the International Emissions Trading Association and New York-based carbon asset manager Natsource. It estimated a completeness of information of more than 90% for all analysis except price, which it said was about 60% complete.