US dominates booming voluntary carbon market

London, 19 July: The US is leading the rapidly growing market for voluntary carbon credits in terms of both supply and demand, according to a report from Ecosystem Marketplace and analysts New Carbon Finance.

Emission reductions equivalent to approximately 23.7 million tonnes of carbon dioxide were traded in 2006, at a volume-weighted average price of $4.1 a tonne, giving the market a value of $91 million, the organisations reported in State of the Voluntary Carbon Markets 2007.

The overall market has soared since 2005, when around 7 million tonnes were traded, and the forecasts for 2007 are at least double the 2006 figure, said Ricardo Bayon, managing director of Ecosystem Marketplace, an information service based in California.

Andrew Ertel, chief executive of broker Evolution Markets, based in White Plains, New York, said: "If 2006 is the coming of age for the voluntary carbon market, we believe 2007 will be its break-out year. As the report concludes, voluntary trading in carbon offsets has evolved quickly into a viable, credible market."

The Chicago Climate Exchange, a voluntary cap-and-trade scheme for US companies, accounted for 10.3 million tonnes of the 2006 volumes, while worldwide, brokers traded 13.4 million in the over-the-counter (OTC) market. US projects produced close to 4.2 million tonnes of emission reductions, ahead of Asia with 2.1 million tonnes.

The figures put the voluntary market on a par with the New South Wales emissions trading scheme in Australia, but it is still dwarfed by the EU Emissions Trading Scheme, where more than 1.1 billion tonnes changed hands in 2006.

Bayon estimated that the report had captured around 50-60% of the highly fragmented market, though Guy Turner, director of London-based New Carbon Finance, reckoned it had covered at least 75-85% of trades.

Grattan MacGiffin, a broker of carbon credits at MF Global (formerly Man Financial) in London, said: "It's difficult to produce accurate figures for this market, but the anecdotal evidence certainly supports the growth story. Six months ago, a typical clip size was 5,000 to 10,000 tonnes. Now it's 25,000 to 100,000 tonnes. Credits that were transacting at $4 a tonne are now offered at around $6."

Businesses were the largest buyers in this market but, contrary to expectations, anticipation of future regulation was not the main motivation for purchases, the report said. The buyers surveyed said their main reasons for participating in the market were corporate social responsibility and to "walk the talk" in terms of environmental stewardship.

"What this tells us is that, even in the face of future legislation, the voluntary market will likely continue to thrive on its own," said Turner at New Carbon Finance.