Although the global recession and sharp declines in carbon allowances resulted in weak growth in the global carbon credit market in 2009, analysts believe that the market is poised for dramatic growth in the future. European Union initiatives, the potential of a US federal cap and trade program and the emergence of regional trading mechanisms are all expected to drive the carbon credit market to a projected $1.2 trillion dollars by 2020. See the following article from Commodity Online for more on this.
The rising concerns over global warming and its regulatory efforts seems to have brought significant level of responsiveness as the global market for carbon credit has recorded a compounded annual growth rate (CAGR) of 89% during 2005 to 2009.
The regulatory efforts to mitigate climate change have spawned an emerging carbon market that was valued at $10.9 billion in 2005 and grew at compound annual growth rate (CAGR) of 89% to reach $138.3 billion in 2009.
The global carbon market doubled for two consecutive years from $31.2 billion in 2006 to $63 billion in 2007 and $126.3 billion in 2008 due to the expansion of allowance markets. The European Union (EU) Emission Trading System (ETS) experienced a robust growth during this period.
However, the recession in the global economy contained the impressive growth of the global carbon market. The global carbon market registered a less than 1% increase in value in 2009. The primary reason for such market behavior was the sharp decline in carbon prices, on the back of lower oil and energy prices and a deteriorating economic outlook.
The demand for carbon allowances fell sharply in late 2008 and early 2009 as the recession reduced economic output, resulting in much lower emissions than had been expected. Research analyst firm, GBI Research predicts that the global carbon trading market will experience a dramatic growth after 2012 and reach USD 1.2 trillion by 2020.
The report by the analyst firm, provides an overview of the policy initiatives by the major carbon markets. The report will suggest investment decisions in carbon projects by providing trends and information on global carbon trading policies. The report discusses in detail about key drivers of interest in carbon trading – climate change and the Kyoto Protocol .
The EU’s initiatives to build a broad, globally linked carbon market, the prospective US Federal cap-and-trade program and the strong emergence of other regional market trading mechanisms will drive the carbon market significantly beyond 2012.
The primary market for project-based emission reductions declined considerably in the year 2009 under the weight of the economic downturn . The primary CDM transactions that accounted for the largest share of activity in the primary market, at 84% of volumes and 91% of value transacted, declined in both volume and value terms.
The primary market for project-based emission reductions weakened considerably in the second half of 2008 and 2009. The buyers became more cautious due to persisting uncertainty about the role of and the demand for CDM and JI in the post-2012 climate regime, procedural delays, delivery and issuance challenges, and credit risks amid the worsening economic climate.
Over the past years, the US has instituted a number of regional initiatives with the goals of implementing emissions trading programs. The size of the total allowance market in the US — the combined allowance volumes of the Regional Greenhouse Gas Initiative (RGGI) and the Chicago Climate Exchange – was 805 MtCO2e, valued at $2.5 billion in 2009. The US federal cap-and-trade mechanism has been expected for a long time and the implementation of the scheme will boost the North American and world carbon trading markets.
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