The Recession Cuts Emissions More Than Carbon Trading

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The global market for carbon emissions trading doubled in value last year, but actual realised emissions cuts fell as the global economic slowdown dented clean energy financing, the World Bank said on Wednesday.

The market grew to $126 billion last year, up from $63 billion in 2007 and nearly 12 times the value in 2005, the World Bank said in a report at the Carbon Expo conference in Barcelona.

A total 4.8 billion tonnes of carbon dioxide, the main greenhouse gas blamed for global warming, were traded last year, up 61 per cent from the 3 billion traded in 2007.

The value of the European Union’s Emissions Trading Scheme, the 27-nation bloc’s flagship weapon in its fight against climate change, rose by 87 per cent to $92 billion last year, the bank said.

That scheme traded 3.1 billion tonnes of emissions permits last year, up from 2.1 billion in 2007.

The rest of the market was made up mostly by secondary trade in Kyoto Protocol carbon offsets, which companies buy to cover their own emissions or sell to make profit.

“More than one billion (tonnes) were traded on various exchanges and platforms … representing the largest growth rate of all segments in the carbon market with more than a 350 per cent increase in traded volumes and values,” the World Bank said. “These trades do not directly give rise to emission reductions unlike transactions in the primary market.”

The so-called primary market, or the actual emissions cuts made and sold by United Nations-registered clean energy projects in developing countries, fell by 30 per cent to 389 million tonnes. This segment was worth $6.5 billion last year, down from $7.4 billion in 2007.

As of March this year, there were more than 4,500 projects in the U.N.’s Clean Development Mechanism (CDM) pipeline, which have the potential to deliver around 2.9 billion offset credits called certified emissions reductions (CERs) by 2012.

The CDM allows industrialised countries to invest in projects that reduce emissions in developing countries rather than in more expensive emission reductions at home.

The CDM pipeline has slowed down due to delays in issuance and registration, as well as the financial crisis which has made project financing difficult to obtain, the report said.

 

DEMAND

Demand for CERs has fallen due to the lack of clear policy and price signals which would help stimulate a pipeline of new investments in developing countries for delivery after 2012, the World Bank said.

As talks edge closer to find a successor to the Kyoto Protocol, there is some uncertainty about what form the CDM will take after 2012 which has added to constrained demand, the report said.

Leaders will meet in Copenhagen in December to thrash out a a new global pact to replace the Protocol which expires in 2012.

The World Bank expects international demand for CERs to pick up if the United States passes a crucial climate change bill to cut greenhouse gas emissions.

“If the U.S. bill gets passed and if the European Union increases its (emissions reduction) target to 30 per cent (by 2020), that implies future demand of about 600 million tonnes per year (of offset credits),” Karan Capoor, carbon finance specialist at the World Bank, told reporters.

The U.S. House Energy and Commerce Committee approved a draft bill last Thursday that would cut U.S. emissions of carbon dioxide by 17 per cent from 2005 levels by the year 2020. A vote in the full house could happen in August but it is unclear whether it will go through the Senate in December.

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