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Global Carbon market to reach record volumes by 2016

London, 26 February 2014

In 2014, the value of the globally-traded carbon market will rise by two thirds from 2013 reach €64bn, (€39bn in 2013), with volume increasing by 3 percent to 9.6 Gt CO2e, according to analysis by Thomson Reuters Point Carbon, the leading provider of market intelligence, news, analysis, forecasting and advisory services for the energy and environmental markets.

Most of this year’s growth by value is expected to come from the 8.3 Gt EU Allowances (EUAs) that will change hands. This 3 percent volume increase (up from 8 Gt last year) will produce value growth of 70 percent; generating both the largest volumes and value globally. Emil Dimantchev, analyst at Thomson Reuters Point Carbon, anticipates that such significant growth will be driven by “expectations that after imminent backloading is implemented early in 2014, EUA prices could rise to €7.5/t, increasing over-the-counter and exchange traded liquidity.

This would lead to an astounding increase in value, up by more than two thirds to €61bn from €36bn in 2013”. He added that even though the volume growth is minimal year-on-year, and the auction volume will actually decrease as a result of backloading, market confidence is expected to improve so much that it would drive the EUA price up by 35 percent per tonne - an increase substantial enough to create a surge in the EU ETS value without a correspondingly large increase in volume.

The outlook for the two regional North American markets – the Western Climate Initiative (WCI) and the Regional Greenhouse Gas Initiative (RGGI) – is that together they will create the second largest carbon market by value for the second year in a row. Olga Chistyakova, senior analyst and author of the report concluded, “We expect the WCI and RGGI to generate €2.7bn in value this year, up 22 percent from last year. However, the WCI will account for two thirds of their combined volume, contributing 272 million tonnes”. Chistyakova added that the North American markets are here to stay, continuing to drive volume and value growth in the future.

Maria Kolos, analyst at Thomson Reuters Point Carbon highlighted that, “We expect the primary and secondary Certified Emission Reduction (CER) market to remain strong, holding on to its position as the second largest market by volume at 703million tonnes, albeit at a low value of €236 million. This is amid a steady annual decline in volume and an expiring lifeline in the absence of a political remedy”.

China’s seven provincial emissions trading pilot (ETS) schemes could seize the emerging market spotlight from South Korea, where preparations are far from over for its national ETS launch in 2015. Hongliang Chai, analyst at Thomson Reuters Point Carbon commented, “China’s pilots are a breath of fresh air and expected to generate 24 million tonnes in trading this year from auctions as well as post-CDM salvaged offsets. Looking ahead to 2015, volume of Chinese pilots is projected to grow tenfold to about 227 million tonnes, as CER credits are remanufactured into ones eligible for domestic use to help offset the seven compliance markets”.

In 2015, Thomson Reuters Point Carbon expects volumes traded on global carbon markets to continue to grow steadily to 10.3 Gt CO2e, and to 10.9 Gt by 2016, reaching the highest volume on record. In 2016, the EU ETS market volume is forecasted to be at 9.3 Gt CO2e, breaking the 9 Gt level for the first time since inception, due to the higher expected prices and increased liquidity on the secondary market despite the withdrawal of allowances from the market through backloading.

The North American market, according to Chistyakova, “is set to overtake the CER market in 2015 and become the second largest market by both volume and value, doubling from 2014 to 821 million tonnes from WCI auctions and secondary trading. This is on the back of a widening market cap that includes transportation and other fuels”. Chai noted that by 2015, the Chinese pilot schemes will likely provide the CER scheme with some close competition in terms of market value.

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