Amsterdam, 3 March 2010

Policy uncertainty is having a negative impact on the expectations for future carbon market expansion, according to respondents to a recent carbon market survey. However, confidence in existing market segments remains solid. Some 70% of respondents expressed dissatisfaction with Copenhagen, evident in all countries polled, and only just over a third of respondents (37%) said they expect a deal in Cancun, down from 59% who had expected Copenhagen to yield binding agreements when asked this time last year.

Hopes for a US cap-and-trade scheme by 2015 were also down among respondents, to 61%, the lowest level for three years and down from 81% on last year’s survey. Respondents this year anticipate a lower global carbon price, of €31 in 2020, than the €35 in 2020 predicted last year. “To what extent this anticipated reduction in carbon prices may impact investment in the longer term is not yet clear, but 47% of respondents representing companies covered by the EU Emissions Trading Scheme (ETS) cited the long-term carbon price as a decisive factor for new investment. In Germany, this was even higher, at 72%”, said Endre Tvinnereim, Senior Analyst and one of the authors of the report.

However, the survey also shows that, for the first time, an outright majority of respondents (54%) says the EU ETS has caused visible emission reductions in the companies they represent. Some 43% of all respondents think the EU ETS is the most cost-effective instrument for reducing emissions in the EU, against 20% who disagree. And against falling optimism for a US ETS by 2015, among respondents in Japan, the share expecting a Japanese ETS is up from 61 to 80%.

According to Per-Otto Wold, CEO of Point Carbon, “the survey throws up interesting issues regarding the UN and its future role, prompted by the clear disappointment expressed in the Copenhagen outcome by respondents. The increased complexity of global climate negotiations is  certainly making a global climate deal more difficult, and the consensus-based decision-making process chosen under the UNFCCC is not making this easier. Consequently, after Copenhagen, we may be entering an era in which talks move to other, less inclusive arenas. One potential way forward could be a pledge-and-review system, where countries present their mitigation policies, but where no international compliance mechanism exists”.

While such questions about the UN’s role are perhaps inevitable, there were also some clear indications by respondents that faith in the UN is still strong in issue areas such as deforestation. Notably, three-quarters of respondents – and an even higher share of those based in the US – expect a post-2012 framework for reducing deforestation and forest degradation (REDD) in developing countries.

In the Clean Development Mechanism ( CDM) and joint Implementation (JI) arena, 15% of respondents said they had witnessed fraud, embezzlement or corruption in connection with a CDM or JI project and in China the figure was 28%. Commenting on this figure, Endre Tvinnereim said “respondents gave the impression that CDM-specific corruption was actually not that widespread and a number specifically commented that the CDM’s transparency makes corruption very difficult”.

Kjetil Røine, also author of the report, concludes that; “Failure to get a deal at the Copenhagen COP in December and the Obama administration’s failure to land a US cap-and trade programme may have knocked the momentum in carbon markets but the survey also confirms that the EU ETS gains in maturity each year and we predict that it will continue to grow both in volume and value this year and next.”

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