Oslo, 20 July 2011

Global carbon markets saw 3.6 billion tonnes (Gt) CO2e exchanged over the six first months of 2011, valued at some €50 billion (US$71bn), compared to €48bn in H1 2010 according to Thomson Reuters Point Carbon. In terms of volume this is down 5% on the same period last year, principally due to lower EU Allowance (EUA) volumes. In terms of value, however, it represents a 3% increase compared to the same period last year, according to analysis by Thomson Reuters Point Carbon, a leading provider of market intelligence, news, analysis, forecasting and advisory services for the energy and environmental markets.

According to Stig Schjølset, Head of EU Carbon Analysis at Thomson Reuters Point Carbon, “the first six months of this year have seen some pretty dramatic developments in the global carbon markets, causing price volatility. In June, following the draft Energy Efficiency directive proposed by the European Commission and Poland’s refusal to discuss any reduction target beyond 20% for 2020, and against a backdrop of a bearish oil market and worries about Greece, EUA prices plunged to a two-year low. This price crash wiped out the price increase which followed the Fukushima disaster and re-think of nuclear policy in Germany”.

The EU’s emissions trading scheme (ETS) remained the largest segment of the global carbon market, with a total of 2.7 Gt CO2e exchanged during the first half of 2010, down 7% on the same period last year. By contrast, due to higher prices, the estimated value of the EUA transactions was €41bn in H1 2010; almost the same level as the first six months of last year.

The second-largest segment globally was the Clean Development Mechanism ( CDM) market, which includes the primary and secondary market for Certified Emissions Reductions (CERs). The estimated market volume was 717 Mt CO2e, worth around €8.3bn in H1 2011. This was up 6% in volume terms and 4% in value terms compared to the first six months of 2010. Inflow to validation and registration of CDM projects was significantly higher this first half than in the first six months of 2010. The pre-2013 rush to registration has materialised; some 20% more projects have started validation since January 2011 than during the same period last year and around 400 projects have been registered so far this year, up 54% on the same period last year.

“Despite the overall reduction in the volume of carbon traded during the first six months of this year, the value of the transactions still increased, due to higher carbon prices, indicating that global carbon markets as a whole continue to perform well despite significant global economic turmoil”, said Carina Heimdal, Editor, Crediting Mechanisms and Emerging Carbon Markets, Thomson Reuters Point Carbon and author of the report. She added “On the policy side, we continue to think that the most likely outcome of EU discussions on emissions reductions targets will result in a 25% reduction target for 2020, and expect a decision on this in the first half of 2012 during the Danish EU Presidency.”

The first six months of 2011 saw an overall increase in average global carbon prices, to €14.09/t (US$20.40/t), compared to €12.97/t (US$18.78/t) in H1 2010. The weighted-average EUA price was €15.76/t, up €1.5/t from the level seen in H1 2010. Secondary CERs were seen at a weighted average of €12.09/t or 77% of the average EUA price seen on exchanges. However, after June’s EUA price crash, Thomson Reuters Point Carbon does not expect prices to increase in the near term, and has reduced its price forecasts for phase 2 EUAs to an average of €15.75/t for 2011-2012, down from €20/t, accordingly.

In North America, the Regional Greenhouse Gas Initiative (RGGI)’s auction on 8 June was severely undersubscribed – only 12.5 million of the 42 million allowances on offer for the programme’s current period (2009-2011) were sold. In California, regulators announced that compliance to the state’s cap-and-trade programme will start in 2013 rather than 2012. Trading in both markets remained quiet.

“The state of New Jersey announced in June it would withdraw from RGGI at the end of 2011 and other states discussed withdrawals, but we do not expect further drop-outs at this stage. California’s trading programme is the biggest carbon market driver in North America.” said Lisa Zelljadt, Senior Analyst at Thomson Reuters Point Carbon’s DC office.

Elsewhere, South Korea’s Ministry of Environment released sector level emission reduction targets in order to ensure that the country reaches its pledge to keep greenhouse gas (GHG) emissions 30% below the business as usual level by 2020. According to the announced targets, South Korea’s electricity companies must cut emissions 26.7% below business-as-usual (BAU) levels by 2020, while industry, the second-biggest emitting sector, must cut emissions 18.2%. Transport has been given the toughest target, with a required 34.3% cut, followed by the building sector at 26.9%. The public sector will be asked to cut emissions 25%, waste 12.3% and agriculture, forestry and fishery 5.2%. The ETS, which Thomson Reuters Point Carbon believes will go ahead as planned, is scheduled to start in 2015.

In Australia, the Labour government announced last week that Australia will levy a A$23 ($24.70) tax per tonne of CO2e emitted from 500 of its biggest polluters from 1 July 2012 and move to an emissions trading scheme (ETS) three years later in a bid to cut emissions to 5% under 2000 levels by 2020 and by 80% below 2000 levels by 2050.

“Applying that pledge to the 2000 emissions from stationary sources – the sectors that will be covered by the trading programme as of 2018 - we estimate a potential 2020 cap in the range of 280 - 315 Mt. This makes Australia the third-largest regional carbon market for which concrete legislative plans exist so far – behind the EU ETS and North America’s emerging Western Climate Initiative. “ said Ashley Lawson, analyst at Thomson Reuters Point Carbon.

Heimdal concludes; “Global carbon markets over the first six months of this year have been buffeted by major global events, causing considerable price volatility. Despite these events, however, the overall value of global carbon markets was up and encouraging developments in emerging environmental markets such as Australia, South Korea and California mean that we predict the size of global carbon markets will continue to grow over the next years.”

Ends --

The mid-year review includes all compliance-based carbon trading systems across the globe. This comprises the EU ETS, CDM, JI, AAU, RGGI, NZ ETS and California markets. In addition, Thomson Reuters Point Carbon counts trades under the New South Wales Greenhouse Gas Abatement Scheme (NSW GGAS) and compliance and pre-compliance offsets in North America. The latter include trades done under the Alberta provincial emission trading system and British Columbia’s carbon neutrality system. It does not include voluntary-market transactions.