Oslo, January 2012: Point Carbon

Carbon price within EU crashes but rises in California: Global carbon markets last year continued to buck the global economic downturn with traded volumes up 19% on 2010, in a year of price volatility, according to analysis published today by Thomson Reuters Point Carbon.

Some 8 Gt CO2e changed hands in compliance based carbon markets globally in 2011, compared to 7 Gt in 2010. Despite the increase in volumes, the markets’ value was up only 4% to €96bn due to lower prices.

“In Europe, prices temporarily surged in April on the back of the phase-out of German nuclear power but from June to December prices plunged as it became clear that the EU’s Emissions Trading Scheme (ETS) is over-allocated through phase 3 (2008-2020), mainly due to the impact of Europe’s economic troubles on emissions”, explained Marcus Ferdinand, Senior Carbon Analyst at Thomson Reuters Point Carbon and co-editor of the report. The meltdown of prices in the EU ETS, the largest carbon market, with 72% of global carbon market volume and 80% of the value, resulted in the estimated average global carbon price dropping to €11.45/t in 2011, down from €13.09/t in 2010.

Similarly, within the Clean Development Mechanism ( CDM) and Joint Implementation (JI), the story last year was one of high issuance and low prices. The amount of Certified Emissions Reductions (CERs) and Emissions Reductions Units (ERUs) “reached new highs”, said Carina Heimdal, Editor, Crediting mechanisms and Emerging carbon markets, Thomson Reuters Point Carbon and co-author, in part due to speeded up procedures by the UNFCCC but also because more projects reached the issuance stage. A total of 320m CERs and 91m ERUs were issued last year, representing 39% and 74% of total issuance to date, respectively. “The high credit supply and low demand added to the bearishness, sending CER and ERU prices down, both in the secondary and primary markets. Primary market activity was limited,” Heimdal explained.

As well as increased volumes within existing carbon markets, 2011 also saw the geographic expansion of carbon trading with legislation to establish new schemes passed in California and Australia. After legal challenges in California, regulators delayed the start date of California’s ETS from 2012 to 2013, but in Australia a controversial carbon tax will be introduced this year with a cap-and-trade programme beginning in 2015. “The experience in the EU ETS, with repeated over-allocation and crashing prices, is certainly an important explanation why these two new cap-and-trade schemes plan to use a significant amount of market intervention, through price floors and ceilings”, Heimdal said.

Heimdal concluded: “Last year was certainly patchy for carbon markets; defined both by crashing prices within the EU but also by the emergence of carbon trading in California where, by the end of 2011, the price of 1 tonne of CO2e emitted was higher than in Europe. Given the global downturn, however, it could have been worse. Despite length within the EU ETS, prices have not fallen to zero, as participants price in the possibility of a deepening of the target and a tighter market in phase 4. Durban, widely predicted to be a failure, was a surprising success which injected some well-needed positive news into global carbon markets, even if the short term impact on markets is limited. The outcome in South Africa ensures that the CDM will continue post-2012”.

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