Global Carbon Market Grows, Boosting Climate Action
May 26, 2010
The world carbon market, which provides funding for climate change mitigation and adaptation activities, grew to over $144 billion in 2009, despite financial and economic turmoil that led to a slowdown in transactions. The six percent increase in the size of the market is one of the key findings from the World Bank report, State and Trends of the Carbon Market, just released at Carbon Expo 2010 in Cologne, Germany.
Carbon Expo, co-hosted by the World Bank Group and IETA (International Emissions Trading Association), is the premier annual global gathering of players active in the carbon market. It gives three thousand attendees an opportunity to form important partnerships, a crucial element in tackling climate change. These include partnerships between public and private actors, developed and developing countries, and players involved in the carbon market on local, national, regional, and global levels.
"The same issues that have hindered the project-based mechanisms may ultimately be the silver lining that sets the stage for a stronger post-2012 market..."|Alexandre Kossoy, Report Co-author
"Considerable effort, ingenuity, and capacity will be required for carbon finance mechanisms, along with other policy and finance instruments..."| Philippe Ambrosi, Report Co-author
The State and Trends of the Carbon Market report also showed that despite the volatility experienced by individual carbon markets in 2009, the long-term outlook for them is cautiously optimistic. The overall carbon market demonstrated resilience to the global economic downturn and by the end of 2009 was back at 2008 levels. Nevertheless, observers agree that the financial crisis and the lack of clarity regarding the post-2012 situation contributed to the retraction of both the supply and the demand sides of existing regimes.
Trade volumes increased while prices fell, leading the global carbon market value to increase slightly from $135 billion in 2008 to $144 billion in 2009. The European Union Emissions Trading System (EU ETS) remained the major engine for this market with over 118 billion EU Allowances traded in 2009, an almost 20% increase compared with the previous year. In contrast, as industrial output plummeted around the world, the demand for carbon assets decreased. The economic downturn also led to a lower demand for offsets by major industrialized countries, while the financial crisis made it difficult for projects to lock in financing and get off the ground.
“Ironically, the same issues that have hindered the project-based mechanisms may ultimately be the silver lining that sets the stage for a stronger post-2012 market,” said Alexandre Kossoy, co-author of the report. “Nonetheless, clear policy and regulatory signals must be urgently provided if a stronger global market is to emerge.”
At the same time, the authors spoke about new initiatives emerging in developing and developed countries which explore market-based approaches for climate change solutions. In that context, according to the report, carbon finance remains an important tool to provide incentives to shift to a lower carbon development path. The report analyzes the evolution of the emerging schemes, as well as the major successes and remaining challenges of the existing frameworks.
“Considerable effort, ingenuity, and capacity will be required for carbon finance mechanisms, along with other policy and finance instruments, to address the urgency and the scale of the climate challenge”, said the other report author, Philippe Ambrosi.
At the opening ceremony: L to R: Jurgen Roters, Mayor of the City of Cologne; Warren Evans, Director - Evnironment Department, the World Bank; Yvo De Boer, UNFCCC Executive Secretary; Nobert Roettgen, Federal Minister for the Environment, Nature Conservation and Nuclear Safety Germany; Henry Derwent, President and CEO of IETA, Gerald Boese, CEO of Koelnmesse
Germany’s Environment Minister, Norbert Röttgen, opening Carbon Expo, said that despite impressive progress in the growth of the carbon market, its mechanisms need to be further developed. “We need more schemes like EU emissions trading that are interlinked,” he said. “And we need to further develop the CDM and to create new mechanisms, for example establishing and financing nationally appropriate mitigation actions - and sectoral approaches for specific branches and sectors. They should be developed, tested and then - if they offer a positive prospect - be introduced.”
"Strengthened by the rich experience garnered over the past decade, we are embarking on our next ten years of carbon finance"|Joelle Chassard, Manager, Carbon Finance Unit, The World Bank
The World Bank played a pioneering role in creating the carbon market more than a decade ago by establishing carbon funds which purchase carbon credits from projects in the Bank’s client countries. Today, it is the trustee of ten carbon funds and facilities capitalized at over $2.5 billion, contributed by governments and private companies in industrialized countries, to promote carbon mitigation projects across the developing world.
A number of ceremonies will also take place during the event with Bank partners to celebrate various milestones in the life of carbon project development. For example, two Assigned Amount Unit Purchase Agreements (AAU PAs) under a Green Investment Scheme (so-called GIS) will be signed between the Bank, as trustee of the Carbon Fund for Europe and the Spanish Carbon Fund, and the Ministry of Environment of the Czech Republic. They are the first AAU transactions for the Bank’s carbon funds and the first GIS supported by the Bank.
As well, there will be a focus on the first Clean Development Mechanism projects registered in Pakistan, two of which have been developed by the World Bank. The Community Development Carbon Fund will celebrate the registration of the first community-based micro-hydel project in the world generating carbon credits, executed by the project sponsor Aga Khan Rural Support Program (AKRSP) in the mountains of northern Pakistan. The Danish Carbon Fund will celebrate the registration of the first large scale, public-private partnership municipal solid waste management project in Pakistan in the area of organic composting. It will contribute towards sustainable development of the municipality of Lahore, not only reducing the methane emissions but also creating a revenue stream for the municipality and contribute to a cleaner environment for its citizens.
The Carbon Partnership Facility, focusing on large-scale emission reduction programs, will celebrate the signing of a Participation Agreement with His Excellency Eng. Omar Ma'ani, the Mayor of Amman (Jordan) for the Amman Green Growth Program, the first of its kind city-wide CDM program, focusing on waste, energy, urban transport, and urban forestry sectors.
“Strengthened by the rich experience garnered over the past decade, we are embarking on our next ten years of carbon finance” said Joelle Chassard, Manager of the Bank’s Carbon Finance unit and leading the Bank delegation to Carbon Expo. “Even if it is taking time for the global community to put in place an international climate regime post-2012, with the resulting uncertainties this implies in the interim, we are forging ahead with our work to expand the scope, scale, and range of climate change mitigation activities in the various sectors of our clients’ developing economies.”
This article was contributed by Isabel Hagbrink, Senior Communications Officer, Carbon Finance Unit, Environment Department. You may reach her atihagbrink@worldbank.org.
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