Carbon market participants downbeat on future expansion, survey shows

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.”

Note to editors

• Carbon 2010, Point Carbon’s fifth annual Carbon Market Survey, ran from 20 January to 4 February 2010. The survey garnered 4,767 responses from 118 countries, the highest number of respondents to date. The report provides the most comprehensive overview of the international carbon market to date. Questions were asked about current behaviour and future expectations in the areas of the EU ETS, CDM, JI, AAU, RGGI, North American offsets, future emissions trading schemes around the world and, of course, international climate negotiations.
• The report gives a full overview of the market in 2009; volumes, prices, value, and the market's expectations for the remainder of the Kyoto period (2010-12) as well as post- 2012 climate policy.
• The Kyoto Protocol to the United Nations Framework Convention on Climate Change, which entered into force in February 2005, defined targets for developed-country emissions over the 2008-12 period. It also prompted the launch of the EU’s Emissions Trading Scheme (ETS). The EU ETS is the world’s first international greenhouse gas emissions trading scheme. It works on a cap-and-trade basis, where the total volume of permitted emissions (the “cap”) is set at the start of a trading period. EU Allowances
  (EUAs) are the tradable units under the EU ETS, each representing a permit to emit one metric tonne of carbon dioxide equivalent (CO2e). Up to a certain limit, companies regulated by the EU ETS are also allowed to use carbon credits from third countries (CERs and ERUs) instead of EUAs.
• Certified Emissions Reductions (CERs) are project credits generated from emission reduction countries in developing countries.
• Emission Reduction Units (ERUs) are project credits generated from emission reduction projects in industrialised countries.
• 2009 was the second year of the first commitment period under the Kyoto Protocol (2008- 12), and also of the second phase of the EU Emissions Trading Scheme. At the beginning of the year, the first mandatory greenhouse gas cap-and-trade programme in
  North America – the Regional Greenhouse Gas Initiative – was launched.

To arrange interviews with one of the authors of the report, or to see a copy of the report,
please contact:

Candida Jones
PR Manager, Point Carbon
Mob: +44 (0) 777 5754 763
E-mail: cjo@pointcarbon.com

Endre Tvinnereim
Senior Analyst, Point Carbon
Mob: +47 47 45 61 66
E-mail: et@pointcarbon.com

Kjetil Røine
Manager, Point Carbon
Mob: +47 95 20 13 55
E-mail: kr@pointcarbon.com

For US press enquiries, please contact:
Adam Williams
Marketing Coordinator, North America
Mob: +1 240 330 3956
E-mail: aw@pointcarbon.com

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