Slumping Carbon Allowance Prices May Stymie Market Growth
November 12, 2008
A significant drop in the price for carbon emission credits in October may make it difficult for the world carbon markets to break the $100 billion barrier this year. An analysis released by New Carbon Finance in early October anticipated that the world's carbon markets would reach $116 billion by the end of this year, based on the consistently high price for European Union carbon allowances (EUAs). The research company's third-quarter report on carbon emissions trading found that the world's carbon markets grew by 81% over the first nine months of the year, reaching $87 billion. Projecting that to the end of the year yielded the $116 billion figure.
However, the analysis appears to have been too rosy, as the company's Web site shows the price for EUAs dropping from about 24 Euros in September to around 18 or 19 Euros today, a drop in value of about 20%, reflecting the financial crisis that hit world markets. The price for Certified Emissions Reductions (CERs) has also dropped from around 20 Euros in September to below 16 Euros today. CERs are generated by Kyoto Protocol signatories investing in emission-cutting projects in third-world countries, through the Kyoto Protocol's Clean Development Mechanism. But despite the drop in prices, the volume of traded carbon emission credits appears to be growing. New Carbon Finance expected the volume to grow by 31% this year, increasing from 3 billion tons in 2007 to 3.9 billion tons in 2008. See the price and volume trends on the New Carbon Finance home page, and see the company's press release from October (PDF 30 KB). Download Adobe Reader.