Global CO2 market up in 2009 as finance falls
COLOGNE, Germany (Reuters) - The global carbon market grew 6 percent to $144 billion last year, from $135 billion in 2008, as a rise in speculative trading offset a drop in carbon finance for developing nations, the World Bank said on Wednesday.
Greenhouse gas emissions cuts in developing nations funded by rich countries under the Kyoto Protocol fell by half to 211 million tonnes of carbon dioxide (CO2) in 2009, down from 404 million in 2008, the bank said in a report.
The value of those carbon offset deals also dropped by over half to $2.7 billion, from $6.5 billion in 2008, as the global economic downturn eroded investment in clean energy projects.
"The financial crisis spurred financial institutions and private investors to deleverage and redirect their positions away from risky investments and toward safer assets and markets," the bank said in the report, published on the sidelines of a carbon market conference in Cologne, Germany.
"Capital inflow to developing countries fell dramatically, while already internalized resources flowed out. As a result, many project developers found it impossible to lock in finance and project origination effectively ground to a halt."
The report said it expects demand for Kyoto offsets before 2012, the year the treaty's first leg expires, will amount to 230 million tonnes and come mainly from European governments.
This is more bad news for the global carbon market as the global recession and bickering between rich and poor nations over deep emissions cuts have already curbed its momentum, as seen in the failed UN climate talks in Copenhagen last December.
Supporters say increased carbon finance will prompt more emissions cuts in the world's poorest countries from 2013 under a successor treaty to the Kyoto Protocol, now under negotiation, but new worries over sovereign debt mean any funds may be put on hold for now.
The majority of clean energy funding under Kyoto's Clean Development Mechanism has so far gone to China and India, with only a tiny amount trickling to the least developed nations.
"2009 was the most challenging year to date in the carbon market as the financial crisis intensified and affected both the supply and demand sides of the market," said report co-author Alexandre Kossoy, World Bank senior financial specialist.
A rise in speculative trading helped offset a sharp drop in carbon prices in 2009, dented by lower industrial emissions resulting from the recession, but also attracted criminal elements. Allegations of carbon credit trading tax fraud and emissions permit theft rattled the market last year.
"The market faced several challenges, in our view it responded swiftly to each and every one of them," Kossoy added.
"We believe the fact that these issues came into the market shows it is maturing and mainstreaming in the wider economy. As long as those issues are identified and corrected, I see it as a natural path in the growth of the market."
The European Union's Emissions Trading Scheme, the world's largest CO2 market, rose by 18 percent to $118.5 billion in 2009, up from $100.5 billion in 2008, the report said.
The EU market's traded volume more than doubled to 6.3 billion tonnes of carbon dioxide (CO2) changing hands, which observers said stemmed from increased speculative trading, the emergence of suspected carbon tax fraud, and cash-strapped firms dumping extra permits on the spot market.
The spot market for EU carbon permits, where the fraud was also thought to have occurred, swelled by 450 percent to 1.4 billion tonnes in 2009, while the options market grew by 70 percent to 420 million tonnes.
Kossoy said he did not expect speculative trading to increase this year.
The United States' northeastern carbon market, the Regional Greenhouse Gas Initiative, also ballooned to $2.2 billion last year from $200 million in 2008, the report said. It traded some 805 million tonnes of CO2 last year, from 62 million in 2008.
The sovereign Kyoto Protocol emissions rights (AAU) market, a cheaper alternative for governments to buying carbon offsets from developing countries, also rose exponentially last year to $2 billion, from $276 million in 2008.
(Reporting by Michael Szabo and Nina Chestney; Editing by Amanda Cooper)
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