Hopes for $2 trillion global carbon market fade

AMSTERDAM (Reuters) - Investors are becoming less convinced that a global carbon market, estimated to be worth about $2 trillion by the end of the decade, can be established as uncertainty over global climate policy persists.

People watch an illuminated so-called CO2 cube is pictured in the water of St Jorgens Lake in front of Tycho Brahe Planetarium in Copenhagen, December 7, 2009. REUTERS/Pawel Kopczynski

The absence of legally binding global climate deal and a federal emissions trading scheme in the United States are standing in the way of the market in global emissions trading growing to achieve yearly turnover of $2 trillion by 2020.

“There will only be a $2 trillion market if the U.S. gets on board,” Trevor Sikorski, head of carbon research at Barclays Capital, told Reuters at a carbon conference in Amsterdam.

The market for carbon credits was worth around $136 billion last year, according to analysts Point Carbon.

Highlighting these fading hopes, a Point Carbon survey on Wednesday showed 61 percent of respondents said they expected a U.S. emissions trading scheme by 2015, down from 90 percent last year. They also predict a lower global carbon price of 31 euros ($41.92) a tonne in 2020, compared to 35 euros.

Carbon markets allow polluters to buy and emit carbon dioxide, blamed for global warming. Under such “cap-and-trade” schemes, companies or countries face a carbon limit. If they exceed that limit they can buy allowances from others.

The EU’s Emissions Trading Scheme, launched in 2005, is the 27-member bloc’s main weapon in fighting greenhouse gas and together with a U.S. scheme, is viewed as a crucial first step toward creating a global market.

The EU Commission has said it wants to see national schemes in OECD countries by 2013 and for those to be linked by 2015.

But cap-and-trade legislation faces stiff opposition from Republicans in the U.S. Senate and strong doubts persist that a bill will pass this year.

A new climate change bill could make its debut in the Senate soon in what would likely be the last big effort by Democrats to enact major environmental reforms this year.

The U.N. climate chief Yvo de Boer on Wednesday warned that the debate on how to use public and private funding to fight climate change must be resolved if upcoming climate talks in Cancun later this year are to yield the global agreement that failed to materialize in Copenhagen last year.


Participants at a carbon conference in Amsterdam were equally downbeat, as carbon prices in the EU ETS are weak and range-bound and expectations are low for a climate pact being agreed this year at the talks in the Mexican city of Canucun.

European Union carbon prices are roughly half what they were in mid-2008, trading around 13.45 euros ($18.35) a tonne.

Market players were already labeling 2010 as a “year of uncertainty” or a “bridge year.” Moving to a $2 trillion market would be slow, they said.

“We will get there to a $2 trillion market but with slow steps,” said Abyd Karmali, managing director and global head of carbon emissions at Bank of America-Merrill Lynch.

“If anything, we seem to be on a backward track to that mark, considering delays to the Australian scheme and the lack of anything from the U.S.,” a carbon trader at a utility said.

Australia’s troubled plan for a multi-billion dollar carbon trade scheme hit a new delay in February when parliament’s upper house, the Senate, postponed debate on the package of 11 bills until at least May.

However, regulatory measures or even carbon taxes were widely ruled out effective alternatives to cap and trade schemes as a means to cut greenhouse gas emissions.

“In terms of size, the U.S. market would be 30 or 40 times bigger than that of the UK. With new markets in China and Asia, it really adds up. There is no other mechanism. Carbon taxes or regulation would not allow us to meet emissions targets,” said Jorgen Kildahl, executive vice president at Statkraft.

Others were more upbeat about the future.

“We are used to weathering the storm. This is not unusual and I am sure there will be ups again. I have a strong belief in the carbon market and that something will develop in the U.S.,” said Per Otto-Wold, chief executive at Point Carbon.

Reporting by Nina Chestney; Editing by Amanda Cooper