World Carbon Markets Expand 10% in 2011 Despite Poor Economy

According to analysis by Bloomberg New Energy Finance, the value of the world carbon market increased to €92bn in 2011, a rise of 10% on €84bn in 2010. The main cause of this increase is additional market activity, with the volume of carbon changing hands increasing by 22% from 2010 to 2011. In 2011, some 8.2 billion tonnes (bnt) of carbon dioxide allowances were traded compared to 6.7bnt in 2010.

The robust trading activity has in part been driven by increased volatility in the European market as traders have started to switch their attention from energy fundamentals to news and rumours about the future of the Eurozone. The 60-day volatility in the EUA December 2012 contract nearly doubled from around 40% in October to 70% at the end of December.

The latter half of 2011 also saw a notable increase in the trading of international carbon credits, including Certified Emission Reductions (CERs), Emission Reduction Units (ERUs) and Assigned Amount Units (AAUs) created under the Kyoto Protocol. An estimated 643Mt of CERs, ERUs and AAUs changed hands in Q4 2011 – more than twice as much as in Q2 and an increase of 27% compared with Q3. This increased activity was driven by high issuances of CERs, a spike in ERU trading as Ukrainian ERUs were sold before the ban on that nation’s ERU and AAU trading, and high transaction volumes on secondary markets as prices declined to record lows.

The increase in traded volume across all markets was more than enough to offset a decline in the global weighted average price of carbon allowances, which fell by 10% from €12.4 in 2010 to €11.2 in 2011. The average price of European allowances over the year declined by 9% between 2010 and 2011,falling from €14.8/t to €13.4/t, while international carbon credits, or Certified Emission Reductions (CERs), reduced in price by 17% from €12.1/t to €10/t. See Figure 1 in the attached document.

The gradual decline in average prices in 2011 is in sharp contrast to the increase in traded volume, which rose steadily throughout the year from 1.8bnt in Q1 to 2.4bnt in Q4 – an increase of 33%. This jump in trading activity was seen across both the European and international carbon credit markets (Figure 2 in the attached document).

Bloomberg New Energy Finance expects the global carbon market to increase in value by a further 10% in 2012 as a result of greater use of auctioning in the EU Emissions Trading System (Figure 3 in the attached document).

Guy Turner, director of carbon and power research at Bloomberg New Energy Finance, commented, “We previously warned that excessive volatility in carbon prices could drive traders out of the market. Evidence however is that this hasn’t happened so far, in fact traders have been more active than ever! With the advent of more auctioning in the European scheme in 2012 we expect the value of the carbon market to increase again in 2012.”

Source: Bloomberg New Energy Finance

Tags: carbon credits, carbon dioxide, emissions trading, energy finance, international carbon, kyoto protocol, new energy

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