“Sixty-eight developing countries participate in the CDM,, among them Jamaica, Kenya, Mali and Madagascar, which offered climate-friendly projects for the market for the first time in 2007. But, at a time that global cooperation to reduce the risk of climate change is more important than ever before, the prospects for developing countries benefiting from the carbon market are in question. It would be a shame for the world to lose this momentum now”, said Karan Capoor, senior World Bank carbon markets expert and main author of the State and Trends of the Carbon Market Report 2008.
The overall data in the report masks some key vulnerabilities-especially for developing countries. All developing countries face a demand gap sometime in 2008 when buyers realize that there is not enough time to fulfill Kyoto commitments with new projects, and demand will have not yet kicked in from emerging markets in the US and Australia that are expected to be players in a future market after 2012. Added to that is the fact that the European Commission has proposed freezing new demand for projects from developing countries in commitments to reduce greenhouse gas emissions after 2012. The success of the CDM is also weighed down by procedural delays as more than 2000 projects out of more than 3000 have not yet been processed through the CDM approval cycle.
“Projects for renewable energy and energy efficiency, as well as investments in poorer developing countries make up the bulk of the projects this year and it is these projects that are losing out as a result of procedural delays and bottlenecks in the CDM, putting their eventual implementation into question,” said Philippe Ambrosi, also of the World Bank, and co-author of the report.
The State and Trends of the Carbon Market 2008 reviews the trends of the carbon market based on material provided by carbon market analysts and brokers Evolution Markets Inc. and Natsource LLC, and on interviews with a large number of market participants. The report is based on data from the trading of EUAs under the EU ETS and from transactions completed under the Kyoto Protocol’s flexible mechanisms-the CDM and Joint Implementation (JI)-that allow industrialized countries to purchase greenhouse gas emission reductions in developing countries and in countries with economies in transition and also includes data from voluntary markets.
“A doubling in the size of the carbon market is significant growth, but the market is nowhere near meeting its full potential," said Andrew Ertel, President & CEO of Evolution Markets Inc., one of the contributors to this year's report. “Lack of clarity post-2012 and a leveling off of primary CDM volume is countering growth of commoditized markets such the EU ETS and secondary CDM trading. The market is truly at a crossroads as market participants fully appreciate the complexity and risks of carbon trading. Where we go from here is up to market players and their perception of the regulatory risk in all of these markets.”
“Carbon trading market data in 2007 reflects the ability of market mechanisms to mobilize capital to address climate change”, said Jack Cogen, CEO of Natsource LLC, a leading emissions and renewable energy investment bank. “In order to continue market growth and investment in clean energy, policy-makers need to send the project development and buying sectors a clear signal that these mechanisms will continue to be an important policy tool in the post 2012 policy framework to address climate change and improve their performance. In addition, all those participating in the U.S. climate policy debate should draw important lessons from the world’s efforts to develop carbon markets and apply them in U.S. legislation,” said Cogen.
