The global carbon market dipped 1.4 percent to $142 billion last year from $144 billion in 2009, mainly due to regulatory uncertainty, the World Bank said on Wednesday.
“The global carbon market stagnated even as the global economy stabilized and began a tentative recovery in 2010,” the bank said in the report, published on the sidelines of a carbon conference in Barcelona, Spain.
The value of carbon offsets generated under the Kyoto Protocol’s primary Clean Development Mechanism (CDM) market saw the biggest slump, falling by almost half to around $1.5 billion from $2.7 billion the previous year — its lowest level since the pact came into force in 2005.
Transaction volumes were not revealed, as in previous years.
The CDM rewards companies for investing in clean energy projects, mainly in developing countries.
The scheme’s future is uncertain after the protocol ends in 2012 and investors are concerned that carbon offsets will be invalid if the pact is not extended or if there is a gap between old and new market mechanisms.
U.N. climate talks aimed at securing a Kyoto successor have so far agreed on modest steps to combat climate change but have so far failed to commit to legally binding emissions cuts.
Amid regulatory uncertainty, the bank said investors have looked toward more predictable asset classes, such as a U.N.-backed forest preservation scheme called REDD, whose market share swelled last year, with 16.7 million credits transacted, compared to 2.8 million in 2009.
Dominance
The European Union’s Emissions Trading Scheme (EU ETS), continued to dominate the global market with its value inching up by 1 percent to $119.8 billion last year from $118.5 in 2009, the report said.
EU carbon permit transactions represented 84 percent of the total value of the global market, even though an ongoing probe into value-added tax fraud and spot permit theft led to the loss of confidence and liquidity in the spot market.
Such scandals sparked a renewed interest in over-the-counter (OTC) spot markets as some market participants prefer to deal with known counter-parties to avoid credit risk.
“The suite of regulatory reforms at the EU and member state levels will over time lead to a more robust, transparent, and fair market,” the bank said.
Meanwhile, the sovereign Kyoto Protocol emissions rights (AAU) market — a cheaper alternative for governments to buying carbon offsets from developing countries — shrank to an unspecified amount in 2010 as prices declined, the report said.
The United States’ northeastern carbon market, the Regional Greenhouse Gas Initiative, which ballooned in 2009 to $2.2 billion, also had gains erased last year.
The voluntary OTC market’s value rose 10 percent to $393.5 million last year, as activity increased, but volumes still accounted for just 0.3 percent of the global market, the report said.
