The World Bank - State and Trends of the Carbon Market 2008

The world carbon market tripled in value from 2005 to 2006, up to US$30 billion. The EU ETS dominated the market, but other exchanges such as the New South Wales program and the Chicago Climate Exchange as well as the Clean Development Mechanism and Joint Implementation all grew in volume and value. In Europe, it became clear that the Phase 1 emissions cap had been set at the wrong level, leading to increased volatility and market interest focusing on the upcoming Phase II. Project-based assets showed stability alongside an increase in transaction volume. US$5 billion was transacted in primary CDM credits. Volumes grew steadily and prices marginally. China continued to hold a dominant market share of CDM projects. CERs were traded at higher prices in secondary markets. JI projects from economies in transition – namely Russia, Ukraine, and Bulgaria – also increased. Europe, led by the U.K., drastically increased its CDM & JI market share with Japanese purchases down. Private sector buyers such as banks and carbon funds bought large volumes of CDM assets, with public sector buyers commanding a large share of JI. Secondary transactions of carbon portfolios occurred between international financial institutions and funds with other banks or companies facing compliance obligations. Sellers managed carbon price risk by favoring fixed price forward contracts, while the ease of closing transactions improved from six months prior. There remain questions regarding the post-2012 market. The market for both CERs and EUAs is still risky and potentially volatile. There is hope for increased market continuity, adjustments, and continued innovation.