Carbon market to shrug off downturn and top $150bn this year

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The global carbon market will remained shielded against the worst effects of the economic slowdown and grow by over 27 per cent this year to $150bn, according to the latest projections from analyst firm New Carbon Finance.

The company’s latest report said that the value of the carbon market soared 82 per cent last year to $118bn and predicted that while the global economic downturn would result in a slower rate of growth throughout 2009 the market would continue to expand.

Speaking to BusinessGreen.com, director at the company Guy Turner, said that the bulk of the growth during 2009 would be driven by the market for certified emission reductions (CERs), the carbon credits that form the currency within the UN’s Clean Development Mechanism (CDM).

“We don’t expect to see a great deal of change in the EU ETS [emissions trading scheme] market, they’ll be a small increase in volume but the price of credits is likely to stay fairly stable,” he predicted. “Where we expect to see increases in both volume and prices is in the CDM market.”

The expansion of the CDM market is expected to be driven by an increased pipeline of new credits from UN-approved emission reduction projects and the growing maturity of the UN’s International Transaction Log (ITL) trading system, which Turner said was improving liquidity in the market.

He also said that demand for credits from traders in the US and Australia was also expected to increase as they prepare for the introduction of their own national carbon emission cap-and-trade schemes.

The ETS market is expected to endure a tougher a year as reduced economic activity results in lower demand for carbon credits and depressed carbon credit prices.

However, Turner maintained that overall the carbon market would prove far better insulated against global recession than other commodity and energy markets.

“The fact is that the [emission] targets are getting tougher and as a result the long term outlook for the market is good,” he said. “Because with carbon there is no physical product to be stored, unlike other commodities, the market is very much driven by longer term predictions… we are seeing people looking out five years from now and buying credits now that they will then hope to sell at a profit.”