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June 24, 2010
Voluntary Carbon Markets Experience Steep Decline in 2009
    by Robert Kropp

Report by the Ecosystem Marketplace and Bloomberg New Energy Finance attributes decline in volume to financial crisis and regulatory uncertainty.


In Europe, where the European Union Greenhouse Gas (GHG) Emission Trading System (EU ETS) is mandatory, it is estimated that the mandatory carbon market has led to reductions in greenhouse gas (GHG) emissions of between 2% and 5% for each of the first three years it has been in place.

Yet despite compelling indicators of success for the program in Europe, it is unlikely that a carbon market will become mandatory in the US anytime soon. Therefore, it is to the voluntary carbon markets that organizations must turn if they wish to reduce their carbon footprints through offsets.

The voluntary carbon market remains a tiny fraction of the overall carbon market, according to a the fourth annual
State of the Voluntary Carbon Markets report published last week by the Ecosystem Marketplace and Bloomberg New Energy Finance.

Furthermore, while the regulated carbon markets grew by seven percent in 2009, transacting 8,625 Metric Tons Carbon Dioxide Equivalent (MtCO2e) valued at $144 billion, suppliers in the voluntary market reported a total volume of 93.7 MtCO2e transacted in 2009, a decline of 26%.The value of voluntary carbon market transactions in 2009 was $387.4 million, a 47% decline from 2008.

The report attributes the decline to two primary factors. In the wake of the global financial crisis, "companies cut back on discretionary funding for corporate social responsibility (CSR) initiatives, including offsetting emissions." In addition, regulatory uncertainty, both in the US—where the Waxman-Markey energy bill passed the House of Representatives in June 2009, but has stagnated in the Senate ever since—and in the disappointing aftermath of the
United Nations Framework Convention on Climate Change (UNFCCC) leave "prospects for new compliance demand…uncertain," according to the report.

An exception to the decline was registered in the US, where volume increased from 15.0 MtCO2e in 2008 to 24.2 MtCO2e in 2009, the highest volume registered by any country. In addition, over-the-counter (OTC) transaction volume in North America increased from 28% of the global market in 2008 to 56% in 2009.

The report noted that the
Chicago Climate Exchange (CCX) "saw sizeable growth in 2009 as CCX-registered credits claimed 15% of credits transacted via a registry in 2009, up from 4% in 2008." The CCX is North America's only cap and trade system for all six greenhouse gases.

According to the report, the future growth of voluntary carbon markets is uncertain, noting that 2010 "may see a relative shift away from the pre-compliance market and back towards the pure voluntary markets." In any case, the report notes, "the concept of offsetting has not lost its controversial edge and many stakeholders continued to emphasize the importance of reducing internal emissions before purchasing offsets."

 

 
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