Carbon Markets:
Kyoto’sFirstSixMonths
With Kyoto’s first commitment period well under way, how is the carbon market progressing?
ResearchconductedbyPointCarbonshowsthattheworld’scarbonmarketexchanged1.84billion
tonnes (Gt) CO
2
equivalent in the first half (H1) of 2008. This is up 56% on the same period last
year,duringwhich1.2Gttraded.
By Endre Tvinnereim
TOTAL WORLD GREENHOUSEgas(GHG)marketswereworthanesti-
mated€38bninH12008(US$59bn).Inpartduetohigheraverage
carbonprices,totalmarketvaluewasupafull141%onthesame
periodlastyear. Takentogether,thesevolumeandvaluenumbers
suggest a weighted average world carbon price of €20.61
(US$32.25)pertonneCO
2
e.
TheestimatecountstransactionsunderallmandatoryGHGtrad-
ingmarketswithactivetrading.Thisincludesthemarketsspurredby
theKyotoProtocol–theEUemissionstradingscheme(EUETS)as
well as the UN’s clean development mechanism (CDM) and joint
implementation (JI) markets. Also included are Australia’s existing
NewSouthWalesgreenhousegasabatementscheme(GGAS),the
AlbertaprovincialemissionstradingsysteminCanadaandthebud-
ding forward markets in the forthcoming US-based RGGI (from
2009)andfederalAustralianETS(from2010).
EU ETS
IntheEUETSmarket,1.3GtCO
2
echangedhandsinthefirsthalf
of2008,withatotalvalueof€30bn.
TheETSreviewhasbeenthemainfactorinfluencingtheEUmar-
ketsofarin2008.ThisprocessstartedinJanuarywiththeEuropean
Commission’sproposalforPhaseIIIallocationandcreditlimits.
Althoughthereviewhasnotbeencompleted,themergingofPhase
IIandPhaseIII(2013-20)hasproducedamuchclearerdownside
limitationonEUAprices.Asaresult,EUAsnowtradebetweenthe
fuelswitchinglevelandanimpliedPhaseIIIpricefloor.
AnotherfactorseeninH1issoaringenergycommodityprices.Oil
hasgrownthemost,withcoalnottoofarbehind.Asaresult,highUK
switchingpriceshavebeenseen.
A reduction in expected CER volume has also driven EUA prices.
FearsofapossibleCERcrunchalsoreducedthespreadbetweensec-
ondaryCERsandEUAsinQ2,afterawideninginQ1.
ThelargestplatforminvolumetermsistheOTCmarket,with55%
ofthetrade.Exchangescomesecondwith28%,oralmostexactly
halfthebrokeredvolume.Thereafterfollowbilateraltradeswithan
estimated11%,optionsat4%andauctionsat2%oftheEUAtotal.
New this year is a significant auction volume, whereby EUAs are
solddirectlyfromgovernmentstocompanies.Theonlycountrywith
knownauctioninginH12008isGermany,wherestate-ownedbank
KfW sells volumes daily on the ECX and other platforms. Several
morecountriesareexpectedtostartauctioningEUAslaterin2008.
Clean Development Mechanism
Themarketincertifiedemissionreductions(CERs)consistsofpri-
mary, secondary and options segments. The primary CER market
COMMODITIES NOW SEPTEMBER 2008 89
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