Tuesday, April 28, 2009

Trading was driven by price volatility and companies selling carbon permits to raise short-term cash

TO BE NOTED: From the FT:

Carbon trading volumes jump 37%

By Fiona Harvey

Published: April 27 2009 18:25 | Last updated: April 27 2009 18:25

The carbon market showed a remarkable growth spurt in the first quarter of this year, with trading volumes up 37 per cent.

Trading was driven by price volatility and companies selling carbon permits to raise short-term cash.

However, low prices meant the market’s value had fallen by 16 per cent to $28bn by the end of March, according to New Carbon Finance, a carbon data specialist.

Nearly 2bn carbon credits were traded in the first quarter, an increase of 37 per cent on the previous quarter and more than double the amount traded in the first quarter of 2008.

Guy Turner, director of New Carbon Finance, said: “In spite of the recession, a decline in carbon prices and uncertainty over what will happen after 2012 [when the current provisions of the Kyoto protocol expire], traders are taking this market seriously and trading more actively.”

The bulk of the international market – about 84 per cent by value – is the European Union’s emissions trading scheme, under which energy-intensive companies are issued a quota of carbon permits they may trade with one another. Trading in this market rose by 54 per cent, compared with the last quarter of 2008.

Prices for EU permits are nearly €14 ($18.4), up from a low of about €8 in February. Traders have priced in the effects of the recession driving down industrial production, and companies have largely stopped selling off permits to raise cash.

But volumes in the other main part of the market, the trade in carbon credits issued by the United Nations – 9 per cent of the market by value – fell about a third.

Trading in this market has been affected by uncertainty over what will replace the Kyoto protocol. The UN issues credits to carbon-cutting projects under the protocol, and these can be used by companies in the EU scheme to top up quotas.

The stream of finance for such projects is drying up, according to New Carbon Finance: the last new carbon fund, of $95m, was set up last year and no new money was raised in the first quarter of 2009.

The company forecast the carbon market would be worth about $120bn by the end of the year, broadly on a par with last year.

However, if the US introduced a federal cap-and-trade system the market would reach more than $2,000bn by 2020."

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