In the first nine months of 2006, the carbon market grew to nearly US$22 billion, more than doubling in value over the almost US$11 billion recorded in 2005. This and other current statistics are revealed in the State of the Carbon Market Report update released today at Carbon Expo Asia in Beijing by the World Bank and the International Emissions Trading Association.

"All the data show that the carbon market is becoming a powerful financial force supporting clean development," said Karan Capoor, coauthor of the report with Philippe Ambrosi, also of the World Bank. "To put this into perspective, the almost US$22 billion is four times the GDP of Mongolia and more than twice the GDP of Lao PDR, and the year is not even over."

Up to the end of September, Asian countries accounted for 84% of total volumes in the CDM market. China continues to dominate the project-based market with 60% of the volume of projects transacted (down from 73% in 2005) with India next with a 15% share of the market volume (up from 3% in 2005).

The carbon market encompasses both project-based transactions ― Clean Development Mechanism, CDM in developing countries and Joint Implementation, JI in countries with economies in transition ― where a buyer purchases certified emission reductions from a project that reduces greenhouse gas emissions compared with what would have happened otherwise, and trading of greenhouse gas emissions allowances allocated under existing cap-and-trade regimes such as the European Union Emissions Trading Scheme (EU ETS), as well as the voluntary carbon market, for example in the United States and Australia.

The European Union's Emissions Trading Scheme (EU ETS) dominated the market in terms of value, accounting for nearly US$19 billion of the total carbon market worth, with project-based transactions well on track to be worth over US$3 billion by the end of the year. The overall volume of CDM transactions in developing countries in the carbon market remains steady although prices are up over 2005.

"The GHG market has performed well in terms of market functioning, but what is more important, it is delivering in terms of catalyzing green investments at a more rapid pace than expected," said Andrei Marcu, Executive Director of the International Emissions Trading Association (IETA)."It is a real change in terms of the availability of finance to address environmental problems in developing countries. We will continue to work to ensure that all countries benefit equally from carbon finance and that projects have a strong sustainable development component, especially on the energy side."

Much of the China volume came from industrial gas projects like HFC-23, a byproduct of HCFC22, a gas used for refrigerants, but the days of those types of projects may be numbered in China.

"We do not encourage more HFC projects," said Lu Xuedu, Deputy Director of China's Office of Global Environment Affairs, Ministry of Science and Technology. "We would prefer to have more energy efficiency and renewable energy projects that could help alleviate poverty in the countryside."

CDM market data shows that renewable energy and energy efficiency projects are gaining market share, now accounting for 26% of total project-based volumes, more than doubling from 11% in 2005. Last year energy efficiency was nearly missing from the market data and now it has emerged accounting for nearly 14% of total CDM volumes. Renewable energy is also increasing, accounting for 12% of the CDM market with wind energy accounting for half of this, tripling from 2% last year.

"Clean energy is clearly benefiting from the carbon market," said Joelle Chassard, Manager of the Carbon Finance Unit at the World Bank, "but its true potential for sustainable development can only be realized if there is a strong policy signal for its continuation into the longer term."

As the carbon market continues to grow, there is indeed much concern over what will happen beyond the Kyoto Protocol's first commitment period (2008-2012). Developments in carbon trading outside the Kyoto Protocol are noteworthy. Progress in mandatory greenhouse gas emission regulation in the United States is happening with the California and the Northeastern States trading schemes. Both regimes are setting long-term targets, sending a market signal well beyond 2012 as they both acknowledge a need for market-based mechanisms. The Northeastern States trading regime allows for an interface with Kyoto Protocol credits and other mandatory regimes.

(China Development Gateway October 26, 2006)