Commodity Online NEW DELHI: Is it the end of carbon credits trade? That is one question bothering the world Futures trade now.
Due to the crunch, uncertainty over the future of UN carbon offset markets and the upcoming US election the growth of carbon trade has slowed down in 2008.
However, the slowdown has not affected the sector much as the carbon markets saw carbon funds growing 63 per cent so far this year.
Carbon funds bring together investment capital, mostly to plough into carbon emission offset projects under Kyoto Protocol schemes, which generate lucrative carbon credits that currently trade for more than Euro 20 each on carbon exchanges in Europe and the US.
The funds also buy up credits generated by other project developers and are major drivers of the global carbon market.
These credits, CERs and ERUs, are in demand by developed world governments and companies which can use them to put towards their own emission reduction targets under Kyoto, or national schemes like the EU ETS.
A report by Environmental Finance says the number of carbon funds has increased from 56 to 80 this year and their assets under management have grown from $7.9 billion to almost $13 billion.
Carbon funds include private sector vehicles owned by specialist companies and investment banks, government-owned funds buying to meet their own national Kyoto targets, the World Bank, the biggest player in the fund market, and buyers’ pools.
The vast bulk of carbon fund investment is in the UN Clean Development Mechanism (CDM), set up under Kyoto. But with the treaty due to expire in 2012 and no replacement yet negotiated, the CDM’s future is under a cloud. Its popularity in developing and developed nations alike suggests its future is assured in one form or another, but fund investors and project developers can’t make long term decisions without more certainty.
Tighter credit conditions are constraining capital availability in carbon finance as they are in most financial markets. Meanwhile, the outcome of the November US presidential election could well be game-changing for global carbon markets with both candidates embracing emissions caps and trading for the world’s largest economy.
Overall global carbon trade continues to surge with no let up seen in the 100 per-cent-plus growth rates.
