Voluntary carbon market climbs on trees
The voluntary carbon market climbed to record volumes of emissions reductions last year, bouncing back from worldwide recession on the back of corporate social responsibility demand and the rise of forest-based offset supply. This picture emerges from the State and Trends of the Voluntary Carbon Markets 2010, published this week by Ecosystem Marketplace and Bloomberg New Energy Finance.
Organisations voluntarily choosing to offset their carbon emissions drove trading higher with the departure during the year of North American pre-compliance buyers, exiting the market after the failure of US legislative attempts to implement a national emissions cap and trade scheme. Volumes reached 131 million tonnes, up 34 per cent on the previous recession-hit year and surpassed pre-recession levels.
The rise in the voluntary market is set against a decline in the overall global carbon market, dominated by mandatory emissions trading schemes, in particular the EU-ETS. According to the World Bank, global carbon trading volumes shrank 10 per cent in 2010 whilst market value slipped $2 billion to $142 billion.
The rosy picture of rising voluntary-market volumes is tempered by the contribution of a large, one-off, 59-million-tonne transaction of low-priced Chicago Climate Exchange credits as that market ground to a halt during 2010. This accounted for almost half the volumes in the market and won’t be repeated, raising questions as whether overall market growth can maintained in 2011.
The average price paid for voluntary offset credits slipped from $US6.50 to $6 which meant that the value of voluntary market trades last year rose only marginally despite the increased volumes. Estimated value of the market was $424 million. The vast bulk of transactions were over the counter rather than exchange-traded, reflecting the demise of the CCX and occurred despite the emergence of new exchanges offerings.
On the supply side, forest-based credits jumped to capture 45 per cent of transactions, up from 21 per cent the previous year, courtesy of the rise of avoided deforestation activity as the emerging REDD+ effort builds up steam. REDD projects alone almost tripled in market share of project activity to 29 per cent. Much of this activity was underpinned by new REDD methodologies approved by the Verified Carbon Standard (VCS), leaders in this field, and provider of third party verification to one in every three of all voluntary carbon credits generated in 2010.
The report authors say the surge of REDD activity led to unprecedented market activity in the developing world. This included a doubling of credits from Latin America, as well as more than doubling of the number of project developers and buyers headquartered in Asia, Latin America and Africa, thus laying the foundation for long-term growth in the Global South.