Trends in the Carbon Market:
Report from Carbon Expo 2006

Carbon market shows dramatic growth amid concerns of future stability

WESTBROOK, ME — Catherine A. Lee, managing director of Lee International, returned recently from Carbon Expo 2006. The event, held from May 10-12, in Koelnmesse, Germany, was attended by 2,050 participants from 94 countries with the objective of generating new business opportunities for greenhouse gas emission reductions for private operators and governments from industrialized and developing countries.

The sixth annual World Bank carbon market intelligence study, released at the conference, shows a dramatic growth in the global carbon market, led by strong activity in the European Union's pilot Emissions Trading Scheme (EU ETS). The report which covers the period from January 1, 2005 to March 31, 2006 records a booming global market worth over US $10 billion in 2005, ten times the value of the previous year.

The 2006 Report shows explosive growth in allowance markets, making them for the second year the main driver of growth of the market. European Union trades dominated the carbon market in terms of value-75 percent in 2005, but almost half of the total volume of greenhouse gas (GHG) emission reductions came from the developing world, making developing countries meaningful participants in the drive to reduce climate altering greenhouse gases on the earth.

According to the report "price signals in the carbon market have stimulated innovation especially in developing countries." The market analysis shows that transactions from projects in developing countries and economies in transition totalled 364 million tons of greenhouse gas emission reductions and in the EU ETS, some 322 million tons of allowances were transacted.

The carbon market encompasses both project-based transactions (CDM and JI) 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 EU ETS, as well as the voluntary carbon market, for example in the United States and Australia. The report documents growth on those voluntary markets as well. For example: the U.S.-based Chicago Climate Exchange has already seen some 1.25 million tons of carbon dioxide equivalent exchanged in the first three months of 2006, compared with 1.45 million over the whole of 2005.

Looking at future trends, the report emphasizes that "the prospects for the project-based market are quite solid, provided the EU does not erect any barriers limiting entry for CDM and JI imports for phase II (2008-2012)." Markets now price carbon and this has created the opportunity for the private sector to efficiently support investments to reduce emissions. The long term success of the carbon market, however, will be judged by its ability to achieve its environmental goals and preventing climate change.

For more information e-mail us at .