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Europe Leads Growing Carbon Markets, For Now

Posted by: Mark Scott on January 14, 2009

As the world’s financial markets slide from bad to worse, here’s a small silver lining to a pretty big grey cloud. According to European consultancy Point Carbon, the global carbon market actually grew 83% last year. In total, $125 billion of carbon credits — representing an estimated 4.9 billion metric tons of carbon dioxide equivalent — were traded from Europe to Australia in 2008. That’s not bad for a market that didn’t even exist 10 years ago. And with other CO2 schemes, notably some sort of U.S. federal system, expected in the near future, the dollar figure for carbon trading looks set to rise.

Breaking down the numbers, Europe remains the leader of the CO2 markets. Indeed, the European Union’s Emissions Trading Scheme (EU ETS) — the compulsory mechanism designed to lower Europe’s emissions in line with its Kyoto Protocol targets — was worth $90 billion last year, more than double the 2007 dollar value. According to Point Carbon, the EU ETS still represents roughly two-thirds of the global carbon market (by volume of trades) and almost three-quarters of its total worth.

Among the other fledgling carbon markets, the Northeast's Regional Greenhouse Gas Initiative (RGGI) ranks third globally by total value at $240 million. The carbon market for large emitters in the Canadian province of Alberta finished second with an annual value of $640 million.

By the numbers, Europe is not only head-and-shoulders above the rest, but really is on a different planet. Yet people close to the European carbon markets are predicting big changes in the not too distant future. That's because most analysts expect the U.S. to become one of the biggest -- if not the biggest -- CO2 market in the world. To date, the fact Europe has taken the lead on climate change issues has given it a first-adopter advantage. Yet with President-elect Obama signaling his support for some type of federal carbon scheme, that soon might change.

It will be interesting to watch how Point Carbon ranks the global CO2 markets both this year and next. For now, Europe should hold on to its No. 1 ranking, but most reckon the Old World won't be the top dog for much longer.

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BusinessWeek correspondents John Carey and Mark Scott, cover the green scene, keeping on top of the business aspects of energy, the environment and climate change, as well as the technologies, policies, markets and people that are shaping how the earth's resources will be used in the century ahead.

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