Paris, France
18 October 2007 The
Carbon Emission
Trading Market
Report Published by Celent
Celent predicts that the carbon emission trading
market will continue to grow despite considerable uncertainty.
Thanks to the recent Nobel laureate, Mr. Al Gore,
global warming is now a well-known issue, and there is very little debate
about the impact of human activities. We know that each year of delay in
implementing policies to reduce our carbon emissions will make global
warming disproportionately worse. From the Kyoto Protocol to the European
Union Emission Reduction Scheme (EU ETS), the majority of the emission
reduction schemes have been developed on a “cap and trade” system,
meaning that emissions are capped at a specific level, and emission
allowances and credit can be traded among participants.
The carbon emission trading market reached €22
billion in 2006 and is likely to increase. While it is difficult to make
assumptions about a market that is so dependent on regional and
international regulations, Celent expects the market to surpass €40
billion by 2012.
The extension of EU ETS to the airline
industries and the likelihood of seeing the involvement of states and
regions (such as California) that are not already active clearly play in
favour of strong growth in this market.
“The carbon emission market is based on
‘negative assets’ created by regulators. Therefore it is highly
dependent on the regulatory framework and its evolution. But, despite lack
of harmonization and regulatory uncertainty, the carbon emission trading
market has promising potential,” says Axel
Pierron, analyst at Celent and author of the report.
The carbon emission market offers a wide
spectrum of instruments, and the pricing is closely related to a country’s
economic situation, the price of energy commodities, and the weather.
Therefore, despite regulatory uncertainty, carbon emission instruments
should be included in the investment strategy of any traders targeting
these markets.
“While many firms impacted by the cost of
carbon emission are not yet active, it is also very surprising to see that
retail banks do not offer carbon emission offsetting capabilities. With
all the publicity around global warming and the increased concern about
the future of our planet, retail customers are an amazingly untapped
market. Expanding the scope of participants in this market will be crucial
to increasing its liquidity,” Axel Pierron adds.
This lack of liquidity is a plague to the
carbon emission exchanges; the carbon market is still mainly an OTC
market. The fact that many exchanges provide reporting capacity to market
participants that conduct OTC transactions inflates the transaction volume
of carbon emission exchanges. In reality, 72% of the trades in the carbon
market are conducted OTC, with a significant share of bilateral trading.
Axel Pierron observes: “We certainly believe that the carbon emission
market is benefiting from the emergence of exchanges such as the ECX. The
question is more about the economic viability of these exchanges. We have
not seen any brokers jumping into the market and developing their own
platforms. We estimate that the current uncertainty over the existence of
the market generates too much economic uncertainty.“
The report includes an analysis of the
carbon emission market, defining and explaining the various emission
reduction schemes, the instruments available, etc. It also examines the
trading trends in carbon emission–related instruments. Four carbon
emission exchanges (the ECX, the CCX, NordPool, and Powernext) are also
briefly analysed.
The 38-page report contains 21 figures and
4 tables. A table of contents is
available online.
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