Carbon: Integration of local and global carbon markets

Table of Contents

• DATAMONITOR VIEW
  • CATALYST
  • SUMMARY
• ANALYSIS
  • The Kyoto Protocol envisaged global carbon emissions trading
    • The EU is pivotal to establishing a truly ' global' carbon market
    • Europe' s ETS dominated global carbon trading in 2006
    • The majority of European carbon is traded over-the-counter
    • ECX leads the standardized market for EU emissions trading
    • EU member states are the key Kyoto Protocol signatories
    • Brussels is pinning its hopes on a ' cap and trade' carbon market
    • Key EU economies will ultimately determine the success of the ETS
    • The undesirable surplus of EU allowances remained in 2006
    • The UK has escaped an EC clampdown on Phase II allocations
    • Natural sellers will have their ETS allocations slashed from 2008
    • The EU is collectively off-target to meet its ETS commitments
    • ETS Phase II will bring a dramatic shift in market fundamentals
    • Carbon prices reflect the need for a notable curb in emissions
    • The CDM is key to engaging non-EU carbon market participants
    • China dominates selling into the CDM
    • Over two thirds of CDM credits are assimilated into the EU ETS
    • Former Soviet states profit from renewable energy investments
    • Former EU15 governments are the most active JI participants
    • Investors place differing emphases on project-based mechanisms
    • Voluntary schemes are the fastest growing Kyoto mechanism
    • US industry is preparing for inevitable federal action on carbon
    • Beijing bourse would cement the EU' s appetite for Chinese carbon
• APPENDIX
  • Definitions
  • Ask the analyst
  • Datamonitor consulting
  • Disclaimer
  • List of Figures
    • Figure 1: The EU is pivotal to establishing a truly ' global' carbon market
    • Figure 2: Europe' s ETS dominated global carbon trading in 2006
    • Figure 3: Non-brokered bilateral trading accounts for just a fifth of European carbon market activity
    • Figure 4: The Anglo-Dutch ECX dominates formalized EU emissions trading
    • Figure 5: Key EU economies will ultimately determine the success of the ETS
    • Figure 6: The undesirable surplus of EU allowances remained in 2006
    • Figure 7: Both the UK and Slovakia secured European Commission (EC) approval for a larger emissions quota in their Phase II NAPs
    • Figure 8: Poland and its smaller central and eastern European neighbors have been disproportionately targeted by Brussels in Phase II
    • Figure 9: The EU is collectively off-target to meet its ETS commitments
    • Figure 10: The transition from Phase I to Phase II allocations will see the current surplus of credits replaced with an EUA shortfall from 2008
    • Figure 11: Trader focus is shifting from an increasingly meaningless ETS Phase I towards increasingly stringent Phase II allocations
    • Figure 12: While Europe' s carbon market now dwarfs the CDM as Kyoto' s most traded and valuable mechanism, project-based trade remains pivotal
    • Figure 13: China generated 70% of all CDM CERs in 2006
    • Figure 14: The UK was the largest purchaser of CERs in 2006, reflecting its large ETS Phase I deficit
    • Figure 15: Central and eastern European states are cashing in on a ' greener' economic recovery
    • Figure 16: Copenhagen and Vienna are buying ERUs to bolster their 2012 Kyoto compliance efforts
    • Figure 17: Private investors have greater interest in CDM credits, which can be used in Phase I
    • Figure 18: Governments take a longer-term view, dominating trade in JI credits post-2008
    • Figure 19: While nominal and relative growth of the EU ETS is impressive, voluntary Kyoto schemes are growing at over 300% per annum