31 May 2012

World Bank State and Trends of the Carbon Market 2012: market growth is more spin than substance

The World Bank's annual State and Trends of the Carbon Market report is out, and can be found here:

It's a very useful source of data which, like all WB stuff, needs to be treated with caution. The spin is all about a growing carbon market, rising to $176 billion, an 11% increase on the previous year's figures for 2010. (see, for example, how Reuters picked it up) However, it is worth noting that :
  • The largest proportion of the "carbon market growth" is accounted for by a change in how the World Bank counts the figures, the explanation for which is buried in an annex: “Instead of using external data, however, in 2012 the authors calculated the volumes and values for 2010... . The calculation resulted in higher volumes and values, particularly for EUA and secondary CER transactions. Instead of the global carbon market of US$142 billion reported in 2010, the revised calculations resulted in a global carbon market that is greater by about US$17 billion year on year (yoy). A higher value in the EUA market accounted for about US$14 billion, 80% of the difference. This year’s calculation also resulted in a secondary CER market greater by US$2 billion in 2010 yoy. The remaining differ- ence is explained by the value of the post-2012 CER transactions, not reported last year, which reached over US$1 billion in 2010. ” (p.124) 
  • That said, the market still grew a bit, and the reason given for that is a rise in hedging and speculative trades: “Trading volumes soared in 2011, coinciding with the second decline in verified emissions in three years. A considerable portion of the trades is primarily motivated by hedging, portfolio adjustments, profit taking, and arbitrage." (there's quite a useful box explaining this around p.39) 
  • It's also worth noticing that the Bank has massaged the figures to overcome the embarrassment of a shrinking CDM Last year's "primary" CDM market (ie. the value of the credits generated by projects; rather than the cumulative value of further trading in these credits) was $900 million, the lowest ever (comparisons below - figures in US$billions) 
  • The Bank then boosts this figure by adding another $1.9 billion for forward pCER post-2012" value - "call options" on credits that are not yet issued. Put simply, it's counting an option to buy a credit that does not yet exist as part of the value of the CDM. A lot of carbon is actually traded this way, although the press doesn't exactly get very far in explaining this. But the real massaging of the figures is revealed here (p.49) : “without a brighter market outlook, it is unlikely that a substantial proportion of these post-2012 ERPAs will be exercised at the indicative prices and volumes established in these documents. ” (ie. the figures written to Emissions Reduction Purchase Agreements, which are the basis for this $1.9 billion, would generally - I'd wager almost exclusively - mean that options would not be taken up with CDM credits going for less than €3.50 per ton, as at present). 
  • With the CDM, too, the story is one of greater financialisation. The biggest trade in CDM credits passes through the UK and Switzerland (where a lot of the financial intermediaries are based "Entities in the UK transacted the largest share, accounting for 47Mt or 39% of pre-2013 pCERs and 44Mt or 26% of post-2012 pCERs. The primary catalyst for this was the high concentration of buyers in the UK. However, a large portion of these vol-umes are known to be redistributed upon deliv-ery. Switzerland had a robust increase in 2010 and in 2011 in both pre-2013 and post-2012 markets compared to previous years. The Swiss market share came right after the UK, for the same reasons as the latter." (p.55)

26 May 2012

Carbon Markets After Durban - The Atmosphere Business

The most recent issue of the journal ephemera is a special issue on “The atmosphere business”. It takes a critical look at "climate capitalism". My contribution on "Carbon Markets after Durban" can be found here It starts out fro, the contradiction of the push for new market mechanisms in the context of offset prices crashing to all-time lows and carbon branded the ‘world’s worst performing commodity’.