14 June 2010 | Published by Datamonitor

The voluntary carbon market will continue its growth path in the coming years, fuelled by pre-compliance buying and increased CSR concerns according to Datamonitor. However, growth will be at a slower rate of around 20% per year and any change in prices will not be dramatic.

A new report* by the independent business analyst has found that voluntary markets were well insulated from the failures of the Copenhagen climate change talks, and indeed may have benefited from them. Companies’ desire to take action on climate change in order to appease customers and investors could in fact increase demand in the voluntary market.

Rebecca Reed-Sperrin, Datamonitor energy analyst and report author, said: “Like every other commodity market, growth in the voluntary carbon market was subdued as a result of companies re-evaluating their CSR investments, as well as a lack of finance for new projects. However, the recession only halted new entrants to the voluntary market, while those that were already investing continued to do so at similar rates.”

Pre-compliance buying is expected to fuel the growth in voluntary markets as companies in Japan, Australia and North America prepare for incoming federal legislation.

In particular, Datamonitor expects US pre-compliance demand to increase this year as a result of companies preparing for incoming federal legislation. Any positive movement towards a federal cap-and-trade system would give the voluntary carbon market a boost.

At present, companies in the EU are by the far the biggest buyer of verified emission reductions (VERs), constituting half of the market, illustrating that the creation of an emissions trading scheme does not necessarily mean the demise of voluntary emissions reduction (VER) demand. For this reason, Datamonitor does not expect the implementation of federal cap-and-trade schemes in Japan, Australia and North America to have a negative effect on the voluntary markets.

Ms Reed-Sperrin added: “Considerably higher European carbon prices are expected post-2012 as the EU Emission Trading System (ETS) experiences tighter caps and increased coverage in its third phase.

“The market in projects that generate offsets under the Clean Development Mechanism (CDM) is suffering from post-2012 uncertainty, which will diminish trading in primary certified emission reductions (CERs). Despite great policy concerns, Datamonitor expects growth in primary CER market volumes in 2010 as higher prices tempt those project developers that delayed issuance in 2009”.

Should current Australian and US proposals for emissions trading systems go ahead, in addition to some form of global agreement that would sustain the CDM, or a similar mechanism involving less developed countries, the global carbon market should advance post-2012.

The addition of a number of smaller schemes in Canada, Japan and New Zealand would also add to global transaction volumes. However, the probability of a truly global carbon market remains low. Instead, Datamonitor expects several regional carbon markets with varying degrees of interconnection to co-exist.

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