Voluntary Carbon Market Shrank 26% in 2009

2009 was a tumultuous year for the voluntary carbon markets, according to a new report. Transactions dropped 26% compared to 2008 for an equivalent of 94 million tons of carbon dioxide emissions reductions.

The State of the Voluntary Carbon Market Report issued by Ecosystem Marketplace and Bloomberg New Energy Finance found the total value of traded credits declined 47% to US$387 million in 2009 and the average price of an emission reduction was $6.5/tCO2e.

Although the economic downturn reduced offset purchasing for corporate social responsibility, the report notes significant growth in the pre-compliance segment of the voluntary markets. These are speculative credits bought in anticipation of a cap-and-trade program in the US, which accounted for the greatest market share of supply (56%) and demand (49%) of voluntary carbon credits in 2009.

Forest Trends’ Ecosystem Marketplace Director and report co-author Katherine Hamilton said, “Voluntary markets play a critical role in market innovation, and they are becoming more efficient and transparent as participants forge deeper connections with each other. It is encouraging that even with the dual hit of regulatory uncertainty and tightened budgets for offsetting in 2009, the industry has continued to evolve, forming linkages that create a more efficient market infrastructure.”

In May, market operator IntercontinentalExchange (NYSE: ICE) agreed to acquire Climate Exchange plc, which operates the largest voluntary market in the U.S.--the Chicago Climate Exchange.

Bloomberg New Energy Finance Director and report co-author Milo Sjardin, said: “The economic recession had a marked impact on the part of the market primarily concerned with buying credits to offset emissions of companies and individuals. In contrast, expectations of a possible US carbon trading program lifted the importance of the US, which figured as the largest buyer and seller in the market and the most popular transactions were those that could count towards future compliance. However, with the current state of play of US politics this situation is likely to be very different this year.”

The survey found a near doubling in the use of independent, third-party “registries,” which track ownership of offsets so that individual emission reductions are not counted twice. The survey identified 17 registries accounting for 51% of all voluntary offset transactions last year, while just 29% of transactions were listed with registries in 2008. The survey attributes the growth in registry uptake largely to the emergence of multiple registries spread across different regions, which issue credits and track ownership.

The most popular project types were those that destroy methane--a greenhouse gas that traps more than 20 times as much heat as carbon dioxide. These projects stand a good chance of being grandfathered into a US compliance scheme, and they accounted for 41% of voluntary offset transactions in 2009.

Forestry projects were next, at 24%, followed by renewable energy projects, at 17%. The US took the lead from Asia this year as the source of the vast majority of offset credits (56%), followed by Latin America (16%) and Asia (12%).

The report is free for download at the link below.