A study released last week by Point Carbon, a European consultancy and analyst service in global power and carbon markets, estimates that the world carbon market could be worth $3.1 trillion dollars by 2020.
The estimate assumes that the United States adopts a cap and trade mechanism similar to the plan introduced in the Lieberman-Warner Climate Security Act and that the EU has in place a 25% emissions reduction target.
Given the scenario laid out in Point Carbon’s analysis, 67% of this market is held within the United States. The European Union, with the only cap-and-trade system already in place, will control the second largest share of the future carbon market.
This projection represents a trading volume of 38 billion tones of carbon equivalent (Gt CO2e) per year by 2020.
As well as the U.S and EU, the study estimates there are also cap-and-trade carbon markets operating in Australia, New Zealand, Canada, Japan, Korea, Mexico, and Turkey.
Carbon Futures Anyone?
“Having a concept of the future size of the carbon market is important for at least two reasons” says Kjetil Reine, manager of Carbon Point and author of the study, “First, market volume says something about the number, size and kind of participants that a market can accommodate. Importantly, a large market involves not only compliance buyers and sellers but also financial players, who will provide liquidity to the market. Secondly, an indication of 2020 market size will say something about the place we think emissions trading will have in a future climate structure – not immediately after the end of the first Kyoto commitment period, but well into the post-2012 regime. This is important for long-term investors in sectors exposed to a carbon price.”
Co-author and senior analyst Endre Tvinnereim added, “Looking at US and EU plans and policy statements, it is not unlikely that the two would link their carbon trading schemes in the next decade, creating a very large GHG cap-and-trade scheme. Such a joint scheme would combine all the attributes that would make it attractive to financial players and produce a high turnover rate.”
“With a US-EU engine established as a core, the global carbon market might rival at least some of the established commodity markets in the world. Add a few major developing countries to the mix, and the atmosphere is the limit for the carbon market.”
The Lieberman-Warner bill is expected to come to the floor of the Senate in June, with many reports already that many consider the bill seriously flawed.
Flawed or otherwise, the bill will be the first attempt to enact climate change legislation from the federal government.