The global trade in carbon dioxide (CO2) is starting to boom as the European Union's market in carbon emissions gets off the ground, the World Bank reported on May 11.
In 2004, 107 million tons of CO2 or its equivalent were traded under Kyoto Protocol projects, an increase of 38% over the figure for 2003, when 78 million tons were exchanged. Since the start of 2005, 43 million tons have changed hands. Prices are strong and the number of market players is increasing, said the report. The report, co-sponsored by the International Emissions Trading Association (IETA), was released in Cologne at Carbon Expo, a salon on the global carbon market.
Using two mechanisms under the Kyoto Protocol -- known as Joint Implementation (JI) and the Clean Development Mechanism (CDM) -- governments and companies acquire "credits" of CO2 if a development or energy project in a poor country helps to reduce carbon pollution. Since the start of 2005, these project-based transactions have now been joined by the EU emissions trading system (EU ETS). Under this, European countries can buy or sell emissions of CO2 in order to meet their targets, or allowances, under Kyoto. Volumes traded from January to March this year in the EU ETS are already three and a half times higher than all of the allowance transactions last year and are now roughly equivalent to transactions from project-based credits.
The carbon market is a keystone of the Kyoto Protocol, which took effect last February. The theory is that market mechanisms, when tied to emissions targets, can provide a superb financial incentive. Countries and corporations that clean up their carbon pollution are financially rewarded by selling their allowance surplus to others which are over-target. By some estimates, the worldwide market in CO2 could be worth tens of billions of dollars (euros) in a few decades.
Copyright Agence France-Presse, 2005