State of the Voluntary Carbon Markets 2010 report launch: markets shrink, interlink

Molly Peters-Stanley on June 19, 2010 Comment

In a conference room with an inspiring view of Washington DC's, ah, monumental highlights, Ecosystem Marketplace and Bloomberg New Energy Finance officially launched the latest iteration of the State of the Voluntary Carbon Markets series. "Building Bridges: State of the Voluntary Carbon Markets 2010" was presented by Kate Hamilton of Ecosystem Marketplace and Milo Sjardin of Bloomberg New Energy Finance alongside an expert panel including report sponsors.

Forest Trends' Michael Jenkins kicked off the event with a quick backgrounder on the organization and report, telling of the inception of Ecosystem Marketplace six years ago - which sought to be the "Bloomberg for environmental services" - and the subsequent launch of the first State of the Voluntary Carbon Markets (SVCM) report two years later. Now, 2010 marks the report's fourth year of providing invaluable - indeed free! - information on the size, trends and outlook for the voluntary carbon markets.

Kate Hamilton explained that the report targeted responses from every supplier in the markets, and was able to attract the largest number of responses that have ever been received for the SVCM report with over 200 this year. The report surveyed for information from every part of the supply chain - from project developers to retailers - and also included registration information sourced directly from third-party registries. Hamilton also clarified that all the information was received by completely voluntary responses, and that there was no "judgment" of credits, meaning that if a project developer said to have sold x amount of credits, that is what was included in the report (after making a concerted effort to confirm any outlier responses).

Milo Sjardin followed, discussing standards and the noted shifts and trends related to their roles in the voluntary carbon marketplace.

That's so last year

Ms. Hamilton noted that this report is exclusively about 2009, and so it is important to remember that a lot has changed between now and the beginning of '09 - and even more so between now and four years ago. In order to understand the report's context, take a step back to a time when President Obama was stepping into his Presidential role, the Waxman-Markey bill had just passed the House and Copenhagen had not yet headed south.

Despite the year's political setbacks and uncertainty (and in some cases as a result of it) the year saw a lot of development in the market - as infrastructure providers, standards and other market players became more interlinked and built bridges to project development in parts of the world previously absent from the markets' radar, including several projects in the Least Developed Countries.

Notable developments included:

• For the first time since this report began tracking the voluntary carbon market, the number of transactions declined from the previous year (from 126.6 MtCO₂e to 93.7 MtCO₂e); however, overall transaction volume still exceeded 2007 levels.
• Total market value also decreased by 47%, with the extreme case being the CCX, which diminished in value by 84%.
• Prices dropped from '08 to '09, but not tremendously. The reason for the decreased value of CCX was its low prices compared those seen in the over the counter (OTC) market (averaging US$1.2/tCO2e vs. US$6.5/tCO2e).
• Methane, particularly landfill methane, projects were the most popular project type in OTC, collecting of 41% of OTC market transactions.
• After methane, forestry (24%) and renewable energy (17%) were the next primary project sources for credits, with methane and forestry doubling their respective market shares at the expense of renewable energy.
• The US emerged as the dominant credit source for OTC transaction volume for the first time since 2006 (supplying 56% of credits). Conversely, there was a substantial reduction in credits sourced from Asian projects.
• US buyers were primarily interested in offsets sourced from domestic projects, while European buyers sought international credits - particularly from developing countries.
• CAR and VCS established themselves as the two dominant standards - capturing ⅔ of transaction volume between them -fortifying themselves as the preferred standards for pre-compliance and pure voluntary activity, respectively.
• 2009 saw an uptick in the volume of transacted credits tracked in a registry (51%, up from 29% in 2008).
• Even in the face of market downturn, respondents expressed astounding optimism for the global voluntary carbon markets in 2009 and in years to come.

Table that

The subsequent panel discussion focused on several of the main themes in the report and presentation, and also introduced new topics like:

• The optimism in the marketplace despite seemingly glum circumstances;
• The uncertainty, potential, and possibility of legislation in the US and what it would mean to the voluntary carbon markets;
• The role of REDD and its emergence as a factor in the wider carbon market;
• The difference between US clients and European clients, and the different motivations for buying different types of credits