European Carbon Market Update

Introduction

The successful implementation of emissions schemes in the near future largely depends on domestic politics, climate policy enforcement, and commitment to combat climate change. The EU has continued with its agenda of environmental reforms and carbon markets clearly have the potential to experience dramatic growth, thereby providing significant opportunities for utilities and cleantech investments.

Features and benefits

• Provides an overview of the global carbon market in terms of structure, trend, market size, and so on, while focusing on the European region.
• Highlights the European Union Emissions Trading Scheme (EU ETS) and its underlying compliance periods, including future outlook.
• Evaluates various countries in Europe in terms of climate change performance based on emissions trend, emissions level, and climate policy.

Highlights

Launched in 2005 with the aim of reducing emissions by 21% in 2020 compared to 2005 levels, the EU ETS largely dominates the global allowance market. It is the most important mechanism globally and serves as the foundation of the EU’s policy for climate change, focusing on the mitigation of greenhouse gas emissions in a cost-effective manner.

The EU ETS has been successful in reflecting the macro-economic trend, with EU ETS carbon prices following a trend similar to that of commodities like oil and natural gas over the last few years.

Climate change performance varies widely across the European nations. Countries such as Sweden, Norway, Germany, France, and the UK exhibit strong performance and have achieved high rankings in 2011, in contrast to countries such as Poland and Italy that exhibited weaker performance.

Your key questions answered

• Understand the global carbon market and the role of the European Union Emissions Trading Scheme (EU ETS).
• Identify opportunities for energy utilities for investment in clean technology in the European market

Table Of Contents

OVERVIEW
Catalyst
Executive summary

ANALYSIS
Durban climate conference delivers a roadmap for a legal climate framework by 2015
The Durban Platform for Enhanced Action
A second commitment period for the Kyoto Protocol
A new Green Climate Fund for developing countries becomes operational
The total value of the global carbon market declined in 2010 after five consecutive years of growth
The EU ETS continues to play a critical role
Allowance market and the role of the EU ETS
The transaction volume of the primary CDM market has dwindled, while secondary market volume has increased
European nations continue to be the major investors in CDM projects
China and India lead in developing CDM projects
Hydro and wind power projects are the largest asset classes of CDM projects
The EU has included the aviation industry in the ETS
Phase III of the EU ETS to start from 2013
Global carbon prices marginally recovered in 2010 after a dramatic fall in 2009
EU ETS carbon prices stay low compared to pre-recession levels
EU ETS carbon prices show signs of maturity by aligning with the price movements of other major energy commodities

AUTHOR'S VIEW
A mixed outlook for the European carbon market

APPENDIX
Background
Overview of global carbon market
Overview of EU ETS
Compliance periods of the EU ETS directive
EU ETS trade distribution
Glossary
Additionality
Assigned allocation units (AAUs)
Biofuel
Biomass
Cap-and-trade
Carbon capture and storage
Carbon dioxide (CO2)
Carbon dioxide equivalent (CO2e)
Carbon offset
Carbon Reduction Commitment (CRC)
Carbon trading
Certified Emission Reduction (CER)
Chicago Climate Exchange Carbon Financial Instrument (CCX CFI)
Clean Development Mechanism (CDM)
Cleantech
Climate change
Emission reduction unit (ERU)
Emissions trading
European Climate Exchange (ECX)
European Union Emission Trading Scheme (EU ETS)
Greenhouse gases (GHGs)
Intergovernmental Panel on Climate Change (IPCC)
Joint implementation (JI)
Kyoto Protocol
National Allocation Plans (NAPs)
New South Wales Greenhouse Gas Reduction Scheme (NSW GGAS)
Regional Greenhouse Allowance
Regional Greenhouse Gas Initiative (RGGI)
United Nations Framework Convention on Climate Change (UNFCCC)
Methodology
Further reading
Ask the analyst
Disclaimer

List Of Tables

Table: Europe: GHG emissions target allocations, by country

List Of Figures

Figure: Global carbon market size, by transaction value and volume, 2004–10
Figure: Global allowance market trend, by transaction volume, 2005–10
Figure: Role of the EU ETS in the global allowance-based market, 2009 vs 2010
Figure: Global project-based market, by transaction volume, 2005–10
Figure: Distribution of CDM projects by investing nation, June 2011
Figure: Key players investing in CDM projects, June 2011
Figure: EU ETS: phase II and phase III coverage
Figure: Global carbon price trend, by total transaction value, 2004–10
Figure: EU ETS carbon price trend with respect to crude oil and natural gas prices, 2005–10
Figure: Global carbon market structure
Figure: EU ETS trading distribution, by futures and options and spot trading, 2005–10