The carbon market is ready to reboot

The international community is not going to put up with the falling prices for carbon credits. Representatives of different countries are prepared to act for establishing appropriate prices to stimulate development of the carbon units market and to support measures for reduction of greenhouse gas emissions. Russian business and the environmental community are interested in creation of the internal market for emissions trading in our country, not waiting for external sanctions.

The global carbon market figures fell last year by 36%. The reason is that the economic downturn in EU countries has created an oversupply of carbon credits. This situation is inacceptable neither for the European business, nor for the European climate policy. After all, the financial crisis does not eliminate the problem of the influence of greenhouse gases on the climate and undermines economic incentives for low-carbon development.

"This result was not unexpected, as we well understand the market realities,” said Sarah Deblock of the International Emissions Trading Association (IETA). “Very timely for the current market phase is the European Commission proposal to invest additional € 900 million in the market development."

Dynamics of the emerging markets is one of the most difficult parts of modern economic theory and practice. Adding the fact that the object of market relations in the carbon market is not the right to use a particular product or service, but the ability of the planet's atmosphere to receive and assimilate greenhouse gases (that is, the market is formed for the benefit, access to which was always free and unrestricted), one can imagine that the complexity of the problem increases many times.

EU officials propose to make an effort to stabilize the situation and raise prices on the carbon market. Introduction of policy-setting prices for emission certificates is among the proposed measures.

The fact is that the current European market is the basis for the world carbon market and sets the "fashion" worldwide. Therefore, the future of the world carbon market depends on the development of the European market. Using the term "reboot", European analysts imply a system of measures to stabilize the situation and increase the demand for quotas. One of the options offered by the EU leadership is significant restriction of access to "free" reduction units generated mainly in developing and emerging markets. The final version of the European Commission "reboot" strategy is still waiting for approval by the European Parliament and by the Member States' representatives in the Council of the European Union; the documents are to be adopted at the plenary vote, to be held in March this year. In addition, market analysts are looking forward to the World Bank annual report for 2012, which will be released at the Carbon Expo in Barcelona in late May.

Bloomberg New Energy Finance estimates that the EU measures will help to increase the market volume of the carbon market up to € 80 billion in 2013, and up to € 94 billion in 2014. In addition, Bloomberg analysts believe that it is developing and transition carbon markets that will help to improve the state of the world market.

Formation of the carbon market grows rapidly in the U.S. on the regional level. For example, the first auction of carbon credits was held on 14 November last year in California, which is equal to one eighth of Europe. Very probably, this process will be soon supported at the national level, which will facilitate access to the global marketplace.

Merging the Australian carbon market with the European Union Emissions Trading Scheme (EU ETS) expected in 2018 will contribute in the market growth. Economies of different countries are entering the carbon market: India opens up the energy efficiency market, voluntary markets start in Thailand and in Kazakhstan. China is expected to launch this year a number of pilot schemes for regional carbon trading, initially using nominal prices for CO2. This can also work as a positive knock-on effect on world markets.

"For Russia, the only progressive way in this situation may be the creation of the internal market, “says Georgy Safonov, the director of the Centre for Environmental Innovations.

International experience shows that the use of market mechanisms to address environmental problems reduces the costs of their implementation by 5 times as compared to the administrative regulation. Russian business has been advocating creation of the internal market for emissions trading for quite a while. Soon, the “greenhouse” component (about 5% of Russian exports) may be subject to customs or other regulations by trading partners of Russia. This means that the countries and sectors without such regulation will gradually come under the influence of external systems. Should Russia await such an outcome?