The carbon market, where credits that permit facilities such as power plants to emit are traded, shrank to $142 billion last year from $143.7 billion in 2009, partly because some industrialized countries bought less greenhouse gas credits in 2010.
The recession led to lower emissions. However, countries have reportedly eased emissions reduction compliance obligations according to the State and Trends of the Carbon Market report released at the Carbon Expo conference in Barcelona.
Trading carbon credits was established by the Kyoto Protocol as a way to favor low-carbon technology while cutting global emissions that scientists blame for climate change.
But, another Kyoto instrument, the Clean Development Mechanism, also fell to its lowest level since Kyoto entered into force in 2005, with new project-based transactions falling 46 percent to $1.5 billion according to World Bank estimates.
Under the C.D.M., low-carbon projects like wind farms and solar power plants in developing countries earn carbon credits for industrialized nations for every greenhouse gas metric ton avoided. These credits, called certified emissions reductions, can be used by installations in developed countries to meet reduction targets by offsetting emissions.
Certified emissions reductions are traded in the European Union Emissions Trading System, the world’s largest. It accounted for 84 percent of the total carbon market last year, the World Bank said.
Kyoto after 2012
Among the impediments to the carbon market is uncertainty over the future of the Kyoto Protocol. Its overall objective is to reduce emissions in developed countries 5.2 percent relative to 1990 levels by 2012. Each country has different reduction goals.
The current provisions of the 1997 treaty are due to expire in 2012 and there is no agreement yet on a replacement or an extension.
The United Nations is leading the talks toward a possible Kyoto successor, the next major meeting to be held in an annual climate summit in Durban, South Africa this year in November.
Previous summits in Copenhagen, Denmark in 2009 and Cancun, Mexico in 2010 stalled especially amid differences between industrialized and developing nations.
“The global carbon market is at a crossroads. If we take the wrong turn we risk losing billions of lower cost private investment and new technology solutions in developing countries,” said Andrew Steer, World Bank special envoy for climate change.
“This report sends a message of the need to ensure a stronger, more robust carbon market with clear signals.”
As wrangling among governments continue on what to do after Kyoto expires, a boon in national and local low-carbon initiatives offered a positive sign, according to Alexandre Kossoy, World Bank senior financial specialist.
“Collectively, they offer the possibility overcome regulatory uncertainty and signal that, one way or another, solutions that address the climate challenge will emerge,” he said in a statement.
Currently, 192 states and the European Union are committed to bring down emissions under Kyoto, representing 63.7 percent of the developed world’s carbon emissions. But a replacement that will not include other top emitters might be ineffective in drastically lessening greenhouse gases.
