Two characteristics will drive carbon markets for 2011 and the near future: Each country will continue to develop their carbon reduction systems and secondly, attempts will also be made to link each of these separate national systems.
Carbon industry experts at the Carbon Forum Asia, which kicked off today, called these two trends “bottom–up development” and “top-down harmonisation”.
Markus Huwener, chief executive of First Climate, one of the world’s largest carbon asset management and trading companies, believes the next two to three years will be a bridging phase. He also believes that the recent disappointments resulting from the failure of Australia and the United States governments to establish a national cap-and-trade system could have a significant impact on the global carbon market.
Looking back on the past five years of the carbon market’s evolution, Mr Hewener recalled the euphoria across the global economy in 2006 and 2007 for carbon market development. This euphoria was followed by a souring of sentiment in late 2007 that was partially due to the financial and economic crisis. This in turn led to stumbling blocks in the development of systems such as cap–and-trade.
Commenting on the carbon industry, Mr Hewener said: “There is no longer any low-hanging fruit, so there is a need to diversify into other offerings such as project finance and equity investments in renewable and clean-tech.”
Over the past four years, typically one of two paths has been taken by the established carbon companies. They have either been taken over by larger organisations, such as banks – for example Barclays taking over Tricorona – or they have changed their business models.
An example of the latter is First Climate, which has moved away from its model of being a pure aggregator of carbon projects under the United Nation’s Clean Development Mechanism (CDM) scheme. It certifies projects that prove to reduce emissions and allow it to generate carbon credits which can then be sold on in the carbon market. First Climate has now diversified and also operates as a financier and investor in clean-tech projects.
Mr Huwener believes that the industry has learnt that CDM projects are much more difficult to handle than expected, and that they will not proceed in the same way as in the past. How the CDM market will proceed is one of the biggest questions debated at the conference, with experts agreeing that there was no clear answer.
“The industry has been frustrated as they have worked very hard to build public awareness for climate change. It will be a shame if we are not able to deliver solutions to the public. We’re in a vacuum, but the confidence is still there,” said Mr Hewener.
International Emissions Trading Association chief executive Henry Derwent added: “We’re waiting for sleeping beauty to lay a kiss – perhaps an American sleeping beauty.”
Also speaking at the conference, the Coordinator of the High-Level Advisory Group of the Secretary-General on Climate Change Financing Daniele Violetti said she was sceptical of the progress on public policy. She predicted that the development of a global system will depend on a shift in US domestic policy, after which the world will respond with more confidence.
Carbon Forum Asia is organised by the International Emissions Trading Association (IETA) and Koelnmesse. The two-day conference was one of the first events to kick off under the Singapore International Energy Week, which brings policymakers and business leaders to Singapore to discuss energy-related issues.
