Some Figures on Carbon Market Supply Glut (Wonkish)

Sandbag has produced another interesting report on the EU ETS. They compare the demand that was expected when the post-2012 rules were agreed in 2008 to what is projected today. And find that thanks to the recession cumulative demand is now 2.2 gigatonnes less than was expected in 2008. Further, they argue that even the original caps for industry were overallocated by 900 million tonnes. And that 78% of the surplus allowances accrued to date can be attributed to only ten steel and cement companies, who have confirmed revenues of at least €1.8 billion from the sale of allowances. They suggest that 3.1 Gt should be withdrawn from the EU ETS, more than twice as much as the 1.4 Gt that are so far the upper limit in the political discussion.

In addition, I just noted these figures on global supply and demand in the World Bank’s latest State and Trends of the Carbon Market: It estimates that based on current pledges demand for offsets over the period 2013-2020 may lie in the range of 2,156 to 2,706 Gt CO2-eq. while supply from CDM and JI may lie in the range of 2.3 to 4.8 billion credits. “One can conclude that the supply of existing current Kyoto mechanisms, i.e. CDM and JI, may be sufficient alone to serve global demand for international offsets over 2013-2020.”

Unsurprisingly, cdc climat recently predicted that prices for Kyoto credits might drop to zero within the next two years.

Oh, and in addition to rendering the carbon market non-functional, current emission reduction pledges are also rather inadequate in terms of actually achieving the 2°C target. Of the at least 12 gigatonnes of emission reductions we need in 2020 to get on a trajectory to stabilise temperature increase below 2°C, so far less than 3 Gt have been secured

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  1. Theodolit

     /  July 6, 2012

    Some people of new sources of cheap supply for credits, like REDD, have always argued that government will set more ambitious targets once they find out how cheap it is. We now learn empirically that this is not the case.
    A study of the political economy of target definitions would certainly be worthwhile – especially in a comparative setting. How does target definition work in US, EU, India, China, Brazil etc.?


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