Reuters - Thu Aug 21, 2008 3:25am EDT
LONDON (Reuters) - The global carbon fund market, which invests in emissions offset credits from clean energy projects in developing countries, has risen by 63 percent to nearly $13 billion so far in 2008, environmental market analysts said on Thursday.
Although strong, the carbon fund market's growth was outpaced by the overall carbon emissions market which, according to the World Bank, more than doubled between 2006 and 2007 to $64 billion, Environmental Finance magazine said in its 2008/09 Carbon Funds Directory.
"Looming uncertainty over the shape of the global carbon markets after 2012 (and) the effects of the credit crunch ... are contributing to a slowing down of new capital joining the carbon market," Environmental Finance said in a statement.
The global carbon markets are poised to double in value again to more than $100 billion in 2008, according to market observers.
Mark Nicholls, editor at Environmental Finance, added "In most other asset classes, 63 percent growth in assets under management would be a pretty good story, but the 100 percent-plus growth in carbon markets between 2006 and 2007 has outpaced growth in carbon funds."
The number of carbon funds has grown by 33 percent so far in 2008, up from 56 funds managing $7.9 billion in assets in 2007, Environmental Finance said.
There are now 80 carbon funds under management globally, including private funds, government-run credit purchase vehicles or buyers' pools. Most buy only the offset credits issued under the Kyoto Protocol's Clean Development Mechanism (CDM) to clean-energy projects like wind farms and hydro dams in developing countries.
The funds then sell these credits for profit to companies and governments from rich nations which use them to meet emissions targets. Government-run credit purchase vehicles buy offset credits to help meet national greenhouse gas obligations under the Kyoto Protocol.
The largest corporate-run carbon funds by capital secured, as identified by Environmental Finance, include Climate Change Capital's Carbon Fund ($1 billion in assets), the Greenhouse Gas-Credit Aggregation Pool (managed by Natsource, $825.8 million in assets), the China Methane Recovery Fund (managed by MTM Capital Partners, $635.3 million in assets) and Trading Emissions' carbon fund ($619.7 million in assets).
The largest non-corporate funds or government-run credit purchase vehicles include the Umbrella Carbon Facility (managed by the World Bank, $1.23 billion in assets), the Norwegian Carbon Tender (managed by the Norwegian government, $800 million in assets) and the Kyoto Mechanism Credit Acquisition Programme (managed by the Japanese government, $761.9 million in assets).
The entire CDM market also doubled to $13 billion in 2007, the World Bank said.
SLOWER GROWTH
While the global credit crunch is squeezing the availability of the capital required for higher growth in carbon funds, worries surrounding ongoing negotiations to strike a new agreement to succeed the Kyoto Protocol are also casting uncertainty over the future of the global carbon markets.
With the Kyoto Protocol's first commitment period expiring after 2012, the fate of the CDM is at risk. This is leading to a slowdown in the number of projects being submitted for registration by the U.N.'s climate change secretariat, and this may affect the long-term supply of offset credits relied on by the carbon funds market.
As a result, shares in CDM project developers like UK-based EcoSecurities have plummeted in the past year.
Market participants are also watching the upcoming U.S. presidential election, which should shed light on the direction the heaviest-polluting developed nation will take on emissions trading, Environmental Finance said.
Both presidential candidates have said they are in favor of introducing so-called cap-and-trade schemes, a prerequisite for the emergence of a national carbon emissions market.
"The entry of the U.S. (into the global carbon markets) will be game-changing and, while a successor to Kyoto is going to be tough to negotiate, pressure is building on the international community to act decisively on climate change," Nicholls said.
For additional news and analysis on the carbon markets, go to communities.thomsonreuters.com
(Reporting by Michael Szabo, editing by Matthew Lewis)
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