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Voluntary CO2 offset market ends year on down note

Wed, 12/23/2009 - 4:28am
Reuters

LONDON (Reuters) - Demand for voluntary carbon offsets declined in December, traditionally one of the market's busiest months, as a slow year meant retailers did not face the usual scramble to square their books, market players said.

"There has been a lack of last-minute December activity. Offset retailers usually buy any missing volumes from customer orders in the year but that was largely absent," Grattan MacGiffin, head of voluntary carbon markets at brokers MF Global in London, said on Wednesday.

"The general decline in volumes effectively gave retailers more time to get their books settled."

The unregulated voluntary market operates outside mandatory emissions cut schemes such as the United Nations' Clean Development Mechanism or the European Union's Emissions Trading Scheme.

Despite a pickup from September to November, demand for offset credits called verified emissions reductions (VERs) generally stalled this year as companies cut expenditure to reduce their carbon footprint because of the global economic slump.

VER prices were largely stable this month, except for industrial credits which were slashed to around $1.50 from $3 in an attempt to attract more buyers.

"Overall the voluntary market has bucked previous years' trends of sustained growth. Estimates are that 40 to 50 percent of volume was traded in 2009 versus 2008, as corporate social responsibility buying has been constricted," MacGiffin added.

On Tuesday, the Brazilian Securities, Commodities and Futures Exchange canceled its voluntary credit auction due to lack of participants.

OPTIMISM FOR 2010

Demand should pick up again in 2010, when the United States Senate may pass climate legislation enabling a federal emissions trading scheme. Market players hope the scheme will include some voluntary offset credits.

"The paradox of a failed Copenhagen deal makes the realization of a U.S. cap-and-trade scheme more achievable as it will not be in the shadow of strong international targets, meaning some of the Republican senators might go along with a weakish, unilateral market," MacGiffin said.

This week, Nedbank and Wildlife Works Incorporated signed a multi-million pound deal to launch the first African carbon credit scheme. Over 2.5 million tonnes of credits will be generated by a Kenyan avoided deforestation scheme. The project is seeking registration from the Voluntary Carbon Standard registry, the companies said.

Earlier this month, UK-based financial information provider Markit and clean energy project developer C-Questor launched a new carbon standard for low-carbon energy projects.

The Carbco Platinum Carbon Standard will give extra certification and validation to clean energy projects in the voluntary and regulated U.N.-backed carbon markets.

(Reporting by Nina Chestney; Editing by Anthony Barker)

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