Carbon Markets
I’m now working on a research paper on carbon markets and how a global system of interlinked markets can and should look like. It’s a fascinating topic and I just now found this in a speech from 2009 by the US commissioner for the Commodity Futures Trading Commission, Bart Chilton;
If we take a quick trip in the Wayback Machine to the origins of these [carbon cap and trade] markets in the 1990’s, it is obvious that the global market for carbon emissions has grown tremendously. In 2002, the World Bank estimated the volume of carbon emissions traded globally at 32 million metric tons with a value of approximately $100 million. For 2008, these values were 4.8 billion metric tons, and a total dollar value of $126 billion. What does all that mean? It means that the market value of global carbon trades has experienced an average annual growth rate of about 329 percent since 2002! That is a cumulative increase of 126,000 percent! That’s not conjecture, it is a hard number fact that this trading has gone from $100 million to $126 billion.
Taking this a step further, we observe generally that in developed markets, futures trading is conservatively 10 times the size of the cash market for many commodities and can even be as great as 30 times that of the cash market for certain financial products. Even with the conservative assumption of 10 times the cash market, this would imply we are looking forward to a $2 trillion dollar futures market!
In terms of volume, a $2 trillion market would be the equivalent of anywhere from 60 to 180 million contracts. To give you an idea of the magnitude of this, in 2008, Light Sweet Crude Oil traded on NYMEX saw a volume of about 135 million contracts. Natural Gas experienced an annual volume of almost 39 million contracts, and all metals combined on NYMEX, about 53 million. So, we are talking about a really incredible potential for emission markets.
Make no mistake, these carbon markets can be the world’s largest commodity markets in a few short years.
February 10th, 2010 at 1:28 pm
It is not only a question of growth in turn-over. At least as interesting is the growth when it comes to metric tons. I mean if the amount of emmission rights in tons is growing unlimited it just becomes another supply-and-demand market. The idea must be to cap the emissions in tons. Therefore you should cap the number of emission rights regardless of demands. Let the price rise instead.