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The ballooning compliance market is driven by governments and firms subject to carbon constraints under the Kyoto Protocol, EU regulations, and other developed-country climate policies.
The compliance market is growing at greater than 100% per year – for both traded volumes and total value, hitting US$64 billion at the close of 2007. Substantial disparities of marginal abatement costs across the world have driven demand for Certified Emissions Reductions (CERs) from Clean Development Mechanism (CDM) project activities. The CDM allows constrained governments and firms to partially satisfy their commitments by purchasing CERs from emissions-reduction projects in developing countries. During 2007, the primary and secondary market for CERs transacted 800 million tons of carbon dioxide equivalent valued at US$13 billion. In addition to carbon value, The World Bank estimates that the CDM leveraged US$33 billion in clean energy investment in 2007 alone.
There are currently over 3,500 CDM projects at some stage of development, including over 1,000 projects registered by the CDM Executive Board. By 2012, these projects are expected to reduce 2.6 billion tons of carbon dioxide equivalent. However, the current CDM project pipeline is very concentrated in a few countries: about 70 percent of CDM projects and 75 percent of CERs expected by 2012 are situated in China, India, and Brazil, while slightly more than 1 percent of CDM projects and less than 3 percent of 2012 CERs are hosted in sub-Saharan Africa.
As the markets in rapidly industrializing states become saturated, and buyers become increasingly conscious of the social and environmental impact of their CERs, The Carbon Group sees Africa as the next carbon frontier. Project opportunities in Africa abound, and remain largely unrealized across a range of sectors, including: agricultural efficiency, fuel-switching to natural gas or agricultural waste, bagasse cogeneration, biogas cogeneration at sisal plantations, municipal waste management, industrial energy efficiency, off-grid renewable energy, clinker manufacturing, and forestry.
Sources
UNEP Risoe CDM/JI Pipeline Analysis and Database
World Bank State and Trends of the Carbon Market 2008
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