Future of carbon trading: A perspective post financial crisis- 2008-09

Abstract

The global carbon market was worth some $126 billion (according to the World Bank) in 2008 and is predicted to increase in value to $500 billion by 20201 . Subprime crisis has affected the carbon market by increasing the supply of carbon credits in terms of volumes. If we compare with the first half of last year (2008), volumes in the global carbon markets jumped 124%2 in the first half of this year. Further this increase in volume has accompanied by decrease in prices of EUA/CER. The CER and EUA prices plumbed down to €7 and €8 from the last year prices of €20 and €30 respectively. This price-variation may also affect the share prices of companies which have their backward and forward linkages with CDM projects. The scope of the project is to identify temporal variations of in the prices of carbon credits over the year and the relation between the EUA/CER price and share price of these companies. Emission exchanges spread all around the globe provide a trusted, transparent, liquid and efficient marketplace for trading of these carbon allowances. But still in countries like India, credits are traded in the OTC (Over the Counter) market which is not as efficient as the Exchanges. Therefore we will also focus our study on the inefficiencies exist in such markets and provides ways to mitigate these inefficiencies.