Carbon Markets around the globe received increased attentiion in 2006. Driven by voters exposed to climate change as being one of the most important issues, governments increasingly implementing climate change policies- with carbon emissions trading as one of the most important instruments.

"New developments in California, the eastern United States and Australia held the promise of continuity beyond 2012, without which the project-based market might otherwise see a sharp slowdown in transaction volumes"
"State of the Carbon Market 2006", the World Bank and the International Emissions Trading Association, October 2006

New Developments

Canada and Japan will establish national carbon markets in 2008, which most likely will link into exisitng schemes like the EU ETS and Kyoto Mechanisms.

Australia and New Zealand are also moving closer towards implementing a nation emissions trading scheme:

A National Emissions Trading Scheme (NETS) has been established as an initiative of State and Territory Governments of Australia, which is intended to facilitate ratification of the Kyoto Protocol by the Labor Party if they are elected to government in the 2007 Federal Elections. And in late 2006, premier John Howard announced to establish a task force on the same topic on a federal level.

Governments in the Midwestern states of the USA have started developing climate change policies and sregional GHG initiatives in late 2006. This would add to the existing initiatives in the Northeast, the three Pacific Coast states and the Western Governors' Association. Seven Northeastern US states are involved in the Regional Greenhouse Gas Initiative (RGGI) which is a state level emissions capping and trading program. California has demostrated strong leadership by working towards 60% emissions reductions by 2050 and several other initiatives. 320 US cities in 46 states, representing more than 50 million Americans support Kyoto in a nationwide initiative of US cities to agree to the protocol.

Thus a de-facto carbon market in the US is evolving. And even on a federal level, the opposition to GHG reductions is decreasing. After the US signed the Asia Pacific Partnership on Clean Development and Climate at the ASEAN regional forum on 28 July 2005, the senate agreed to provide the Asia-Pacific Partnership with funding and report language that largely endorses U.S. climate change work with Australia, China, India, Japan and South Korea.

U.S. President George W. Bush and British Prime Minister Tony Blair brushed off differences over climate change and agreed in 2005 to seek a framework that goes beyond the Kyoto Protocol and involves both developed and developing nations at the ongoing summit of the Group of Eight nations in Scotland.

The British governmet is continuing to take leadership on climate change and is now working on two important issues:

• Firstly, Britain is pressing for a post-Kyoto agreement that includes he world's biggest producer of greenhouse gases. Premier Blair says any post-Kyoto framework must include the United States, as well as major developing countries such as China and India. Blair said there were "signs of hope" of a change in American attitudes towards climate change because, in many US states, both Republicans and Democrats were demanding action against climate change. British Prime Minister Tony Blair and German Chancellor Angela Merkel agreed in Novmeber 2006 on working to make progress in promoting global action towards climate change next year when Germany takes over the presidency of both the Group of Eight leading industrialised nations and the European Union.
• Secondly, the UK is committed to achieve 60% reductions in GHG by 2050, compared to 1990 levels. This poses a strong sognal for the rest of Europe and the industrialized nations.

Demand

The above developments on a political level demonstrate that demand for allowances or credits is real- and can be expected to grow over the coming years.

The private sector clearly emerged in 2005 as the dominant buyer in the project-based market with over 80% of the volume transacted. In the first three months of 2006, that number grew to 90% of volume transacted.

The crucial question is: will there be a market after 2012 (after Kyoto/ ETS)? World Bank data suggests that there is a limited but growing market for post-2012 vintages, which can be expected to grow as post-kyoto initiatives gain pace.

Most of the post-2012 vintages were so far sold to predominantly European private buyers.

Supply

The supply for carbon emission offsets is also grwoing strongly. 2007 is expected to around 1,000 new CDM projects, a drastic increase. About 100 non-Annex I countries can potentially host CDM projects, although the majority is still created in China.

On the JI side, countries in Central and Eastern Europe are expected to deliver large amounts of JI projects from 2008 on, in the first Kyoto compliance year. Kyoto allowances (AAUs) are the potentially biggest supply source, since Several of the countries with Kyoto targets experienced economic downturn in the 1990s, which left them with substantial offsets. Russia could virtually swamp the market with AAUs,