Carbon Emissions Traders Carefully Optimistic in Cologne

The Carbon Expo is the only trade fair of its kind which focuses on emissions trading and the reduction of harmful greenhouse gases which cause climate change. The event in Cologne, which closes on Friday, focused on the future of Carbon trading: even though the global market increased more than 10 fold from 2004 to 2005, prices took a plunge of 60 percent recently.

There are over 180 exhibitors and the fair attracts thousands of visitors from around 50 countries. They buy, sell and deal in emissions. Dutchman Seb Walheim, one of many dealers at the fair, said he was enthusiastic about the scheme.

"What you have to look at is how much is the market price for CO2," he said. "At the moment, the market price for short term CO2 is 12 euros ($15.3), for long term CO2 about 20 euros. If you can save CO2 for less than that, then you should do so and sell the savings into the market."

Market intended to help countries with Kyoto

The carbon trading market is simple: each country is allotted a lump-sum amount of emissions which is divided between companies based on their size. If one country goes over its limit, it has to buy from another which has emitted less than its license. The carbon market was developed to help countries meet their Kyoto Protocol goals to reduce the harmful emission.

The market was valued at over $11 billion (8.5 billion euros) last year, but governments, private sector operators and experts have been expressing concerns about what will happen to the market after 2012, when the Kyoto Protocol expires. Already the market is starting to get bumpy, said John Hay, the head of communications for the United Nations Climate Change Secretariat.

"At the moment it is going through quite a troubled time and the price of carbon in the European trading market dropped by more than 50 percent within the space of only a couple of weeks," he said. "That was due to the over allocation of credits -- the countries of the European Union awarded too many credits to enterprises and the price went down. But we are confident that the market will mature and that it is an emerging market and not speculative like the dotcom bubble was."

Market works

The World Bank, a key player in the financing of carbon, is also confident and it predicts that the market will grow even more than it has since coming into effect a year ago. Benoit Bousquet of the World Bank said the market does work.

"Very large amounts are being traded globally in the project based mechanisms but also, especially in fact in the EUPTS (EU Pilot Trading Scheme)," he said. "So if you take that into consideration, and the fact that the price fluctuates quite a bit, it would seem that the market mechanism does work."

And for many European countries, the EUPTS has enabled them to implement serious policies on reducing emissions for the first time.