The US carbon trading market will be $1 trillion by 2020 if its federal and state policymakers continue on their current path towards a comprehensive "cap-and-trade" programme, according to a new study.
The study was released on Thursday by New Carbon Finance, a division of New Energy Finance, the world's leading provider of information and analysis in the renewable energy and low-carbon sectors.
Researchers predict that in 12 years a carbon-constrained US economy that includes a cap-and-trade system, allowing only domestic trades, would produce a $1 trillion carbon trading market.
It will be more than twice the size of the EU's Emissions Trading Scheme and a carbon price of $40 per tonne by 2015, which will result in a rise in consumer energy prices.
Currently, around 13 climate change bills being discussed in the US House of Representatives and Senate propose some sort of market-based mechanism such as a cap-and-trade system, complemented by direct regulation.
Under the system, the federal government would ration the amount of carbon dioxide and other greenhouse gases that businesses emit by issuing them permits. A business wanting to emit more than its entitlement may buy the right to do so from a business that emits less than its entitlement.
An economy-wide cap-and-trade system for US greenhouse gases operating within four to five years seems inevitable, the researchers say.
"Even if the current Bush administration rejects all of these bills, the next president will be less inclined to use a veto. All leading 2008 presidential candidates have endorsed the need for action and some have already supported significant emissions reductions," said Michael Liebreich, CEO of New Energy Finance.
Without exception, however, the bills before Congress either prohibit or severely restrict the transfer of allowances from trading systems in other parts of the world.
"This will have two important consequences. For the US market, it will rule out a significant source of inexpensive abatement, pushing the carbon price to unnecessary high levels.
"It will also remove most US demand for international credits, hampering the growth of projects and technology transfer to developing countries," said Milo Sjardin, who heads the North American division of New Carbon Finance.