The international market in carbon credits has suffered an almost total collapse, with only $1.5billion of them traded last year — the lowest since the system opened in 2005, according to a report from the World Bank.
A fledgling market in greenhouse gas emissions in the US also declined, and only the EU’s internal market in carbon remained healthy, worth $120billion.
The international market in carbon credits was brought about under the Kyoto protocol, as a way of injecting much needed investment into low-carbon technology in the developing world. Under the system, known as the clean development mechanism, projects such as windfarms or solar panels in developing countries are awarded carbon credits for every tonne of carbon avoided. These credits are bought by rich countries to count towards their emissions reduction targets.
From 2005, when the Kyoto protocol finally came into force, to 2009 the system generated a total of $25billion for developing countries. But last year's $1.5billion was less even than the amount paid for credits in the first year of operation.
“This bodes very badly for the countries we are trying to help,” said Andrew Steer, envoy for climate change at the World Bank. “The (carbon) market is failing us. It is not delivering what we feel is necessary.”
If the poor performance continued, it would mean increasing greenhouse gas emissions, he predicted. “We are heading for a 3C or 4C world (temperature rise).”
Part of the problem is uncertainty over the future of the Kyoto protocol. The current provisions of the 1997 treaty, which took years to come into force because of wrangling among governments, are due to expire in 2012 and there is no agreement yet on a continuation.
The US refuses to take part in the treaty, and Russia, Japan and Canada said at the recent G8 meeting they would not continue under Kyoto.