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Economic Report

Economic reports, briefs issued by Samsung Economic Research Institute

Three Issues of the Carbon Market and Its Prospects

Three Issues of the Carbon Market and Its Prospects

CHO Yong-Kwon

Nov. 18, 2013

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The Kyoto Protocol adopted at the Framework Convention on Climate Change in 1997 went into effect in 2005. The protocol required advanced nations to reduce their greenhouse gas emissions by an average of 5.2% below 1990 levels between 2008 and 2012. To meet the targets, 25 EU states created the Emissions Trading System (ETS) in 2005, allowing 1,963 companies to trade part of their emissions quota.

Along with the ETS, the EU opened the world's first carbon market, and Asia-Pacific and North America followed suit. Currently, 10 carbon markets are operating worldwide. The EU, Switzerland, the New Zealand, Kazakhstan and Australia operate carbon markets on a national level, and the US, Japan and China on a regional level. The EU's carbon market is the world's biggest accounting for 73% of the trading.

Total trading volume in the global carbon market was 10.9 billion tons of carbon dioxide (tCO2) in 2012, up 25.3% from 2011. But trading amount declined 36.7% to 6.2 billion euros during the same period because of a 49.5% decline in the cost of carbon permits. Worsening economic conditions in the EU led to a dramatic drop in carbon emissions, leading to a sharp rise in the market supply of emission rights.


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