Carbon Credits Market at Point of Collapse

THE international market in carbon credits has suffered an almost total collapse, with only $US1.5 billion of them traded last year - the lowest since the system opened in 2005, says a report from the World Bank.

A fledgling market in greenhouse gas emissions in the United States also declined, and only the European Union's internal market in carbon remained healthy, worth $US120 billion. However, leaked documents appear to show that even the EU's system is in danger.

The international market in carbon credits was brought about under the Kyoto Protocol, as a way of injecting investment in low-carbon technology in the developing world.

Under the system, known as the clean development mechanism, projects such as wind farms or solar panels in developing countries are awarded 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 came into force, to 2009 the system generated a total of $25 billion for developing countries. But last year's $1.5 billion was even less 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 the World Bank's envoy for climate change, Andrew Steer. ''The [carbon] market is failing us.''

If the poor performance continued, it would mean increasing greenhouse gas emissions, he said. Part of the problem is uncertainty over the future of the Kyoto Protocol. The provisions of the 1997 treaty, which took years to come into force, 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 Group of Eight meeting they would not continue under the Kyoto Protocol. The United Nations is trying to ensure that the trade in credits continues even if the protocol is not renewed.