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UPDATE 1-Value of global CO2 markets drops 38 pct in 2013

Thursday, 2 Jan 2014 | 11:39 AM ET

(adds data on UN markets from paragraph 11)

LONDON, Jan 2 (Reuters) - The value of global carbon markets dropped 38 percent to 38.4 billion euros ($52.9 billion) in 2013, as prices slid in the main EU and U.N. schemes and trade limited in new programmes, analysts at Thomson Reuters Point Carbon said on Thursday.

The value of carbon permits and credits traded was down from 62 billion euros in 2012 and 96 billion euros in 2011, a two-year period in which benchmark EU carbon permit prices fell to 5 euros per tonne from 18 euros, the analysts said in a a report.

Last year also saw a decrease in volume, with 9.2 billion emission units changing hands compared to 10.7 billion in 2012, the first drop in turnover since 2010.

"The main explanation for the falling prices in carbon markets around the world is the very modest emission reduction targets adopted for the period up to 2020," Point Carbon's Anders Nordeng said.

"Without ambitious climate targets there is no need for deep emission reductions and carbon prices will remain at low levels."

In an effort to curb emissions of heat-trapping gases blamed for global warming, many governments have set up markets that cap emissions and allow emitting companies to trade excess permits.

The EU Emissions Trading Scheme (ETS) has operated since 2005 and represented 94 percent of the value and 88 percent of the traded volume of global carbon markets in 2013, the analysts said.

Prices in the EU scheme have fallen as rigid supply rules flooded the market with permits as demand ebbed amid the bloc's economic downturn.

Last month, EU lawmakers agreed to cut supply temporarily in an attempt to push prices back towards levels that stimulate companies to invest in carbon-cutting technology. The move followed more than a year of wrangling amid concerns that higher prices could hamper the bloc's economic recovery.

The so-called backloading proposal, which delays the sale of permits from scheduled auctions, is not expected to take effect until March at the earliest. Analysts say that without further reform, it will not push prices much higher than 5 euros.

U.N. MARKET COLLAPSE

The Clean Development Mechanism (CDM) and Joint Implementation (JI), the carbon offset schemes created under the United Nations, suffered an even greater decline in 2013.

Trade in U.N. credits dropped 96 percent in value and 75 percent in volume to 299 million euros and 742 million units respectively, the analysts said.

The CDM and JI allow developers of carbon-cutting projects to earn credits that can sold to governments or companies seeking to meet emission targets, with some 2.2 billion units generated since their inception in 2005.

But fresh investment has dried up as credit prices have crashed 98 percent in five years to less than 50 cents, lower than the cost of developing the projects.

Additional demand for the U.N. credits has failed to emerge via fresh government targets and the EU this year banned credits from new schemes from all but the world's poorest nations in an effort to get emerging nations such as China, Brazil and Russia to pay for more of their own emission reductions.

North American carbon markets were the only ones to have grown in volume and value over 2013.

The fledging market spanning California and Quebec now has the highest permit prices in the world, at $10.71 per tonne, said Point Carbon's Olga Chistyakova.

The analysts added that the launch of five of seven planned carbon markets in China in the second half of 2013 had great potential to reverse the overall decline in global carbon markets due to the sheer size of the schemes, which are in Guangdong, Beijing, Shanghai, Shenzhen and Tianjin.

Nordeng said talks on a global deal to tackle climate change due to be struck in late 2015 would be a key test on whether big-emitting countries would set or deepen emission reduction targets to tackle climate change effectively.

"If the goal to limit global warming to two degrees (Celsius) shall be met, more dramatic cuts are needed over the next decades," said Nordeng, referring to a 2010 agreement by almost 200 nations under the U.N. to limit the rise in global temperature. ($1 = 0.7257 euros)

(Reporting by Ben Garside; Editing by Dale Hudson)