New York challenge for City carbon market crown

London’s position as the dominant world financial centre for the £75 billion carbon market could be lost to New York after the adoption of the US-brokered Copenhagen Accord at UN climate talks last week.

Despite criticism that an agreement struck by the US, China, India, South Africa and Brazil was too weak to tackle climate change, it is still expected to pave the way for the introduction of proposed US cap-and-trade legislation next year, which will accelerate huge growth in the global carbon market.

The value of trading in the market is worth more than £75 billion at present but so far has been dominated by activity in the EU Emissions Trading System (EU-ETS), launched in 2005.

London has emerged as the leading financial centre for the carbon markets. But the US cap-and-trade scheme, proposed in draft legislation before Congress, would dwarf present activity levels in Europe.

Speaking from Copenhagen, Richard Gledhill, head of climate change and carbon market services at PricewaterhouseCoopers, said: “The big question now for the City is whether London will lose its leadership in carbon markets to the US.

“So far, London has been at the hub of carbon markets, traders, finance and professional services. If the US legislation goes through, there’s a real prospect of those skills shifting to New York and Chicago.”

Banks, brokers and investors have been gearing up in the US since the new Administration took over. President Obama gave a clear message in his speech to the conference in Copenhagen that America was going to act on the climate now. If passed by Congress, the climate scheme could create a carbon market three times the size of the EU-ETS. That would be a huge boost to the global carbon market, but would also move the focus of it from London to New York.

The EU has capped the use of international offsets as part of the EU-ETS, increasing the risk of a shift to the US.

The Clean Development Mechanism (CDM) offset scheme has leveraged investment of $95 billion (£59 billion) in developing markets over the past five years, with London building a robust position in this area.