The value of the global carbon market contracted for the first time last year, according to new figures from Bloomberg New Energy Finance (BNEF) that show market activity only reached €61bn in 2012, a decline of more than a third on the previous year.

The drastic drop in the value of the market was caused by a near halving in the average price of carbon credits from €11.2 a tonne in 2011 to just €5.7 a tonne last year, the result of over-supply in the EU’s emissions trading scheme (ETS) and a surge in the issuance of UN-approved carbon offset credits.

However, the sharp fall in carbon credit prices was partially offset by a 26 per cent increase in transaction volumes and BNEF predicted the introduction of new carbon markets such as California’s newly launched scheme and reforms to the EU ETS should see the market return to growth this year.

Trading volumes were given a boost during the last three months of the year as trading in the EU ETS rose 40 per cent compared to the average for the first three quarters of the year on the back of new allowance auctions and speculation related to the European Commission’s on-going efforts to reform the market and drive up prices.

Moreover, trading of UN offsets more than doubled as companies aimed to take advantage of the record low prices for UN-approved carbon credits.

BNEF said carbon trading volumes had now increased by around 25 per cent each year since 2010 and were expected to rise by a further 17 per cent this year at the same time as average carbon prices are predicted to increase 15 per cent to €6.6 per tonne following EU efforts to reduce over-supply in the market.

As a result the analyst firm is predicting the market will bounce back to around €80bn this year, before climbing to a record €96bn in 2014 as new markets in California and Australia mature.

Predictions of a recovery in the carbon market are dependent on the continuation of the weak economic recovery in the EU and US, and concerted efforts by Brussels to tackle low prices in the market.

But Guy Turner, director of commodity research at BNEF, said that the continued increase in market activity over the past year demonstrated that the carbon trading model was working and could still be utilised to curb greenhouse gas emissions and drive significant investment in clean technologies.

“Even in the face of policy paralysis and depressed prices, trading activity in carbon markets has continued to grow in 2012,” he said in a statement. “This shows how efficiently these markets work. Policy makers now need to harness the energy of this market and create policies that will drive innovation, spur further reductions in emissions and reduce costs.

“This is already starting to happen in California, Australia and South Korea, and the intention to link these markets with the EU ETS is a significant move in the right direction. More countries now need to follow suit and join a global trading system that includes both developed and the larger developing economies.”