Analysis from Bloomberg New Energy Finance shows that EU climate goals should stimulate EUR 31bn of low carbon investment in developing countries: Additional investment in clean energy and energy efficiency projects of EUR 31bn in developing countries up to 2020 could result, if the European Union achieves its goals for reducing emissions, according to new research published by Bloomberg New Energy Finance. This EUR 31bn ($43bn) figure includes all capital invested in the project, not just that part equivalent to revenues from selling the carbon credits.

The analysis assumes that the EU moves towards a marginally tougher target in 2020 - a 22% reduction on 1990 levels compared to the currently legislated 20% - and takes into account restrictions on the imports of carbon credits from developing countries. From 2013, the credits from projects that destroy the potent global warming gases of HFC (hydroflourocarbons) from refrigerant manufacturing and N2O (nitrous oxide) from adipic acid (a widely used industrial chemical) will be banned from entering the EU Emissions Trading Scheme. These credits are cheap to produce and to date have accounted for around 70% of carbon credits issued by developing countries. From 2013 onwards, carbon credits from developing countries will need to come from more capital-intensive renewable energy and energy efficiency projects.

Bloomberg New Energy Finance calculates that the future demand for international carbon credits from businesses covered by the EU Emissions Trading Scheme (EU ETS) and European governments will be 3.9bn tonnes between 2008 and 2020. Credit supply from projects currently in operation and those in the planning pipeline - as published by the UNFCCC (UN Framework Convention on Climate Change) - is forecast at 2.9bn tonnes over the same period. The result is a shortfall of around 1bn tonnes of CO2 equivalent.

Taking into account the ending of cheap industrial gas credits, we calculate that the average investment needed to produce an international carbon credit will increase by two thirds from EUR 19/tCO2 in the pre-2012 market to around EUR 32/tCO2 in the post-2012 market.

There will also be significant shifts in the location of projects - away from more advanced developing countries such as China. Bloomberg New Energy Finance calculates that China accounts for 62% of carbon credits currently in the UN pipeline, but estimates that less than a third of new investment is likely to take place in China.

Guy Turner, director of carbon market research at Bloomberg New Energy Finance, commented: “The EU’s climate policy is still the driving force in the world carbon market and continuation of current policies will stimulate material new investment in clean technologies in developing countries. If other developed countries follow suit, this number will increase significantly.”