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Camilo Terranova, Senior Analyst, New Carbon Finance, Brazil

What do you consider to be the key factors which will affect the growth of the Latin American Carbon Market?

The defining factor for 2009 carbon market in Latin America and other regions is the global financial turmoil, which is weakening demand for international credits from both companies in the EU-ETS and governments with consequent lower prices. The lowering of oil prices may further undermine the prospects for renewable energy, the core of projects in this region. Obama’s policies on climate and renewable energy are the best hopes for positive news in these two sectors. Though not impossible, it is hard to see any of this coming through quick enough during this year.

How could the policy and regulatory environment be improved in your country to aid the carbon markets?

There is a lot Latin America countries could do to improve the general policy and regulatory environment for clean technologies, energy efficiency and particularly renewable energy, which make the bulk of potential in the region. Some countries in the region, notably Mexico and Brazil have attempted to answer the complaints of the developed world about the responsibilities of developing countries during Poznan talks, particularly in relation to MRV actions. Though interesting these pledges as they might be, the ball is very much on the developed world court and so far there are little signs for high demand for international credits. In addition to that, this regions negotiations’ weight pales in comparison with China. In this scenario, the role of Latin America governments to significantly influence this market is very limited.

Can you make a prediction for the pricing of Latin American CERs in 2009?

With weakening demand from the EU-ETS and a recession in all major developed economies, there is very little price support for CERs. The further lowering of oil could see the secondary market approaching historical primary market prices, which in any case will remain low, unless some major changes occur in the shape of the economy. Though the short-term looks somewhat bleak for CERs price, during Poznan the support for CDM has been strong making the overall outlook for CDM beyond 2012 more positive, even though this will not reflect on higher prices anytime soon. Other factors being equal, NCF forecast 2009 should see the peak for CER prices pre-2012 at an average of 15 Euros/ton.

What types of projects do you see being developed and which type do you think will grow in future?

Renewables, particularly hydro, wind and biomass form generally speaking the bulk of opportunities in the region. Once REDD mechanisms are defined, the forestry potential of the region could be finally unleashed, even though Brazil, where the largest forestry potential is found, does not favour market mechanisms for the protection of its forests. Though relying on the good will of governments and companies may well prove unsustainable, deforestation in Brazil seems to be much more a problem of adequate policies (carrot and sticks) than something that solely throwing money at it can solve.