The prospects that Russia will eventually ratify the Protocol, so bringing it into force, took a significant step forward in late May. President Vladimir Putin made clear that successful talks with the EU on the terms of Russia's entry into the World Trade Organization "could not but have helped Moscow's positive attitude to the question of ratifying the Kyoto Protocol."
Despite the doubts over the Protocol's future, the market for Kyoto credits has started to pick up steam. The World Bank's report, which draws on information from brokers Natsource and analyst Point Carbon, concludes that more than 64mtCO2e (million tonnes of carbon dioxide equivalent) were traded in the first four months of this year, with a value of $260 million. The market has grown from 78 and 30mtCO2e and in 2003 and 2002, respectively (see figure).
Allowances under "cap and trade" schemes accounted for two-thirds of the transactions in 2003 - but only 3% of the market by volume.
The UK's emissions trading scheme saw some 0.5mtCO2e traded in 2003, and 0.3mtCO2e so far in 2004 (see p 4 
).
The market is set to step up several gears with the launch of the EU emissions trading scheme (EUETS) in January 2005. The World Bank reckons that at least 70 forward EUETS trades have taken place so far - but the vast majority have been small "trial" trades of perhaps 5-10ktCO2e.
In advance of the EUETS, the carbon market remains dominated by credits from emission reduction projects. The last two years have seen a dramatic shift away from a "voluntary" market with low-cost credits to a strong focus on projects which aim to be compliant with the Protocol's "flexible mechanisms" - the CDM and, to a lesser extent, Joint Implementation (ENDS Report 344, pp 29-34 ).
The main buyers are Japanese companies, which purchased 41% of project credits in 2003/04. The World Bank's various carbon funds - which service a range of governments and private buyers, many in the EU (ENDS Report 300, p 10 ) - accounted for almost one quarter of the market. A similar amount was bought by the Dutch Government, which is hoping to use imported credits to deliver half of its Kyoto target.
The Bank expects interest from EU buyers to take off rapidly. Several Member States, including Sweden, Denmark, Finland, Austria and Italy already have, or are planning, CDM and JI programmes. Moreover, the so-called "linking Directive" will allow companies under the EUETS to use most CDM credits to meet their emission caps (ENDS Report 351, pp 52-53 ).
Just over half the credits sold in 2003/04 came from projects in Asia, with Latin America's share falling to 27%. Three countries - India, Brazil and Chile - supplied 56% of the total volume, and their share is increasing. Africa is "lagging far behind" with just 4% of the market - leading the World Bank to express "deep concerns about the overall equity of the distribution of the CDM market".
Concerns that the CDM may be failing to promote sustainable development in poor countries are aggravated by data on the type of emission reduction project. Just two projects to destroy industrial emissions of the potent greenhouse gas HFC-23 delivered 35% of the total credits in 2003/04 (ENDS Report 344, p 33 ).
The two projects, in India and South Korea, have been developed by chemicals firm Ineos Fluor - and use similar abatement technology to that which allowed Ineos' Runcorn works to flood the UK emissions trading scheme with low-cost allowances. In late May, Ineos announced that it had agreed to sell credits for 2mtCO2e to an undisclosed European company for use under the EUETS.
Other important abatement technologies are landfill gas capture, with 20% of the market, biomass (12%) and hydro (12%). The CDM Executive Board has now approved 11 baseline methodologies, and expects to register the first project by the year end.
Ken Newcombe, the World Bank's manager of carbon finance, struck a cautionary note: "The clock is ticking on the possibility of delivering projects that can produce significant quantities of emission reductions before 2012." The lack of agreed international emissions reduction targets beyond that date, and the significant lead time of 3-7 years to get a project off the ground, means that the window to purchase credits "will very likely close by 2006".
The price of Kyoto credits has remained fairly steady, the report says. In cases where the buyer takes the risk that the project may not be approved the price is $3-4.25, rising to $3-6.4 when the seller takes the risk.