As in the two previous years, Ecosystem Marketplace and New Carbon Finance have released their annual report on the state of the voluntary carbon markets.

The document, subtitled Fortifying the Foundation, is based on the reported activity during 2008 of 182 developers, aggregators, brokers and retailers of voluntary carbon credits.

It’s easy to be encouraged by the first paragraph in the executive summary. Global transaction volume jumped from 66m tonnes of CO2e in 2007 to 123.4m tonnes in 2008. But dig a little deeper, and the picture isn’t so rosy.

As we noted last year, carbon credits can be traded multiple times without having any impact on the environment. From the Earth’s perspective, retirement is the crucial event in the life of a carbon credit. A credit is retired when the buyer chooses not to sell it on again, thus offsetting their own emissions.

According to the report, only 12.4 million tons of CO2e could be confirmed as retired during 2008. This is almost identical to the figure from 2007. In other words, while lots more carbon changed hands, the actual amount being offset did not seem to grow at all. Perhaps an echo of the financial bubble?

Other conclusions which stand out:

• On average, credits cost $5.10/tonne at the project level, but $8.90/tonne at retail. This means that just over half (57%) of the money collected by carbon offset retailers is going directly towards carbon reduction. This is a significant improvement from last year’s figure of 44%.

• The popularity of different project types is changing, with a huge shift towards renewable energy projects such as hydropower and wind, as well as projects which prevent methane emissions from landfills.

• Almost all credits transacted are now verified according to a third party standard. This increases buyer confidence in the validity of the carbon reductions that the credits represent. Of the many standards now emerging, the Voluntary Carbon Standard is by far the most popular.

• As buyers of carbon offsets, individuals and non-governmental organizations (NGOs) have all but disappeared into irrelevance. Taken together, they were responsible for just 3% of transaction volume in 2008, compared to 66% for private companies.

• As can be expected in light of the financial crisis, 2009 looks to be a year of stagnation in the voluntary carbon markets, with transactions in the first quarter down significantly.

For more facts and figures, we highly recommend downloading the full report (1Mb PDF). Many thanks to the authors (Katherine Hamilton, Milo Sjardin, Allison Shapiro and Thomas Marcello) for their hard work.