The price of both UN approved CER carbon credits and EU-backed EUA credits will rise, despite the likelihood that an economic recession and associated fall in carbon emissions should result in lower demand.

That was the prediction issued today by analyst firm Point Carbon, which argued that a fall in the projected supply of CER credits through the UN's Clean Development mechanism and Joint Implementation (JI) offsetting scheme would exceed any drop off in demand, resulting in a higher price for credits.

The firm said that this would in turn lead to an increase in the price of EUAs within the EU's cap-and-trade emissions trading scheme as firms that had been buying CERs to cover their emissions would respond to the rising price by instead buying EUAs.

Point Carbon said that it now expects 2,215m tonnes of emission reductions from CDM and JI projects up to 2012, some 19 per cent lower than its predictions of last month.

Arne Eik, Manager of CDM & JI analysis at Point Carbon, said projects were not being submitted for UN approval at the expected rate, while there was also evidence that the CDM board was being stricter in how it assesses projects suitability. He added that "further problems in the financial markets could consolidate this picture, as investors will have a hard time raising money for new projects".

The reduced availability of CERs has also prompted the company to upgrade its price predictions for EUAs by €3 to €37 per tonne on average over the 2009-2012 period, as demand for the EU credits is expected to climb from its current level of €23.20.

"We expect the EUA price to trade at €25 per tonne for the rest of 2008, and to strengthen further over the coming years", said Kjersti Ulset, manager of EU ETS analysis at Point Carbon.

He added that the bullish trend meant that the carbon markets could remain well insulated against the turmoil afflicting traditional financial markets. " Given the long-term outlook for the market, the reduction in available CERs and ERUs, the flexibility to bank allowances into the next trading phase and a strong degree of market regulation and therefore certainty, carbon could actually prove a safe bet despite the financial turmoil," he said.

It is a view largely echoed by Neil Eckert, chief executive of carbon exchange operator Climate Exchange Plc, which today published financial results showing that the volume of credits traded on its European Climate Exchange more than doubled during the first half of the year compared to the same period in 2007 to 430m tonnes.

"It is a pretty bullish market," he said. "The growth is not in a straight line and there are ups and downs, but overall there is a really healthy growth pattern."

To furether illustrate the growing confidence in the sector Eckert said that yesterday, while the "financial markets were in meltdown", the European Climate Exchange saw twice the average number of trades. "It doesn't appear that the instability is impacting the carbon market," he observed. "People are really frightened about counter party credit risk, which means that a regulated exchange is an attractive place to trade."

Climate Exchange is now looking to expand internationally having announced plans for a Chinese carbon exchange Tianjin and enjoyed a strong early performance from its new exchange for futures and options contracts based on the imminent US Regional Greenhouse Gas Initiative (RGGI) cap-and-trade scheme.

"In the first three weeks since we launched the RGGI exchange we've traded 2.3m tonnes; that's more than double thaan we did in the first weeks of the European exchange," said Eckert. "It is a ringing endorsement of the market and the potential for growth."