Plenty was riding on last month's UN summit on climate change in Copenhagen and the fallout from its failure to reach any kind of comprehensive agreement is, and will continue to be, widespread.

Much of the media's attention fell on the plight of developing countries as they failed to generate cooperation from the "rich nations", who they blame for the majority of global warming and its effects. However the carbon-offsetting market will also suffer a great deal from the failure to reach an international agreement on carbon emissions.

Carbon-offsetting is one of the more controversial short term measures for reducing our carbon emissions, but falls into the strange category of being very useful as a "transition" measure as we wait for renewable energy sources to reach a point where they can support our consumption needs alone - much like carbon-capture and sequestration and natural gas are considered transitional methods of cutting emissions.

Drop-off in investment demand

Since the shambles in the Danish capital, banks have been pulling out of the carbon-offsetting market at a worrying rate.

Carbon financiers have already begun leaving banks in London because of the lack of activity and the drop-off in investment demand.

UK newspaper The Guardian has been told that backers have this month pulled out of a large planned clean-energy project in the developing world because of the expected fall in emissions credits after 2012.

What is most worrying at this stage is the unpredictability of when this exodus of investors will turn into something of a real crisis. "People will gradually start to leave carbon desks, we are beginning to see that already. We are seeing a freeze in banks' recruitment plans for the carbon market. It's not clear at what point this will turn into a cull or a rout," says Anthony Hobley, global head of climate change and carbon finance at law firm Norton Rose.

Nobody was expecting any life-changing developments in Copenhagen, least of all the global leaders themselves, but the market was expecting some progress.

Preparation for a post 2012 world

Paul Kelly, CEO of EcoSecurities, expressed his concerns: "The lack of regulatory certainty in the post 2012 world affects the market's view of what CERs [carbon credits from clean energy projects] will be worth and subsequently will constrain financing for projects.

"If you had an agreement at Copenhagen with a bit more detail, people would be more willing to take risk."

The price of carbon credits has also fallen, while plans to introduce national trading schemes, particularly in the US and Australia, remain uncertain.

However, banks were beginning to leave carbon markets even before Copenhagen after the recession led to a slump in green projects in need of investment and there were actually fewer global emissions to offset, as reported by theecologist.org.

However when the economy returns and all sectors begin to return to full operational levels, carbon emissions will climb sharply and the missing investment will be badly needed.

In 2012 the Kyoto Protocol, of which carbon offsetting was an integral part, expires. Some form of agreement must be made in preparation for a post 2012 world, let's hope more progress is made when policymakers meet again in Mexico this November.