The global carbon market contracted during 2010 over uncertainty about its future after 2012, the World Bank has claimed.

In its annual review on the state of the market, the institution said following five years of "robust growth" the market declined slightly last year to $142 billion (£86.7 billion).

Uncertainty about where the carbon market will go after 2012 and the lack of progression on cap and trade schemes were said to be two of the key reasons why the market faltered.

Others included the continuing effects of the recession leading to lower emissions in some nations and the fall seen in the primary Certified Emission Reductions market, which is now at its lowest level since 2005 when the Kyoto Protocol was introduced.

Andrew Steer, World Bank special envoy for climate change, said: "The global carbon market is at a crossroads. If we take the wrong turn we risk losing billions of lower cost private investment and new technology solutions in developing countries."

The release of the report comes shortly after the International Energy Agency revealed CO₂ emissions hit their highest ever level in 2010, casting uncertainty over whether the two degrees C limit for climate change can be achieved.