Buyers wary as theft-hit EU spot carbon market reopens

LONDON Fri Feb 4, 2011 11:29am EST

LONDON (Reuters) - The European Union's spot carbon market opened on Friday after cyber attacks forced a closure lasting more than two weeks, but was quiet as some traders expected further thefts of emissions permits.

The European Commission last month closed the electronic warehouses where permits are kept, called national registries, after the theft of EU allowances (EUAs) worth at least 45 million euros ($61.35 million).

Five re-opened on Friday, in France, Germany, the Netherlands, Slovakia and Britain, while the Paris-based BlueNext spot exchange also resumed trade.

Some 127 EUA lots had traded by 1550 GMT on the exchange, compared with 740 lots for the whole day on the corresponding date last year.

"Volume has been very low. People are still scared of trading in case more thefts are revealed or they get stuck with permits they bought in good faith," said an emissions trader.

Some traders feared that unidentified stolen permits were still in circulation. Unclear rules on liability meant that buying these risked a loss of their full face value.

"You'd have to be a brave man to trade that stuff," said Trevor Sikorski, carbon analyst at Barclays Capital, which earlier this week demanded urgent new rules restricting market access to polluters and regulated financial intermediaries.

"There's a very high probability there are (more) stolen EUAs," Sikorski said. "You don't know how many there are in circulation. If you were to lose full face value on say 100,000 tons it would take a long, long time to get that back in trading revenue."

"I don't know who's going to take that risk."

The value of lost spot trading revenue since the market was shut on January 19 was about 110 million euros, estimated Point Carbon Thomson Reuters analyst Kjersti Ulset.

The International Emissions Trading Association (IETA) lobby welcomed the re-opening of the market, but demanded an official EU statement on the serial numbers of all stolen EUAs, as well as clear rules on ownership liability and sweeping scrutiny of registry account holders.

The EU emissions trading scheme is the bloc's main weapon to curb carbon emissions from power plants and factories, capping these by issuing a fixed quota of emissions permits or EUAs.

All known, stolen EUAs were now accounted for, said BlueNext spokesman Keiron Allen.

"It would be impossible to trade on our exchange any of the stolen EUAs that have been identified," Allen said, adding that the exchange had the serial numbers for stolen EUAs originating from the Czech Republic, Romania, Greece and Italy.

Only the serial numbers for stolen Austrian EUAs were unavailable, but Austria had blocked their circulation anyway, he added.

"I think all of us would expect the market to start gingerly," he added. Regarding the possible revelation of further thefts, he said: "It's just conjecture."

Other exchanges remained shut: ICE Futures Europe said on Thursday its spot carbon transactions were suspended until further notice.

The Green Exchange said that its spot market was also closed until further notice. "Despite the resumption of operations at the emission registries a complete list of serial numbers of the EUAs that are alleged to have been unlawfully transferred is currently not available," it said in a statement.

Some market experts said that the BlueNext move was premature. "I'm surprised somewhat that BlueNext has opened. I am not sure that's the best approach," Sikorski said.

The spot market accounts for about one tenth of total EU carbon trade which is dominated by a futures market for December delivery so far unscathed by the thefts.