March 2, 2011 / 4:59 PM / 9 years ago

Carbon market puts brave face on headwinds

AMSTERDAM (Reuters) - Carbon trading firms remain optimistic about a European market, after a 50 million euros cyberattack, but have given up hope on a U.S. cap and trade scheme, they told an industry conference on Tuesday.

A bird flies near chimneys emitting smoke in the harbor area of Copenhagen January 26, 2011. REUTERS/Yves Herman

Perhaps indicative of the problems facing carbon markets, attendance was well down on previous years at the Point Carbon conference, at nearly 800, compared with 1,700 in 2008.

The reputation of carbon markets has faced headwinds following the hacking in January of electronic emissions permits from a European scheme, the hub of global trade, as well as dimming expectations of a federal U.S. market.

In addition, hopes are fading that the world will agree on an extension after 2012 to the Kyoto Protocol, which sets binding emissions targets for industrialized nations and so drives demand for international carbon offsets.

“It did not impact trading volumes as much as it damaged credibility and that is the big problem,” said Stig Schjolset, a senior analyst at Point Carbon, of the thefts.

“But that problem can be solved.”

A European Union official said on Tuesday that its executive Commission was working on boosting security.

The thefts were a jolt to the market which recently suffered a 5 billion euros ($6.91 billion) tax fraud, as well as a scandal involving the re-sale of used carbon credits and a phishing scam.

“It’s very, very clear that emissions trading has lost a bit of momentum,” said Ruben Benders, head of carbon markets at the trading firm Mabanaft.

Nevertheless, carbon market practioners felt the European scheme, which was launched in 2005, was still solid, said Point Carbon’s Endre Tvinnereim.

Nearly half of around 3,000 respondents to a Point Carbon survey thought the scheme was operating efficiently, he said, on the poll in January and February after the scandal broke.

SAG

Emissions trading operates in two ways: a so-called cap and trade approach, which issues a fixed quota of emissions permits or allowances to polluters, as in the European scheme.

Under another, offsetting approach, project developers sell carbon offsets to polluters in cap and trade schemes, for example by building wind farms and thereby cutting emissions in developing countries.

Hope for a federal U.S. cap and trade scheme is fading.

“For the first time since we started this survey (more than five years ago) more people did not expect federal cap and trade in the U.S. than the ones who did,” said Tvinnereim.

A scheme last year stalled in the Senate before a swing to the Republicans in mid-term elections all but ended hopes for a market in President Barack Obama’s present administration.

In addition, fewer respondents than last year expected schemes in Australia, Japan and Canada, but expectations were raised for South Korea, China and Brazil, while California will launch a cap and trade scheme next year. While a majority of carbon market participants expected the world to agree an extension to the Kyoto Protocol after 2012, that appears contrary to most experts.

“It might be wishful thinking,” said Schjolset.

“The (U.N.-backed) negotiations are very complex and the outcome is uncertain. We don’t think Kyoto will continue. We think that carbon prices will go up this year.”

Expectations in the survey were for an average global carbon price of about 30 euros in 2020, roughly double European prices now, and unchanged from expectations in last year’s survey.

Writing by Gerard Wynn; editing by Keiron Henderson

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