Bulgaria, Ireland and Norway will reopen their national emissions registries today but security doubts have led two carbon spot markets – Climex and APX-ENDEX – to close their operations for good.
“Insecurity on the carbon spot markets continues and still carries risks for participants,” reads a joint press statement released by the two trading platforms on 1 March.
All carbon trading was suspended by the European Commission on 19 January, after the biggest-ever allowances fraud netted as much as €28 million worth of carbon permits.
Registries have spasmodically reopened since then, but carbon prices have barely recovered to half of their 2008 levels as traders remain wary of being stung again on markets that remain insecure.
One carbon market expert, Mark Lewis of Deutsche Bank, was quoted describing the carbon market as “effectively dead”.
But Stig Schjølset, a senior analyst with Point Carbon, told EurActiv that rather than decreasing dramatically, carbon trading volumes had just shifted from spot to futures markets.
“The carbon market will survive this crisis,” he said. “If you look at the alternatives, there is no serious push to replace the carbon market with a tax.”
Yet some analysts argue that carbon spot markets remain the cheapest and easiest way to launder money.
As a result of poor identity checks, they have proven vulnerable to computer hacking and “phishing” attacks, where bogus websites are created that trick investors into providing fraudsters with password details.
These are used to access the permits, which are then sold on open spot markets within minutes by traders using fictitious identities.
Schjølset acknowledged that such security issues were “structural” and “systematic” but insisted that proposals on the table now, such as double identity checks and delayed transactions, were addressing them.
“When you deal on the market now the transaction is immediate,” he said. “But if you delay it for two weeks from the time that you sell until the time that you get the money, it will be less attractive for cyber-criminals.”
Regulating carbon permits as a financial instrument under the rubric of the EU’s much tougher financial regulations was also under consideration, he said.
Europe’s carbon market has also been depressed by a lack of demand from German power plants, which are the biggest buyers of EU emissions permits.
A recession-led over-capacity in power supply, coupled with strong commodity prices, has hit profits in the energy sector.
Some investors express concern that tough new EU limits on carbon offsets – the trading of permits to pollute – with the developing world after 2012 will also curb trade.
Offsets – or Certified Emissions Reductions (CERs) – will only be allowed where low-carbon projects have already been established by then, or in the least developed countries which have so far not benefited from the scheme.