Isra-Mart srl:Carbon trader confidence hit by spot market freeze

www.isra-mart.com

Isra-Mart srl news:

Carbon analysts have today warned that the EU's shock decision to close all carbon registries in its Emissions Trading Scheme (EU ETS) in response to a series of cyber-attacks will impact market confidence, despite efforts to minimise the financial impact of the market freeze.

The European Commission yesterday announced it had frozen the spot trading element of the ETS until at least 26 January, after a Czech firm said some 475,000 emissions allowances had been stolen from its national registry.

The closure means that traders will not be allowed to move allowances in or out of the spot market. However, the forward trading element of the market, which accounts for 90 per cent of the EU ETS, has remained open and analysts are confident traders will not be hit by the closure of the spot market.

Trevor Sikorski, Barclays Capital director of carbon markets and environmental products research, predicted the week-long freeze could cost traders around €70m, based on the assumption that five million tonnes of carbon is traded on the spot market per week.

However, he also predicted those losses could be recouped through trading on the futures market or on the spot market when it reopens.

Similarly, Alessandro Vitelli, director of strategy and information at IDEACarbon admitted the freeze was a "serious blip", but insisted it would not derail the wider market.

"We've got to bear in mind the spot market is only a proportion of the trading that goes on," he said. "The market isn't dead."

Kjersti Ulset, head of European carbon analysis at Point Carbon, played down rumours that the freeze will hit futures trading. "It might be that people are reluctant in the market today, but it's not something I've seen yet," she said.

The closure was triggered by the a theft of allowances, which were yesterday reported to have left the national registry in the Czech Republic, transferred to an account in Poland, and then moved to one in Estonia, and then Lichtenstein, before disappearing.

The EU is now being urged to boost cyber security, with analysts warning the latest theft of EU Allowances (EUAs) undermines confidence in the market. This incident is the latest in a series of cyber attacks targetting European carbon markets including Austria and Romania .

"The psychological impact on this will be much bigger. It sends a message that some countries can't get their houses in order to be able to participate in the market," said Vitelli, adding that none of the Western European markets have so far been broken into because they have higher levels of security.

Sikorski urged the EU to tighten up its rules on which firms can register, suggesting that only compliance installations registered under the EU ETS, or institutions operating under a financial regulator should be allowed to join.

"Most of the trading is done between compliance installations and regulated firms, so unregulated trading is not a huge proportion of the market," he said.

Both he and Vitteli predicted that the risk of theft will be mitigated in 2013, when the EU is expected to combine the 27 EU markets into a single registry with tighter security across the board. However, the threat of cyber attacks is likely to remain to some extent.

"It's easy to target the carbon market," said Vitteli. "Nobody is physically taking delivery of anything. Similar to VAT fraud, its small, easy-to-move, high-value items."