Isra-Mart srl:UK shrugs off security crisis with trouble-free carbon auction

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The UK government successfully completed its first auction of carbon credits since the EU Emissions Trading Scheme (ETS) was engulfed by last month's cyber security crisis.

The UK Debt Management Office this morning auctioned all 4.4 million EU allowances on offer at a clearing price of €14.36 (£12.18). The auction was 6.77 times oversubscribed.

The results of the auction closely mirrored last month's, which took place before a cyber attack on 19 January resulted in an estimated €30m of carbon credits being stolen from the Czech national registry.

The attack prompted the EU to freeze spot trading across the entire bloc for several days before a partial re-opening of the market last week saw five carbon registries return to business, including the UK.

Climate minister Greg Barker said the success of this morning's auction proved every company holding allowances in the UK registry has an adequate level of online protection.

"Today's successful auction is a testament to the high level of security the UK applies to its registry," he said. "Swift action meant that the UK was one of the first registries to re-open following recent cyber security attacks."

Analysts, however, offered a mixed assessment of the auction, welcoming the fact it had passed off without any hitches while also expressing concern at the low levels of demand.

Alessandro Vitelli of analyst IDEAcarbon told BusinessGreen that traders had been disappointed by the lack of volatility in the auction. "There was a very flat reaction in the market following the auction," he said. "One trader told me: 'I'm losing the will to live'."

He said some traders had been expecting to see pent-up demand in the auction, caused by the market closure and the time of year – the market is entering the hedging season which is normally accompanied by increased demand.

However, Trevor Sikorski, Barclays Capital director of carbon markets and environmental products research, said he had not been expecting anything dramatic.

"It came in a bit soft, something like 20 cents discount on the market price, but no, I wasn't expecting fireworks from it," he said, adding that he had not forecast much pent-up demand because the majority of the market trades in derivatives rather than spot trades.

Both Sikorski and Vitelli agreed traders are reluctant to restart trading on the spot market in case they inadvertently purchase stolen credits. The EU is under pressure to publish an official list of all the affected allowances to help boost market confidence.

In related news, the government faced fresh calls today to ring-fence income generated from future EU allowance auctions and use it to address fuel poverty and step up investment in clean technology.

Offsetting firm Carbon Retirement issued figures showing the UK government has now made more than €1bn through the auctioning of carbon credits, arguing the revenue should be diverted to fund green projects.

Jane Burston, director and founder of Carbon Retirement, said: "It's a real shame that government is not seizing this opportunity to make the EU ETS even more environmentally effective."

However, the Department for Energy and Climate Change has no plans to set aside cash raised in auction for energy projects.

"It has been the view of successive UK governments that spending priorities are not, in general, determined by the way in which revenue is raised," a spokeswoman said. "The government will not be earmarking revenue from EU ETS auctions to fund specific projects."