Liquidity is holding up in the forward carbon market, despite a freeze on spot trading and the risk of buying stolen EU allowances (EUAs).
Traded volumes on the IntercontinentalExchange (ICE) for EUA futures averaged 12.5m tonnes of CO2 equivalent (tCO2e)/day last week. That compares with 10.4m tCO2e/day in the week beginning 10 January, before a hacker attack led to an EU-wide registry suspension (see EDCM 20 January 2010).

Liability risk
This implies that most traders continue to do business with each other, despite concerns over the liability attached to re-trading stolen EUAs. In some - but not all - EU countries, this is a crime in itself, and counterparties that buy stolen allowances, even in good faith, stand the risk of losing them. Around 3m EUAs were stolen in January.
Some participants say they now just want to trade with compliance operators in a bid to cut this risk. Barclays Capital is one example.
But other traders say this is not a widespread approach. Even though most are wary of the risks linked to liability, this is not enough to stop them trading with their usual counterparties, they say.
This risk is smaller in the futures market, anyway. A company buying forward will usually not take delivery of the EUA until December this year at the earliest. By that time, traders expect the stolen EUAs to have been tracked down and at least frozen - so they should not end up in their accounts.
In addition, many of the stolen EUAs are already frozen in various registry accounts. The longer the suspension lasts, the bigger the chance of all of them being quarantined.
"People might stay away from the March [2010] contracts, but for December expiries, volumes are pretty robust," one source said.

Long wait in UK CO2 VAT fraud trial

The case against seven individuals, who the UK tax authority alleges defrauded the state of £38m (€44.3m) by not paying value-added-tax (VAT) when trading emissions contracts, is unlikely to be heard before 6 February 2012, a London court heard on Tuesday (1st February).
The five men and two women are charged with conspiracy to defraud the state and with the criminal transfer of property. The prosecution on Tuesday said that the case also covered money laundering.
The prosecution has until 12 April to gather evidence based on the defendants` trade in emissions allowances and the various UK companies they had set up. An indefinite deadline has been set on collating evidence from abroad.
The defence will then have until 3 June to disclose its own evidence and the pleas of the seven individuals will be heard on 9 June.
The case is expected to last up to 12 weeks. Should another court house have space in its schedule to host a case of this length, it could be brought forward.
The tax authorities claim the alleged fraud took place between August 2009 and May 2010.