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Capital Markets

Emissions trading: Scandal-hit carbon market burns out

Governance weaknesses exposed; Sector in limbo

The EU carbon-trading scheme, started in 2005, was intended to be a model for a future global carbon emissions programme. As Barack Obama rose to prominence and was elected US president in 2008, the expectation was that the world’s largest carbon emitter would implement legislation for a cap-and-trade system, paving the way for the next big financial market, all in aid of saving the planet.

It was a nascent market with huge potential. Investment banks built up large carbon trading, sales and research teams, money poured into green funds, and carbon conferences were the place where those involved in the burgeoning industry gathered in their thousands to discuss that potential.

Scandal

Things haven’t turned out quite as expected. US legislation has hit broad opposition, carbon prices have flat-lined for the past two years and severely curtailed trading revenues, and fund inflows have slowed to a trickle. So the last thing the market needed was a scandal that could undermine the credibility and the future of carbon emissions trading and force the European Commission to suspend spot trading last month.

The scandal was something straight out of a classic Hollywood heist movie. The location was Prague, and a building containing a carbon certificate registry was evacuated because of a suspected bomb.

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