UK Watchdog Warns About Carbon Trading

The fast-growing market in carbon dioxide emissions poses risks that could threaten other commodities markets, the British Financial Services Authority has warned.

The watchdog said problems including investors being sold unsuitable products, confusion over the regulation of emissions traders, and insufficient official data created risks to both the fledgling global emissions markets and to related commodities such as gas and electricity.

EU traders in fossil fuels and electricity, for instance, factor carbon permit prices into their deals, which can hit consumers.

“Cap and trade” systems, which place a limit on the amounts of carbon that companies produce, are widely seen as one of the most promising ways of curbing greenhouse gas emissions at the lowest cost, and have been embraced since 2005 by the EU. In the EU the market is regulated by the European Commission.

The emissions markets have been beset by difficulties, such as some companies authorised for other financial markets may have misled customers by citing their FSA authorisation in relation to carbon trading. A paper published yesterday by the FSA warned: “Aside from being misleading and leading to potential enforcement action, this type of behaviour undermines confidence in the market.”