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Carbon trading was once hailed the next trillion-dollar market, but risks of another criminal scandal, plus falling demand following recession and new watchdog limits threaten the once darling industry.

Carbon markets are intended to cut the cost of fighting climate change by giving companies the flexibility either to reduce their own greenhouse gases or buy emissions permits.

The theft in January of permits called EU allowances (EUAs) from national electronic accounts in the EU emissions trading scheme (ETS), launched in 2005 and the hub of global carbon markets, has darkened moods.

“One more shock to the system and there won’t be any more cap and trade, it will be a carbon tax,” said Louis Redshaw, head of environmental markets at Barclays Capital, referring to a raft of other scandals which have befallen EU emissions trading including a 5 billion euro ($6.94 billion) tax fraud.

“It’s the easiest, cheapest way to launder money. Anybody globally can open an account and start moving this stuff around,” he added, of the EU market.

So far the thefts, worth about 50 million euros, have only affected the spot market, which accounts for about a tenth of emissions trading in Europe.

But the nearer a December delivery date approaches for the main futures contract, without a resolution, the more fears grow for wider contagion where traders and polluters are worried about liability if they inadvertently buy stolen credits.

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