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Italian Exchange Halts ‘Abnormal’ EU Carbon Trading

Dec. 2 (Bloomberg) -- Italy’s Gestore dei Mercati Energetici SpA suspended trading of European Union carbon permits on its exchange, citing “abnormal trading” and “presumed irregular or unlawful behaviors.”

The stoppage, which will remain in effect until further notice, follows a surge in volumes on the exchange, Rome-based GME said today on its website.

GME trades spot carbon allowances once a week issued under the EU emissions trading system, the world’s largest. The cap-and-trade program was valued at almost $119 billion last year, according to a World Bank report.

‘It’s absolutely necessary that they’ve suspended trade,’’ Alessandro Vitelli, director of strategy and information at IDEAcarbon in London, said by phone today. ‘It’s been a forgotten corner of this market.’’

The weighted average price of emission permits for spot delivery on the GME was 14.86 euros ($19.41) a ton on Nov. 25 as volumes surged to 3.25 million tons from 20,000 tons in January, according to the exchange’s website. Spot allowances on the Paris-based BlueNext exchange closed at 15.1 euros that day as 632,000 permits changed hands.

Vitelli said it isn’t clear why prices on GME were “significantly lower” than prices on other exchanges, which also include the ICE Futures Europe in London, Climex in Utrecht, Netherlands, NordPool in Oslo and the European Energy Exchange in Leipzig, Germany.

To protect the EU emissions system from value-added tax fraud, the 27-nation bloc agreed in March to introduce the so-called reverse-charge mechanism that shifts the levy to customers rather than sellers.

Unproven

“It’s feasible that it could be VAT fraud, but that’s not been proven” on the GME, Vitelli said.

The Italian finance ministry wasn’t immediately available to comment on VAT mechanisms chosen by the government regarding carbon trading.

The EU decision followed reports that some sellers of carbon permits pocketed VAT collected from buyers and disappeared before submitting the money to the treasury. France and the U.K. scrapped the tax on emissions trading last year, while the Netherlands shifted the VAT levy to the buyer as a safeguard against the so-called carousel fraud.

To contact the reporter on this story: Ewa Krukowska in Brussels at ekrukowska@bloomberg.net Catherine Airlie at cairlie@bloomberg.net

To contact the editor responsible for this story: Stephen Voss at sev@bloomberg.net

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