* Spot market may re-open later this week
* Volumes unlikely to recover quickly
* Traders demand clearer liability, better security
(Recasts, adds Barclays Capital)
By Nina Chestney
LONDON, Feb 1 (Reuters) - Investors say they have lost faith in a spot market in European carbon emissions permits after a 45 million euro ($61.79 million) cyber theft.
That means any recovery will be slow at best when the market re-opens in coming days.
The European Commission halted spot trade two weeks ago after permits called EU Allowances (EUAs) vanished from national, electronic carbon accounts called registries in Greece, Austria and the Czech Republic.
Repairing the market's crippled reptuation and winning back investor confidence will require a combination of new rules on liability and beefed up registry security, traders said.
"It's an absolute disaster for the spot market," said Louis Redshaw, head of environmental markets at Barclays Capital.
"We're at the point now where the market is essentially broken. You can't fix it with security alone."
Redshaw added that for the indefinite future he would only buy spot EUAs from trusted counter-parties, rather than on exchanges where it was impossible to know the source.
Doubts over the scale of the theft meant trade would likely be modest when the European Commission allowed registries to re-open, as early as later this week.
Traders are concerned about handling permits, given doubts about whether these may be stolen.
Stolen Greek EUAs have not yet been identified, meaning no-one knows yet if they are holding them, while the expectation was that further thefts would be revealed.
The EU emissions trading scheme caps emissions from the 27-nation bloc's factories and power plants by issuing a fixed quota of EUAs. Spot trade in the scheme more than halved last year, after a VAT fraud scam was uncovered in 2009.
Analysts estimate average daily spot volume on exchanges and over-the-counter last year at around 2-3 million tonnes, worth about 40 million euros, about a fifth of a much bigger futures trade which is relatively unscathed.
DEAD
Authorities had to clarify rules on liability as well as boost electronic security.
Liability rules differ across countries and are yet to be tested. In theory, Britain and Germany, for example, have opposite laws, where the seller and buyer respectively get legal ownership of stolen permits.
"The spot market will not be the same. The serious question of legal liability may mean the spot market remains all but dead," Andrew Ager, head of emissions trading at Bache Commodities, told Reuters.
"With different member states applying different legal interpretations for affected carbon permits it is a legal minefield with no clear path to safety," he added.
To restore confidence, some market players suggest classing spot EUAs as a cash product, creating in effect a single rule whereby buyers would have legal right to stolen EUAs, putting sellers out of pocket.
Regarding security, it was still too easy to open a carbon trading account in some EU countries, which provides easy access to the market. Restricting access to polluters and regulated traders could help prevent theft in the future, analysts said.
Some spot trade can continue, especially among power plants and factories aiming to raise cash.
"I still have more than 3 million of clients' EUAs to trade as soon as the market reopens and other traders here are in the same situation," said Jacopo Visetti, head of trading at Italy's AitherCO2.
(Additional reporting by Gerard Wynn; Editing by William Hardy)