Europe’s emissions markets may be “significantly harmed” unless regulators set a deadline for fixing the security flaws exposed by carbon thieves, the International Emissions Trading Association said.
The 30 registries that track ownership of emission allowances in Europe were closed for a ninth day, preventing prompt trading even as futures markets remain open. About 29 million euros ($40 million) of permits are missing in a series of hacking attacks, according to figures announced last week by the European Commission, which regulates the world’s largest greenhouse gas market by traded volume.
The commission received the first batch of reports it demanded last week to show that nations have adequate security, it said today in a statement. That means some registries may be able to reopen in the second half of next week, it said. ICE Futures Europe, the biggest market for carbon, said yesterday its next-day market will be closed until at least Feb. 7. The Czech registry said it would be closed for six weeks or longer.
“IETA deplores the lack of attention paid to enhancing registry security despite last year’s phishing attacks and despite repeated warnings,” Henry Derwent, president of the Geneva-based lobby group, said today in a statement. “The impact on the market of protracted closures could be significantly enhancing risk exposures in terms of unwitting purchase of stolen and potentially reclaimable allowances.”
Elaine Bailey, spokeswoman for ICE, declined to say whether any missing allowances ended up in its clearing house.
‘Phishing attacks’
Carbon allowances for December rose 0.2 percent to 14.76 euros a metric ton on ICE, rebounding from intraday losses 1 percent. Open interest in the contract rose 1.5 percent yesterday to a record 122 million tons, according to ICE data.
The overall prompt market, which covers permits delivered in a day or less, accounted for 12 percent of EU carbon trading on exchanges last year, according to Prospex, the London-based research firm. The annual caps for installations in the EU carbon system are 2.08 billion tons from 2008 to 2012.
Carbon market fraud in the last two years included value- added tax fraud and so-called “phishing attacks,” in which internet fraudsters con factories out of passwords and then steal allowances.
“While the safety of online banking has been scaled up, EU member states have failed in protecting an 80 billion-euro market, thereby undermining the EU’s main tool to reach climate objectives,” IETA said.
EU Climate Commissioner Connie Hedegaard, speaking today at the World Economic Forum in Davos, Switzerland, said EU nations are “working very hard” to improve security and rejected suggestions that carbon markets have been wrecked by fraud.
Bank robbers
“It’s not the system that is wrong,” Hedegaard said in an interview. “Wherever you have financial assets of some kind, you can experience fraud. We see that in all sorts of other areas. Just because someone robs a bank, you do not say the whole banking system doesn’t work.”
Blackstone Global Ventures, a trader based in the Czech city of Brno, informed national administrators on Jan. 19 that it lost 475,000 allowances. The next day, Barclays Plc said it had stopped most spot carbon trading last month after Holcim Ltd., the Swiss cement maker, lost 1.6 million EU permits worth another 23.6 million euros.
CEZ AS, the largest Czech power producer, said yesterday it lost 10.5 million euros worth of allowances in unauthorized transfers in last week’s raids on the national registry.
‘Behind closed doors’
“The closure of the EU emissions trading system registries was a necessary step to stop greater damage to the functioning of the market,” IETA said. “We regret the process by which minimum security measures were decided behind closed doors and remain unknown.”
About half of the EU’s member states lack adequate protection, the commission said last week after permits disappeared in Austria, the Czech Republic and Greece.
“We are in close dialogue with member states on this,” Hedegaard said. “They’re working very hard. Some could open rather soon, some could take a little bit longer. We want to do this with quality rather than rushing and then something happens.”
While the system is set to have a central clearinghouse in the next trading period starting in 2013, so-called national registries are now responsible for tracking ownership of permits. “Until then, it’s the responsibility of the member states to take care of security,” Hedegaard said.
