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Mark Nicholls

Mark Nicholls

Mark is a writer for Environmental Finance. Environmental Finance is the leading global publication covering the ever-increasing impact of environmental issues on the lending, insurance,…

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EU Carbon Market Slows to a Crawl Following Security Breaches

Trading in the EU carbon market has slowed to a crawl following the decision yesterday afternoon by the European Commission to suspend transactions in all EU member states' allowance (EUA) registries, following the latest in a string of “security breaches”.

The suspension prevents anyone buying or selling EUAs in the ‘spot’ (or physical) market, although allowances can be surrendered by emitters for compliance, or allocated to emitters by governments. Trades in futures are not affected, although the uncertainty has reduced futures volumes by about two-thirds, brokers say.

Yesterday, news emerged that 475,000 allowances – worth €6.7 million ($9 million) at current prices – had disappeared, suspected stolen, from the Czech registry. This is believed to be the latest in a string of such thefts, including that of 1.6 million from cement giant Holcim’s registry in Romania before Christmas.

“There’s utter frustration in the market that this issue is still unresolved,” said Andrew Ager, head of carbon and emissions at Bache Commodities in London. “Given the nature of the certificates and the scheme, security should be one of the highest priorities ... some of these registries seem to be very, very simple.”

Such thefts first emerged early last year, prompting the European Commission to encourage member states to improve their security protocols – several of the attacks involved ‘phishing’ for passwords, or the use of computer viruses. While larger EU members have improved security, some Eastern European states have moved less quickly.

EU 'hamstrung' in response

However, given that the registries are the responsibility of member states, the EU is hamstrung in how it can respond. On 3 December, Jos Delbeke, director-general for Climate Action at the European Commission, said the recovery of any stolen allowances “is a matter for national law and national law enforcement authorities”, adding that the Commission has “no powers to block any such allowances in a registry account”.

It is unclear what measures the Commission is planning to take in response to this latest security breach, but it said yesterday that the registries are likely to remain shut until “at least” 26 January.

This morning, BlueNext, which operates the largest spot exchange for EUAs, said it will introduce filters to screen out stolen EUAs, or isolate them in segregated accounts if they are already held by exchange members.

It is also calling for an EU-wide noticeboard, whereby registry operators could post the serial numbers of missing EUAs, allowing exchanges and market participants to take prompt action.

The International Emissions Trading Association said that “there are arguments that, at least in the longer term, centralised EU decisions need to be taken on the status of stolen certificates: certainly the issue needs to be explored with market participants".

By. Mark Nicholls

Source: Environmental Finance




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