Isra-Mart srl:EU Carbon Trading Declines After Alleged Hacking Suspends Spot Market

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Trading in European Union carbon permits fell and the BlueNext SA exchange proposed “isolation accounts” after an alleged hacking raised doubts about security in the world’s biggest emissions market.

The European Commission, the Brussels-based regulator, suspended most operations yesterday at all 30 of the region’s greenhouse-gas emissions registries after a Czech firm reported about 6.8 million euros of carbon allowances stolen. Replacing national registries, now used to track emission allowances in each member state, with a central clearinghouse will resolve the “security problem” in the Emissions Trading System, Maria Kokkonen, climate spokeswoman for the EU, said today.

“Security is the responsibility of the national member states for their own registries,” Kokkonen told reporters today. “But we of course, as market regulator, have to act here and remind member states to take measures.”

Futures trading in December carbon allowances fell to a pace of about 475,000 tons an hour as of 11 a.m. London time on the ICE Futures Europe exchange in London, compared with yesterday’s 1.2 million tons an hour. Prices for EU futures, which fell yesterday the most in a week, were little changed today at 14.43 euros ($19.46) a ton.

BlueNext and its members want regulators to show “some courage and commitment,” said Francois-Xavier Saint-Macary, chief executive officer of BlueNext, the Paris-based exchange owned by NYSE EuroNext that last year had the biggest share of spot carbon trading. Under a plan the bourse proposed today, members that may have unwittingly purchased allegedly stolen permits would be required to establish an “isolation account,” which would hold those permits and prevent trade until ownership is settled, he said today on a call with reporters.

‘Safe Harbor’

BlueNext’s “safe harbor” initiative, proposed after consultation with members, calls for registries, police and governments to distribute official lists of stolen permits and credits, Saint-Macary said. BlueNext also proposed a European Union-wide notice board to speed communication about thefts.

ICE Futures Europe in London, the biggest exchange for carbon trading, yesterday suspended trading effective today through Jan. 27 of its daily futures for EU contracts and United Nations’ overseen Certified Emission Reductions.

The International Emissions Trading Association said it’s “very concerned” about disruption to business following the theft. It called for “speedy” action from the bloc’s regulator. “There are arguments, at least in the longer term, that centralized EU decisions need to be taken on the status of stolen certificates,” according to the statement. Oversight is currently administered by nations.

Detailed Explanation

The Geneva-based IETA is ready to help the European Commission with the “identification of issues and solutions” and expects that the EU regulator will be able quickly to provide a more detailed explanation and propose further steps.

The halt of the registries, which track ownership of allowances, will last at least until Jan. 26, according to the commission. It said it will work with national authorities to determine what “minimum” security measures need to be put in place before the suspension of a registry can be lifted.

Blackstone Global Ventures, a trader based in Brno, Czech Republic, lost 470,000 allowances yesterday, according to Daniel Butler, the company’s broker at Wallich & Matthes BV in Prague.

The reported theft followed at least two incidents in the past months in which permits, used by more than 11,000 European factories and power stations to lawfully emit carbon dioxide, were stolen from accounts in attempts to profit from resale.

Hacker Attacks

In November, Romania’s registry was accessed without authorization, prompting a statement of regret from Jos Delbeke, director general for the commission’s climate department, which supervises the carbon market. Last week the Austrian registry blocked access to accounts after a hacker attack on January 10.

The European emissions trading system includes the EU’s 27 member states as well as Norway, Iceland and Liechtenstein. It was set up in 2005 as a cornerstone of the bloc’s efforts to tackle the heat waves, storms and floods that scientists have linked to emissions of greenhouse gases.

According to EU law, the single registry for the emissions-trading system has to be operational at the start of 2012 and work on this is continuing in the Brussels-based commission, Peter Zapfel, head of policy co-ordination in the climate department, said in November.