Isra-Mart srl : Europe Ends Three-Month Curbs on Carbon Registries After Hacking Thefts

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The European Union allowed the Lithuanian carbon registry to reopen tomorrow, bringing back to normal all emission registries in its cap-and-trade system after a string of thefts triggered three months of restrictions.

The European Commission, the EU regulatory arm, closed the registries that track the ownership of emission permits on Jan. 19 after thieves stole more than 2 million permits valued at about 34 million euros ($49 million) at today’s prices. The national carbon trackers were required to demonstrate that their systems were secure from hacking attacks before getting permission to reopen.

“Tightening the security of the registries system has been the top priority,” EU Climate Commissioner Connie Hedegaard said in a statement in Brussels today. “All registries are now up and running with enhanced security measures in place.”

The closure of registries in January drove spot carbon markets to a halt for 15 days before the first centers were allowed to reopen. The European emissions trading program, known as the ETS, includes 27 EU nations as well as Norway, Iceland and Liechtenstein. The registry in Iceland is not yet active.

EU permits for delivery in December rose 1 percent to 16.84 euros as of 5 p.m. on the ICE Futures Europe exchange in London. They have gained 18 percent so far this year.
Damaged Reputation

Even though the allowances stolen in January accounted for only 0.1 percent of the European Union average annual cap in the 2008-2012 trading period, the attacks hurt the reputation of the ETS and sparked criticism from some analysts that the supervision of the system is not adequate.

The thefts followed instances of “carousel fraud” involving value-added tax collection and password “phishing” in previous years. Jos Delbeke, director general for climate at the commission, said on Jan. 28 that some member states and firms neglected security rules and national authorities are working with Europol to catch the fraudsters.

While the countries attacked by hackers in January managed to locate some of the missing permits, legal questions about how to prevent recirculation of the stolen allowances are keeping investors at bay from spot trading. The recovery of any allowances transferred illegally has not been harmonized in the 27-nation bloc and is a matter for national law and local enforcement authorities.
Know Your Customer

The commission and national registries would immediately boost confidence in the market by isolating stolen allowances, installing a mandatory four-hour delay for every transaction and requiring strict “know-your-customer” tests for all traders, said Simone Ruiz, European policy director at the International Emissions Trading Association.

IETA urged yesterday that EU nations and the commission ensure that the arrangements for the next phase of the ETS from 2013 “stop any recurrence of these unnecessary and frankly embarrassing problems.” It also renewed calls on the commission to reveal more information about the minimum security measures that national registries had to implement, requests that the EU has said could mean “educating the gangsters.”

The ETS imposes pollution limits on more than 11,000 companies including Germany’s biggest steelmaker ThyssenKrupp AG and Italy’s biggest utility Enel SpA, allowing those that emit less than their quota to sell surplus permits. One permit gives the right to discharge one ton of CO2. EU-wide solutions would require backing from member states.
Improving Security

The commission has already demanded that national registries implement additional identification checks and is now drafting regulatory changes that may be presented as soon as this or next month. The EU is also examining improved oversight rules for spot carbon trading.

“We are working on a set of measures to further improve security on all fronts such as a delivery delay mechanism, improved management of registry accounts and detection and quick response mechanisms,” Hedegaard said. “With these measures and a more unified approach for the third phase of the ETS due to start in 2013, we have definitely strengthened the integrity of the European carbon market.”