Isra-Mart srl : Businesses applaud EU carbon market security upgrades

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Businesses have welcomed EU plans to immediately tighten registry security across its emissions trading system (ETS) following a cyber attack that saw millions of allowances stolen on the spot market earlier this year.

The European Commission yesterday announced it had submitted proposals to member states that would boost the security of the current system. They would also implement changes that will be required to create the planned single EU registry that is due to become operational next year.

If member states approve the measures later this month, initial reforms could come into effect as early as the autumn.

The Commission has faced growing calls from businesses and governments, including the UK government, to boost security after the hacking attack in January, which forced the EU to temporarily halt all spot trading.

Amendments put forward yesterday include implementing a 24-hour delay on permit transfer between registry accounts; requiring at least two people to authorise a permit transfer; and stopping anyone who has been convicted for money laundering, tax fraud or terrorist financing in the last five years from having carbon accounts.

Simone Ruiz, European policy director at the International Emissions Trading Association (IETA), told BusinessGreen she was pleased that many of the upgrades the industry association has been calling for have been included in the EU's proposals.

She maintained the EU has done "a great job" in upgrading registry security, except for "a few hiccups", over the past few months.

She also welcomed the EU's decision to step up security before the Commission overhauls the entire system into a single registry next year.

"[The move to a single system] will require a major IT change, so we didn't expect any changes to be brought in before then," she said. "Of course we had asked for them, but we hadn't really expected it to happen. If this goes through, it could be a major step in handling security."

However, she questioned whether the planned 24-hour delay on all registry accounts is too stringent a restriction, as it could prompt some traders to trade over the counter rather than on the trading platform.

IETA had proposed a permit transfer delay of between four and 12 hours. "We think 24 hours is a bit long," she said. "The problem is that it doesn't exempt automatic transactions, so there's a risk of accumulating delays and that could mean people would rather trade over the counter than use the platform."

Her comments were echoed by Trevor Sikorski, Barclays Capital director of carbon markets and environmental products research, who said he had expected the EU to propose that different account categories have different transfer delay times.

"It seems a bit heavy-handed," he said, despite adding that he did not think the 24-hour delay would excessively affect spot traders.

Sikorski and Ruiz also questioned EU plans to hide serial numbers on allowances, which anonymises credits so traders cannot determine whether they are buying stolen allowances.

Since the registries reopened, market participants have been concerned about security. Some companies are checking serial numbers against lists of stolen allowances to ensure they only buy legal permits.

Traders are concerned they would have to return allowances if they were found to be stolen.

Hiding serial numbers is designed to boost confidence in this area. However, Ruiz argued it would be an unnecessary as another proposal will ensure traders can keep any credits they buy, even if they are later found to be stolen.

She also said transparency of serial numbers can help traders spot any fraudulent activity. "Market participants have an important role to play," she said. "It's like when you see a stolen car in the street. You need to know the number plate to help the police."