Isra-Mart srl: EU moves to tackle carbon market fraud

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The regulation of European spot carbon permits will be brought into line with other financial instruments as the EU looks to enhance oversight of the carbon market.

Proposals published yesterday by the commission would reclassify spot carbon permits as financial instruments, bringing them under the same MiFID directive as futures, forwards and options.

Climate commissioner Connie Hedegaard said in a statement that the move would provide the "robust level of oversight" the rapidly growing carbon market requires.

"It will provide further certainty for carbon market participants as the market grows and matures," she said. "This way, the carbon market will better play its full role to mobilise the substantial investments needed for the transition to a low-carbon economy."

The commission said it not only wanted to improve transparency, but also minimise the risk of insider dealing and manipulation of the carbon market, whose security problems were starkly exposed when Europe's registries were the subject of a series of frauds and suspected cyber-attacks earlier this year.

The EU beefed up security in response to the scandal, but has now moved to tighten the regulations governing the market further.

The proposals have been criticised by the International Emissions Trading Association (IETA), which claims that the new rules could prove unnecessarily onerous.

"The approach taken... is not industry's preferred choice for extending oversight to the spot carbon market because it automatically triggers burdensome requirements that are not relevant to the risks in this market," said Henry Derwent, president and chief executive of the IETA.

"Further work will be required to ensure that the treatment of emission allowances within MiFID does not undermine the functioning of this market and is effective in preventing abuse."

The new rules must be approved by the European Parliament and Council of Ministers before they come into force.