Cyber hackers expose cracks in EU Emissions Trading Scheme

Last week tragedy hit the EU's Emissions Trading Scheme (EU ETS). Cyber hackers stole millions of euros, resulting in closure of the EU ETS carbon registries until Wednesday (January 26).

Cyber hackers have been stealing for the past two months. Only when Czech carbon trader, Blackstone Global Ventures, alerted the EU commission to the loss of 475,000 allowances did the carbon trading market decided to close for a week in order to tighten security.

The Commission released a statement (January 19) which read: "This transitional measure is taken in view of recurring security breaches in national registries over the last two months.

Some analysts are saying that this could be the beginning of the end for the cap and trade market, emphasised recently in the US by Arizona reneging on its planned cap and trade scheme.

"Following a first such security breach in early 2010 the Commission has worked closely with national authorities responsible for registries to ensure that adequate security measures are put in place in all registries. The incidents over that last weeks have underlined the urgent need for all registries to ensure that these measures are speedily implemented," it said.

The Commission announced that the market would be closed until January 26, once security had been tightened.

14 out of the 17 carbon registries were affected, and overall £6 million was stolen.

The temporary closure highlights a serious failure in the trading system, which is part of a European strategy to provide incentives for utilities to reduce their use of fossil fuels.

Germany was one of the only European countries not affected by the hacking, because they recently had to increase their security measures after a phishing scam earlier in the year.

Some carbon traders are actively advocating an alternative capital market approach to fight climate change, notably to drumming up support for green bonds underwritten by governments to help secure debt financing of low-carbon projects.

The EU's climate change committee repeatedly contradicted statements released on Friday (January 21). Originally they had said that controversial industrial gas credits would be banned from 1 January 2013.

This was then changed half an hour later, when they voted to ban the use of offset credits derived from projects to reduce HFC 23 and nitrous oxide, with effect from May 2013.

The failed announcement increased the price of carbon to a three-month high, before the correction resulted in the price falling back to €10.56 per unit, which angered carbon traders, many of whom lost money as a result of the changes.

Point Carbon, a carbon analyst firm, has repeatedly commented on the carbon trade disaster. In an interview with the Guardian, one trader said: "This is a significant mistake on the part of the European commission. Some traders have lost a lot of money today. If I want a Mickey Mouse market, I'll go to Disneyland"

Michael Grubb, chairman of the Climate Strategies consultancy and former head economist at the Carbon Trust, said he thought there would be no long-term damage to confidence.

"The wider financial markets have had a lot of trouble with corruption and fraud but it has not stopped us using money. Clearly it does not help politically, but after Copenhagen and Cancún [climate change conferences], what is anyone else proposing to counter global warming? It is easy to complain about current systems but harder to come up with alternative solutions," he argued.

Author: Charity Knight | Climate Action

Image: Perpetualtourist2000 | flickr