we updating this story from first thing this morning with some stuff from today...will send later
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Carbon Thieves Force EU to Improve Security, Close Spot Markets
2011-01-21 00:00:01.4 GMT
By Ewa Krukowska and Mathew Carr
Jan. 21 (Bloomberg) -- The European Union, which has shut
spot trading on the region's carbon-emissions market following
the theft of permits, said it won't lift restrictions until
member states step up identification checks.
The European Commission, the Brussels-based regulator, is
scheduled to discuss new security measures today with the bloc's
27 national governments. It halted most operations at
Europe's 30 registries for greenhouse-gas emissions on Jan. 19
after a Czech trader reviewing his $9 million account found
"nothing was there." The EU estimates permits worth about 29
million euros ($38 million) are missing.
The EU suspension drove spot trading in the world's largest
carbon market to a halt yesterday and triggered calls from the
International Emissions Trading Association for a "speedy"
response to missing permits in the Czech Republic, Austria and
Romania in the last several months. Barclays Plc, which
continues to buy and sell futures contracts for emissions, said
it stopped most spot trading last month after Holcim Ltd., the
Swiss cement maker, lost 1.6 million permits to CO2 thieves.
"It's unfortunate they've had to shut down the market to
try to fix this," Louis Redshaw, the London-based head of
environment markets for Barclays Capital, said yesterday by
phone. "Hopefully this is the wake-up call that's required for
things to actually change."
Global Model
The EU market, started in 2005 and intended to be a model
for a future global carbon program, had trading volume of 80
billion euros last year, according Bloomberg New Energy Finance.
While spot trading was halted yesterday, EU allowances for
delivery in 2011 faced no restrictions and closed yesterday at
14.37 euros, the lowest since Jan. 13, on the ICE Future Europe
exchange in London.
Cap-and-trade puts a price on carbon by setting limits on
the amount of emissions polluters can produce. Those producing
more than the limit must buy permits to offset their emissions,
allowing those that emit less to sell their balance in the
market. While the system is set to have a central clearinghouse
starting in 2013, for now, keeping tabs on permits is up to so-
called national registries.
"It is not the EU trading system that requires a major
change, but the registry security in individual member states,"
said Simone Ruiz, European policy director of the IETA. "At
minimum they need to have second authorization in place, such as
electronic certificates or ID cards. And someone needs
ultimately to stand behind the integrity of the system. As banks
insure deposits against theft, registry operators would surely
be more diligent if this was the case for registry accounts."
Additional Passwords
A senior EU official said countries in the region's cap-
and-trade program will be told today they need additional
security procedures to supplement existing systems for accessing
accounts in national registries. This could include additional
passwords sent to mobile phones or the use of ID devices, said
the official, who declined to be named, citing EU policy.
"The strong reaction by the European Commission is welcome
and the business community should actively provide support on
this," said Andrei Marcu, head of policy and regulatory affairs
at Mercuria Energy Group Ltd., the Geneva-based energy and
carbon trader, and former head of the International Emissions
Trading Association.
About half of the EU's 27 member states lack such a
system, the official said. One of them is the Czech Republic,
where a company managing the national database failed to
implement the so-called two-factor identification before it
got attacked by hackers.
'Preliminary Estimates'
"We were planning to introduce it yesterday, but before we
did so, we learned permits are missing," said Zuzana
Zahorovska, an administrator at Prague-based OTE AS, which
oversees the Czech registry. "More than one company was
affected. We're still checking all transactions, but there are
more missing permits than we thought. According to very
preliminary estimates it may be around 1 million."
Blackstone Global Ventures, a trader based in Brno,
informed the Czech administrators on Jan. 19 that it lost
475,000 allowances the previous day. The company, which isn't
affiliated with the New York-based asset manager of that name,
said the registry should take responsibility for the loss.
The allowances may have been transferred to accounts in
Poland, then Estonia, and then Lichtenstein, said Nikos
Tornikidis, manager of Blackstone's carbon portfolio.
"We don't regard it as Blackstone Global Venture's loss,"
Tornikidis said. "Nobody breached our servers."
This week's reported theft followed at least two incidents
in the past months involving improper transfers of permits. The
allowances are used by more than 11,000 European factories and
power stations to lawfully emit carbon dioxide.
'Courage, Commitment'
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 Jan. 10.
"Security is the responsibility of the national member
states for their own registries, but we of course as market
regulator have to act here and remind member states to take
measures," EU climate spokesman Maria Kokkonen said.
BlueNext SA, the Paris-based exchange owned by NYSE
EuroNext that last year had the biggest share of spot carbon
trading, said its members want regulators to show "some courage
and commitment," according to Chief Executive Officer Francois-
Xavier Saint-Macary.
Under a plan the bourse proposed yesterday, 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 on a call with reporters.
The halt of the EU registries 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.
For Related News and Information:
Emission market news NI ECREDITS <GO>
Today's top energy stories ETOP <GO>
European power-markets home page EPWR <GO>
Sustainability, environmental indexes SEI <GO>
--With assistance from Catherine Airlie in London and Zoe
Schneeweiss in Vienna. Editors: Mike Anderson, Randall Hackley.
To contact the reporter on this story:
Ewa Krukowska in Brussels +32-2-237-4331 or
ekrukowska@bloomberg.net;
Mathew Carr in London at +44-20-7073-3531 or
m.carr@bloomberg.net
To contact the editor responsible for this story:
Stephen Voss at +44-20-7073-3520 or sev@bloomberg.net
