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Carbon-Allowance Thieves Force EU to Boost Security (Update1)
2011-01-21 17:15:54.191 GMT
(Updates with EU official in sixth paragraph, Allen &
Overy in seventh.)
By Ewa Krukowska and Mathew Carr
Jan. 21 (Bloomberg) -- The European Union, whose decision
to suspend registries halted the region's spot 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, was
discussing new security measures today with the bloc's 27
national governments. It suspended 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 to Bloomberg New Energy
Finance. While spot trading was halted yesterday until Jan. 26,
EU allowances for delivery in December 2011 faced no
restrictions and rose 0.6 percent today to 14.46 euros on the
ICE Futures Europe exchange in London.
National registries won't be allowed to restart operation
until they've implemented minimum security requirements, Peter
Zapfel, emissions trading policy co-ordinator for the
commission, said today in an interview. "The restrictions won't
be taken off the 27 member states in one go," he said. "For
those that are slow it may take some time, but we expect
everyone is taking it seriously."
Cap-and-Trade
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 could take "a long time, possibly years," to finally
resolve who are rightful owners of any stolen EU allowances,
said Owen Lomas, a London-based consultant at Allen & Overy
LLP's climate change practice. "It's difficult to predict how
long litigation might take as there may have been a series of
transactions that have gone through several jurisdictions."
The commission said some 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.
'Insure Deposits'
"At minimum they need to have second authorization in
place, such as electronic certificates or ID cards," said
Simone Ruiz, European policy director of the Geneva-based IETA.
"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."
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.
The Czech registry was planning to introduce new security
Jan. 19, "but before we did so, we learned permits are
missing," said Zuzana Zahorovska, an administrator at Prague-
based OTE AS, which oversees ownership tracking. "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
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.
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.
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.
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, Rob Verdonck
To contact the reporters on this story:
Ewa Krukowska in Brussels at +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
