If you thought illiquid European sovereign markets weren’t enough of a problem — time now to familiarise yourselves with the latest trading quagmire to hit Europe.
On Wednesday, the European Union was forced to suspend transfers of its carbon units, known as European Union Allowances (EUAs), after it transpired that yetmore contracts had been stolen from national registry accounts. The Czech Republic’s, in this case.
This, of course, is not the first time the European Union Emissions Trading Scheme (ETS) has been rocked by such a scandal.
Others have included VAT fraud, a phishing scam and even the re-sale of used carbon credits.
The competent registration of units, though, is especially essential to making the scheme work — since carbon permits are a synthetic market with no natural supply or demand fundamentals of their own. Supply is stagnant and determined by countries’ National Allowance Plans, themselves negotiated bitterly over many months between governments and the European Commission.
If the NAPs (based on pollution quotas) have been mis-assessed, say over-estimated — demand for the units is likely to be limited with a price collapse a very possible consequence. This, by the way, is exactly what happened during the first round of the scheme.
The systematic theft of units, consequently, can lead to the same thing, since all it does is pump more (illegal) supply into the closed-end structure.
Now the theft could just be sabotage. After all, we imagine, there are plenty of people who might want to see the scheme fail. If it isn’t though, it suggests there are some amazing lengths countries and corporates are prepared to go to so as to con the system.
For example, Point Carbon (PC), a specialist information firm that focuses on the market, on Thursday provided some very interesting colour — including the possibility that a bomb scare was involved in fronting the theft:
An official with the Czech emissions registry confirmed it had received a formal complaint from an account holder about an EUA transfer that the company did not initiate. “It looks to be a different method from a simple phishing attack seen before… it is very serious,” said Miroslav Rehor with the Czech registry, adding that the missing EUAs had been transferred to an account in Poland. He said that Czech registry’s headquarters had been evacuated for three hours on Tuesday, during which time the attack may have taken place. “I have heard it was maybe a bomb scare (but) I don’t know if we can connect it (to the theft),” he added.
As can be expected, a European Union-wide hunt for the stolen units is now on.
According to Point Carbon, the EUAs were last understood to have been shifted into an account in Poland. But the story — thanks to some super sleuthing by PC — seemingly doesn’t end there. Some may even have been stolen goods to begin with:
According to a list of Blackstone’s missing EUAs, obtained by Point Carbon News, 13,100 units matched the identification numbers of some of the 1.6 million permits reported stolen in late November by European cement maker Holcim.
While 600,000 of the allowances plucked from Holcim’s account at the Romanian registry were identified in Liechtenstein’s registry and returned to the cement firm, around 1 million are still unaccounted for.
Nikos Tornikidis, a portfolio manager at Blackstone, told Point Carbon News he was unaware of the origin of the credits, adding only that they were bought through Amsterdam-based traders STX Services.“We are not aware that these EUAs were stolen, otherwise we would not have sold them,” said STX’s managing director Tim van der Noordt.
“It’s difficult because counterparties active in this market have different standpoints on the legitimacy of buying and selling these credits,” he said. After checking its inventory, STX confirmed that it did not hold any further credits linked to the Holcim theft.
Blackstone’s Tornikidis said his firm, which managed the missing credits on behalf of at least one industrial installation, had intended to swap the EUAs for CERs. The list of the 475,000 missing allowances revealed that the units came from 14 different countries, including 115,000 from the UK, 89,000 from Poland and 58,300 from Romania. None of the allowances originated from Czech installations, the data showed.
The list of the ID numbers of the stolen EUAs can be seen athttp://link.reuters.com/van27r
And if you thought that sort of confusion was enough to ruffle any market, reports of the missing units’ last known whereabouts now read like something out of the Bourne Identity.
From Point Carbon:
“We’ve heard the EUAs went to (an account in) Poland, then to Estonia, then to Liechtenstein, and the latest is they have left Liechtenstein, but we have no idea where they went after that,” Tornikidis said, adding that Czech authorities had been notified.
A Polish government spokeswoman would not confirm whether Polish accounts were closed because of the theft, saying only that it had shut for “security reasons” and that the registry could reopen later on Wednesday. A spokesman with the Estonian ministry of environment said the units had passed through the country’s registry before the government had been alerted to the theft.
Meanwhile, in another totally separate case, also revealed on the same day, Austria confirmed it too had suffered the theft of yet more EUAs — this time from a government holding account.
A spokeswoman for Austria’s emission registry told Point Carbon the theft was believed to have taken place during a hacking attack on January 10. She did not give a figure for the number of units stolen however. According to the news agency, though, this is the first reported case of stolen government units.
They added:
The Austrian government spokeswoman said the whereabouts of credits stolen was known, but she declined to give further details. “We know where the credits are, but nobody has exact access to them,” she said. “Austria’s public prosecutor is involved,” the spokeswoman said, adding that the registry would remain closed at least until 24 or 25 January, when more information would be provided.
Quite seriously, what sort of message does this send from Europe to the rest of the world, eh?
Related links: Does Europe need a carbon central bank? – FT Alphaville Carbon cop-out – FT Alphaville Carbon indulgences – FT Alphaville
