The recent disruption of European carbon markets undermines confidence in emissions trading
Hackers recently disrupted carbon trading across the European Union by stealing more than 3m carbon credits.
The problems started in January, when the Austrian emissions registry closed because of a cyber-attack. It was later discovered that 488,000 credits had been stolen from an Austrian government account.
Hackers then targeted the national registries of Romania, Greece and the Czech Republic. One million credits were stolen from cement firm Holcim’s account in Romania, and 300,000 credits disappeared from the account of Greek cement firm Halyps.
The office of OTE, the Czech registry operator, was evacuated during a bomb scare, and the ensuing confusion gave hackers the opportunity to steal 1.3m credits. This brought the total of stolen credits across Europe to 3.1m, valued by Point Carbon at €45m. Thieves can make money from selling these credits on the open market to regulated participants in the EU emissions trading scheme (ETS) and other market players such as banks.
The European commission swiftly suspended national registries, and hence spot trading (buying credits for immediate delivery), across the whole EU ETS.
The scale, coordination and sophistication of the attacks indicate that a highly efficient criminal gang is responsible.
Government ‘negligence’
Europe’s top climate official, Jos Delbeke, immediately laid the blame with governments. He said: “I am speechless about the negligence some member states have been showing. We have been hammering on the door of a number of member states alerting them to this issue. Seemingly half of them have not taken our message seriously.”
The message was then taken seriously, with all the national registries closed while the commission investigated their security measures. The UK registry, widely thought of as being one of the most secure in Europe, is likely to be among the first to reopen.
Security failures of the targeted registries, if they are not tackled rapidly and comprehensively, could undermine confidence in emissions trading, a system that is being considered by the US, Japan, Australia and China.
Despite the drama, however, the implications for the EU market have been minimal.
Spot trades represent only about 10% of transactions in the carbon market. The majority of trades are futures, where deals are made for delivery at the end of the year. Here it has been business as usual.
Nor do the thefts undermine the environmental integrity of the scheme – the cap on emissions remains exactly as before.
The thefts do not affect those companies that have voluntarily bought and “retired” (cancelled out) allowances for offsetting purposes. Allowances that have been retired can no longer be used by polluting companies – or fraudsters.
The psychological effects of the scandal and lower liquidity have, however, been partially blamed for increases in the carbon price, which is now more than 50 euro cents higher than at the date of the first attack.
What seems clear is that the central registry for the EU proposed for 2013 will be a safer way of operating the system. This scandal should serve to focus minds on the need for tighter security once that system is in operation, and promote greater vigilance until that date from the authorities concerned.
Jane Burston is director of Carbon Retirement, a government-assured carbon offset provider that removes pollution allowances from the European system, forcing industry to invest in clean technology.