EC seeks to plug security holes in EU ETS

The European Commission has proposed new security measures to restore credibility of spot market carbon trading

The European Commission has announced further measures to improve security of the EU emissions trading scheme (EU ETS), following a spate of cyber thefts of carbon allowances worth €50m (ENDS Report, January 2011) and criticism about its handling of the situation.

Spot trading of allowances (EUAs) was shut down on 19 January after the thefts came to light. National registries have begun to reopen (ENDS Report, February 2011), the latest in Belgium, Luxembourg and Estonia on Thursday. But still only a third of registries are functioning.

The commission suggested a range of short-term actions, including stronger controls on registry users, more regular reviews of registry security and better communication between member states in cases of suspicious activities. Another suggestion unofficially mooted is to delay transactions by 48 hours to give time to weed out suspicious trades, but there is concern this would be more compatible with futures trading than spot trading. 

It will also host a meeting of national regulators in March to try to agree a common line on how to handle stolen allowances. In January, the International Emissions Trading Association (IETA) criticised the EU's secrecy over the adoption of minimum security requirements to be met by member states before reopening trade.

For the longer term, the commission suggests actions to strengthen EU registry rules, and to bring spot trading in carbon under mainstream financial market rules. It promised to launch a consultation on enhanced carbon market oversight shortly.

National regulators discussed the commission's ideas at a meeting in Brussels on Wednesday. The EU executive said in a statement that member states had "welcomed in broad terms" the proposals. However, it also acknowledged that some countries were concerned that new controls would increase administrative costs.

Many market operators are angry about the EU's lack of preparedness and uncertain response to security issues. In a strongly worded letter to the Financial Times on Monday, James Atkins of Vertis Environmental Finance accused the commission and member states of a "disgraceful lack of political leadership".

Europe has created an "amateurish hotch-potch of insecure systems" to manage emissions trading, Mr Atkins wrote, and is now failing to take responsibility for the resultant problems. "Cleaning up the mess will be a Herculean task,” he added. "The scheme is rudderless and its officials wholly unaccountable."

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