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WRAPUP 1-EU locks carbon market after security breach

Published 01/19/2011, 03:06 PM
Updated 01/19/2011, 03:08 PM
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* EU closes all national carbon accounts

* Move halts spot trade, much bigger futures trade continues

* BlueNext exchange suspends all carbon trading

By Nina Chestney and Pete Harrison

LONDON/BRUSSELS, Jan 19 (Reuters) - The European Union locked all accounts in its carbon market Wednesday, after a security breach, seeking to protect the battered reputation of the EU's main weapon against climate change.

The United States, Japan and Australia have all delayed implementing similar cap and trade schemes, and the latest glitch to the EU scheme could detract further from carbon trading as a global policy.

The trading scheme limits the carbon emissions of all big EU factories and power plants by issuing permits for each tonne of carbon emitted, which companies can then trade among themselves.

The European Commission suspended much of its Emissions Trading Scheme, the hub of a 92 billion euros ($124 billion) global market, following the suspected theft of about 7 million euros of emissions permits from the Czech Republic's carbon registry.

This theft and a hacking attack on the Austrian registry on Jan.10 follows a raft of scandals to hit the market in the past two years, including VAT fraud, a phishing scam and the re-sale of used carbon credits.

"All traders have left the market -- this is serious," said one emissions trader.

Europe's top climate official, Jos Delbeke, told Reuters that the market's integrity was not at risk, but European governments had failed in their duties.

"I am a bit speechless about the negligence some member states have been showing," he said.

"We have been hammering on the door of a number of member states alerting them to this issue," he added. "Seemingly half of the member states have not taken our message seriously."

SUSPENSION

The European Commission's suspension of spot trades until Jan. 26 allowed trade in futures and other derivatives to continue. This accounts for about 75 percent of the market, traders said.

The Czech Republic, Greece, Estonia and Poland closed their carbon trading registries earlier on Wednesday, joining Austria, which shut on Tuesday until further notice.

France's BlueNext spot emissions exchange halted trade, citing problems with filtering out the stolen permits in circulation.

"There could be a psychological effect on prices but I do not see the market melting down in terms of prices unless everyone liquidates their positions through panic," said Emmanuel Fages at Societe Generale/Orbeo.

Delbeke said his team would be busy in the week ahead repairing the system, and from 2013 the EU would move to a safer centralised registry that he hoped would benefit from tough market oversight.

"In the week that we are shutting down the market, we are asking member state by member state what they have done to protect themselves against the attacks and the thefts," he said. "We have to repair the system."

The EU plans a major overhaul of the carbon market in 2013 including scrapping some disputed offsets.

MISSING PERMITS

On Wednesday a market participant, Blackstone Global Ventures, told Reuters 475,000 carbon permits had vanished from its account in the Czech Republic.

"We are treating them as stolen," Daniel Butler, the firm's broker, told Reuters. "We do know that the first delivery point for the EUAs (permits) was Estonia. After that we have no other information."

The European Commission confirmed that Greece had closed its national registry, while the Poland and Estonia registries said theirs were also shut.

"It is too early to pin me down on any figure," said Delbeke, when asked the value of missing permits. "We are still in full investigation. We have not yet a coherent idea." Registries have been on alert since 1.6 million carbon permits went missing from the Romanian registry account of cement-maker Holcim in November.

"Suspending the Emissions Trading Scheme is the right thing to do, but it should only be the start," said Sanjeev Kumar of environment consultancy E3G. "They need to come down on this like a tonne of bricks and that will help restore confidence." (Writing by Gerard Wynn and Pete Harrison; Additional reporting by Michael Kahn in Prague, Editing by Anthony Barker)

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