A series of cyber-attacks on national registries, where carbon permits are stored, have forced the EU to close its emissions trading system (ETS) for at least a week. The European Commission posted the announcement on its website on Wednesday after Czech Republic-based firm Blackstone Global Ventures said about €6.8 million of carbon allowances appeared to have disappeared. Thefts on electronic registries in Austria, Greece, Poland and Estonia have also been reported over the last days.
“They will over time undermine the credibility of carbon trading as a policy measure.”
After discovering unauthorized trading on its account on Wednesday, Blackstone contacted the Czech registry OTE AS, which promptly closed all operations and began an investigation. The Paris-based BlueNext SA, operator of the world’s biggest spot exchange for permits, followed suit, as did registries in Poland and Estonia, before the EU finally imposed a region-wide shutdown.
It’s not the first time cyber criminal have been trading stolen permits at the international ETS market, but never has the activity been so comprehensive that the regulators have been forced to close the whole market.
“Incidents over the last weeks have underlined the urgent need for enhanced security measures,” the EU commission says in its announcement of the closure.
The bloc’s ETS system will be down, at least until 26 January.
A Criminals Market
According to The Guardian, European Authorities estimate that up to 90% of the whole market volume is plain fraudulent activities.
Belgian prosecutors highlighted the massive losses faced by EU governments from VAT fraud today after they charged three Britons and a Dutchman with money-laundering following an investigation into a multimillion-pound scam involving carbon emissions permits.
The three Britons, who were arrested last month in Belgium, were accused of failing to pay VAT worth €3m (£2.7m) on a series of carbon credit transactions.
European authorities believe the EU has lost at least €5bn to carbon-trading VAT fraud in the last 18 months.
Last month, the European police agency Europol reported that the European Union’s Emissions Trading Scheme had been victim of fraudulent trading activities over the past 18 months, worth €5 billion for several national tax revenues.
Europol, the EU’s law-enforcement operation, fears the fraud will be used in other areas, especially gas and electricity trading markets, after criminals found VAT fraud was one of the most lucrative financial frauds.
The Most Lucrative Financial Fraud
Wednesday’s announcement and similar cyber-attacks have also damaged the EU initiative, together with reports of tax fraud and the recycling of used credits, the EUobserver.com reports.
“They will over time undermine the credibility of carbon trading as a policy measure,” says Kjersti Ulset, manager at Point Carbon, a company that reports on Europe’s emission trading, carried out in a network of registries across the union.
Despite its pioneering position, Europe’s ETS system has attracted criticism over its six years of operation, with some businesses saying it threatens the bloc’s competitiveness, while NGOs argue emission thresholds have been set too high.
By placing a price on carbon, Europe’s trading system is designed to lower company emissions and therefore protect the environment from global warming. Corporations received emission permits for free under the first phase (2005-2007) of the scheme. Some, however, are forced to pay for a portion of their permits.
The European emission trading system is the world’s largest, as the US plans for a similar cap-and-trade scheme was blocked by the US Senate last year.
Carbon permits are, however, traded as ordinary securities at the Chicago Carbon Exchange.
Brussels wants to see energy companies buy all their permits with their own money from 2013 and onwards, with other heavy industries gradually phased in by 2020.
China experts suggest pilot ETS projects could appear in Beijing’s next five-year plan, set to be approved in March.
Here at The Swapper we have been skeptical to the ETS all along.
It’s an artificial market, created on basis of nice thoughts, without a real supply/demand situation and is regulated in a way the is more similar to a pharmacy than a financial market.
But what is really worrisome, is the sharp increase in this kind of activity.
Just wait till you see the Chicago Board Option Exchange gets hacked!
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