The EU carbon market has faced a series of setbacks in recent months: VAT fraud, cyber crime and Hungary's sale of 'used' carbon credits have all highlighted weaknesses in the EU’s flagship policy to fight climate change.
To tackle these issues, French Economy Minister Christine Lagarde has commissioned a former president of French securities regulator AMF, Michel Prada, to identify regulatory options.
In a report submitted on 19 April, the Prada working group warns that the planned auctioning system foreseen for carbon credits as of 2013 could increase the risk of market abuses (see 'Background').
The report makes 28 proposals, grouped into six main objectives. First and foremost, the reflection group sees the creation of an EU-level legal statute for CO2 quotas as essential.
According to the group, current disparities between quota definitions in Europe are leading to problems that only full harmonisation can solve.
To start with, the legal nature of quotas is unclear because they are an ambiguous mix between an administrative permit, a raw material and a financial instrument. The report thus calls for the creation of a new category at EU level.
Moreover, the reflection group supports the establishment of a monitoring mechanism for the carbon market and calls for a coherent European system of regulation.
This could take two forms, according to the report: either the creation a new European surveillance authority or a decentralised surveillance system run by national financial supervisors and energy regulators – and coordinated at EU level by the proposed European System of Financial Supervisors.
Emphasis is also put on the quality of information, particularly on creating a central reporting system for transactions carried out on the market.
Several European Commission departments were consulted ahead of the report's publication – the Internal Market DG, the Energy DG and the Climate Action DG.
When questioned by EurActiv France, a Commission spokesperson said: "We appreciate the work of the Prada committee. It provides an interesting contribution."
Prada should soon meet with Internal Market Commissioner Michel Barnier and Climate Commissioner Connie Hedegaard to "pass on the right message" to the European institutions, the spokesperson added.
