Carbon market security vote kicked back

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Carbon market queasiness resurfaced yesterday (19 May) when a vote on plans to disguise the serial numbers of EU carbon allowances (EUAs) was postponed to give member states more time for debate.

A green light for EU plans to transfer 300 million market-ready EUAs to the European Investment Bank (EIB) will now have to wait until mid-June.

By disguising the serial numbers, the European Commission had hoped to allay fears among traders and investors that they could be handling stolen property, after a series of frauds.

But because investigative, tax and regulatory authorities would still have access to the serial numbers under the new short-term security proposals, business concerns remained.

"The notion that you achieve an awful lot by disguising the serial numbers is false," Henry Derwent, president of the International Emissions Trading Association (IETA), told EURACTIV.

"It is not good enough because the market wants to know whether they're actually going to get some money or whether it is all going to be taken away from them," he said.

IETA joined several EU member states in calling on the European Commission to delay a vote, with some success.

"The Commission welcomes the support by member states that the amendments to the EU ETS registries regulation should be decided as soon as possible," Isaac Valero-Ladron, spokesman for Climate Action Commissioner Connie Hedegaard, said in an emailed statement.

But "given the broad range of proposals, it has decided to […] call the vote on the proposals in mid-June in the next Climate Change Committee meeting".

Great Carbon Theft

The current proposals were first mooted after a huge fraud in January netted up to €28 million in carbon allowances and triggered a "liquidity crunch" which practically halted carbon market activity.

Research from Point Carbon has found that seven companies have now unwittingly attempted to trade such stolen allowances.

Around 2.78 million of the roughly 3.3 million EUAs and UN-backed offsets reported stolen in the past 18 months are still thought to remain in circulation.

"In one way you can compare those credits to stolen money," Stig Scholjset, an analyst at Point Carbon, told EURACTIV.

"I may have held stolen money before but I never doubted that I could use it in a store, even if the serial numbers could be traced back to a bank robbery."

"That is the same confidence that the Commission wants to restore to the carbon market," he added.

Other security measures

Other proposals in the amendment include a 24-hour delay in moving traded accounts, and stricter permit ownership rules.  

If passed, Scholjset said, "the short term security measures would enter into force immediately, in mid-June".

Mary Veronica Tovsak Pleterski, director of European and international carbon markets at the Commission, said that "serious consideration" was also being given to classifying carbon allowances as financial instruments, under the forthcoming Markets in Financial Instruments Directive.

"This would provide spot markets with the same level of protection as market participants enjoy in the futures market," she explained.

Around €2.1 million of suspect permits were used to meet 2010 emissions caps under the EU's Emissions Trading Scheme.

Arthur Neslen

With a turnover of some €90 billion last year, the EU's Emissions Trading Scheme is the world's largest carbon market. Around 80% of it is traded in futures markets and 20% in spot markets.

The ETS aims to encourage companies to invest in low-polluting technologies by allocating or selling them allowances to cover their annual emissions. The most efficient companies can then sell unused allowances or bank them.

After a series of VAT "carousel" and "phishing" frauds last year, the European Commission proposed tighter security measures. But a number of member states declined to implement them because they said they could not afford to. One Commission official pointed out that tens of thousands of euros spent on security could prevent millions of euros in losses.

Mid-June: The Climate Change Committee will vote on a range of measures to increase security for carbon market trading.

  • European CommissionETS

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