"Deficient" EU reforms raise CO2 market security fears

London, 20 July 2012

Reuters Point Carbon: Sweeping reforms designed to beef up security in the world’s biggest carbon market have had the opposite effect in some EU countries, according to lobby group the International Emissions Trading Association (IETA). In a letter sent to the European Commission, seen by Reuters Point Carbon, IETA identified twenty-seven separate concerns over the EU executive’s handling of the migration of around 30,000 trading accounts from 30 national registries to a single platform.

Last month, the Commission activated the common emissions registry designed to handle all transactions in the EU Emissions Trading Scheme and introduce stronger safeguards after cyber thieves stole permits worth 50 million euros from several national registries in 2010 and 2011.

But IETA, which comprises of more than 155 companies including many of the banks and large companies that trade CO2 permits, reckon some of its members felt more at risk under the new system.

“The deficiencies… represent a real setback in terms of operational security,” said the letter dated July 13, which urged the Commission to roll back some security measures they say undermine the security of the system.

“While the reforms mean the registry system is now safer on average, users in countries that had more advanced registries, like the UK and Germany, feel this is a race to the middle,” IETA’s EU policy director Simone Ruiz told Reuters Point Carbon by phone.

Among the concerns flagged by IETA was poor communication of the steps needed from companies to migrate their accounts, which has left some firms still unable to access their CO2 holdings.

Also, in at least one case a unique pin code required to authenticate transactions was sent to the wrong address and phone number.

The Commission did not wish to comment on the letter and declined to answer questions on how many pin codes were sent incorrectly.

BREAKDOWN RISK

On Monday, the Commission said it could take it until the end of August, six weeks longer than planned, to reveal when work is due to finish on the common registry infrastructure to help speed the transfer of permits.

The new registry has an inbuilt 26-hour delay on permit transfers to help halt unauthorised dealing but software is still being tested to allow near-instantaneous transfers between ‘trusted’ parties.

“It is absolutely necessary to implement all features for instant transactions before December 1 to avoid massive breakdown of trading chains,” the IETA letter said, referring to the year-end period when turnover peaks as the most heavily used futures contracts expire.

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