London, 19 April 2011

26 April is the last day for Member States to make comments to the European Commission on the revised Registries Regulation, which will then be discussed at the EU Climate Change Committee. Some urgent decisions need to be made on EU ETS Registry security. Only if the Commission and Member States take proper responsibility can the present problems affecting the market be ended.

Three months after thefts of allowances led to a temporary shutdown, the EU ETS spot market is still limping badly. Some very creditable work has been done by Bluenext and other companies involved in the market to limit the damage and define “safe spaces”. But volumes are still very low and the market is unable to perform its normal functions, because of the chilling effect of the continued presence of stolen allowances, whose unwitting purchase brings unpredictable but potentially serious legal problems. Despite comments by some observers, the spot market is a substantial and very important part of the functioning of the EUETS.

Legal actions have been taken and are being contemplated in many countries of the EU, threatening to tie up resources in the private and public sector alike and damage relationships and trust. The apparent inability of the EUETS to find its way out of the consequences of poor security continues to damage the perception of the EU and emissions trading generally in other countries. It is not enough to wait for the Phase 3 reforms to change the basis of registry responsibilities: the problems exist now, and must be dealt with now.

Only urgent action by the responsible authorities can deal with the key issues. Compensatory measures must be part of this. Member States, alongside the Commission, are individually and collectively responsible for the good operation of national registries and must assume that duty.

The eight points that IETA has been making are:

1. There must be minimum safety standards at all registries, including double authorization, two-factor identification and a 4 hour delay for the completion of transactions, subject to clear exemptions, in particular for transfers initiated by automated settlement systems. Market participants must be informed of security measures at a general level. In the light of plainly insufficient security so far, they need reasons to improve their level of trust.

2. While further work must be done, there is a strong argument for an updated central list of allegedly stolen allowances.

3. Emergency notification procedures must be created for notifying thefts instantly at least during trading hours.

4. All registries must run Know Your Customer checks on all existing and new registry accounts.

5. Regular external audits must be performed of all registries’ security levels and procedures, to standards mandated by the Commission.

6. There must be compensation for companies that have suffered losses because of failures, in which they have no share, in registry security. Member States should set up a pool of allowances to compensate and from which clean allowances can be swapped for affected ones. Victims of a theft could either receive financial compensation or a virtual entry of compliance; whereas legitimate holders could swap affected allowances against entitlement notes to ‘clean’ phase III allowances. Otherwise there is likely to be a string of lawsuits.

7. There is an urgent need to clarify the legal character of EUAs so as to avoid as far as possible different legal treatments in different national jurisdictions. Action through Community legislation may be possible, and must be considered with stakeholders.

8. The Commission must set up a central and permanent user forum on registry issues. Unless these measures are in place, IETA does not support anonymized transactions, as nondisclosure would prevent market participants from doing compulsory reporting.

The issue of criteria determining who should be allowed to participate in the market should be addressed as part of the review of EUETS market oversight rules, which is under consideration in various Commission workstreams.

The detailed report by IETA which was sent to the Commission in response to their recent stakeholder event (and copied to Member States) is attached. We call upon Member States to take their part in ensuring the above actions are taken, and to ensure that the arrangements for Phase 3 are such as to stop any recurrence of these unnecessary and frankly embarrassing problems for the EUETS.

Yours sincerely, Henry Derwent, President & CEO

International Emissions Trading Association

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Attachments:

Final_IETA_position_registry_security_post_stakeholder_meeting_31-3-2011.pdf

574 Kb