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Published January 20, 2011, 01:16 PM

Calls for regulation as EU halts emissions trading

BRUSSELS — Experts called for tighter security in carbon emissions trading Thursday, a day after the European Union was forced to shut down its trading system following the theft of certificates worth up to euro28 million ($38 million) in a spate of computer attacks.

By: Gabriele Steinhauser, Associated Press

BRUSSELS — Experts called for tighter security in carbon emissions trading Thursday, a day after the European Union was forced to shut down its trading system following the theft of certificates worth up to euro28 million ($38 million) in a spate of computer attacks.

The European Commission, which regulates the bloc’s emissions trading system, suspended all trading in CO2 emission certificates Wednesday night until at least Jan. 26, so it can find the origin of attacks on accounts in five countries in less than a week.

Maria Kokkonen, spokeswoman for the EU’s Climate Action Commissioner Connie Hedegaard, said Thursday that the attacks revealed serious shortcomings in the way national registries in some states regulate access to accounts holding emission permits.

So far, the commission has identified security problems in 14 states, but Kokkonen declined to name the states until after a meeting of national experts scheduled for Friday.

The suspension is an embarrassing setback for the EU, which pioneered the use of emission trading in the fight against climate change.

The system limits the CO2 emissions of power plants and big factories in the EU by issuing permits for each ton of carbon they can emit. Companies can trade these certificates, providing an incentive to cut emissions. Over time, the number of certificates will be lowered, thus cutting overall emissions in the EU.

California and China have recently introduced similar schemes, and Japan and Australia are working on setting up their own system.

“Europe is the pioneer when it comes to emissions trading,” warned Jo Leinen, chairman of the environment committee in the European Parliament and a member of the European Social Democrats. “If we lose the trust in the European system, we will lose the trust worldwide.”

About half a million certificates worth some euro7 million were stolen from accounts in the Czech Republic, said Kokkonen. National authorities are still figuring out how many certificates were stolen in similar attacks in Austria, Greece, Poland and Estonia in recent days, she said.

Overall, the commission believes a maximum of two million certificates, with an overall value of about euro28 million, were put at risk by the attacks, although not all of them might have been stolen. The attacks may have been instigated by hackers, but companies in the affected countries couldn’t rule out that some of their own staff might have been involved, said an EU official. The official didn’t want to be named in line with department policy.

Trading on the spot market will be shut down until all EU states have upgraded their security systems and at least until next Wednesday. “There is no guarantee that all 27 member states will be connected next week as we foresee it,” the EU official warned.

Kokkonen said making accounts more secure was a matter of upgrading national registries’ computer system — something that the commission has been urging states to do. “The investment that it would cost to upgrade the system is in the tens of thousands of euros,” Kokkonen said, while the losses were in the millions of euros.

Climate experts said the most recent incidents underline the need to tighter, more centralized regulation of emissions trading. Since its introduction in 2005, national registries in the EU’s 27 member states have been in charge of companies’ accounts. By 2013, the EU plans to abolish those national registries and begin centrally regulating all trading — something the commission wanted to do from the start but couldn’t get past member states.

“People have said this is an issue in the past and it has been ignored,” said Sanjeev Kumar, an expert on emission trading with climate advocacy group E3G in Brussels. “We need urgent and rapid reform.”

The current national registries are run by bureaucrats who don’t have the technical know-how to ensure accounts are save, Kumar said. “It’s like stealing candy from a child.”

There have been other cases of fraud in emissions trading in the past year, but EU officials said this week’s incidents were much more organized. In November, 1.6 million carbon certificates were stolen from the account of the Romanian unit of Swiss cement maker Holcim Ltd. About 600,000 were later discovered, but the company still has a list on its website with the serial numbers of the ones missing — worth around euro15 million ($20.2 million), according to Holcim.

At the moment, there is no central system that keeps track of stolen or lost certificates, which would help exchanges filter out suspicious permits when they are offered by traders.

Such a synchronized “notice board” would be a “pragmatic and commonsense solution to prevent these things from happening in the future,” said Keiron Allen, spokesman for the Paris-based carbon-trading exchange BlueNext, a unit of NYSE Euronext. BlueNext suspended trading in carbon permits a few hours before the commission imposed the EU-wide ban. Allen declined to comment on how much money the exchange was losing because of the closure.

Europe’s emission trading system had a turnover of about euro90 billion last year. But only about 20 percent of all transactions happen in the spot market. The rest of the trading is done in futures contracts — used by companies to hedge against changes in the price of permits. Carbon futures contracts are traditionally settled at the end of the year, so trading in that category isn’t affected by the suspension, EU officials said.

Leinen, the chairman of the environment committee in the European Parliament, said this week’s incidents showed that it was necessary to move to a centralized European system more quickly. “The earlier we have a European system for emissions trading, the better positioned we are,” he said.

Kokkonen said that moving up the changeover to the European system might come up at the meeting of national experts scheduled for Friday. “I cannot pre-empt that this (the changeover) would accelerate,” she said.