Sceptre International Group Limited – Firms slam secretive EU carbon registry security checks

International Emissions Trading Association urges EU to set a deadline for national carbon registries to reopen

Businesses have criticised the European Commission for refusing to publish details of how it will fix security flaws exposed by cyber attacks on its registries, while also warning that trading could be “significantly harmed” unless regulators set a deadline to reactivate the entire carbon spot market.

The commission said on Friday that a handful of member states might be able to resume trading in the second half of this week because they have already filed reports proving their cyber security measures are up to scratch. But it also warned that trading is unlikely to fully resume for some time because some national registries are unlikely to file their reports for several weeks.

The commission admitted that 14 of the 27 member states do not meet high enough security standards, in the wake of a cyber attack that saw an estimated £28m of carbon credits stolen from the Czech national registry, forcing officials to freeze all trading on the European carbon spot market.

The EU has now demanded every member state file an independent report confirming they meet minimum online security levels. However, the International Emissions Trading Association (IETA) has criticised the lack of transparency in the process, accusing the EU of setting the security requirements “behind closed doors” and then refusing to make them publicly available.

In a statement published on Friday, IETA urged the EU to set a deadline for national registries to come back online, publish the security requirements member states must meet to reopen their registries, and outline how it will ensure pledged security upgrades have been undertaken.

“The impact on the market of protracted closures could significantly enhance risk exposure,” the trade group said, warning it could result in damage claims from traders if contracts are not respected that require allowances to be delivered by a specific date, or even lead to money laundering charges if stolen allowances are unwittingly passed on.

“This could significantly harm liquidity in the market, without necessarily demonstrating effects in the near term,” the group said.

Commenting on the market closure, Henry Derwent, IETA’s chief executive and president, said: “While the safety of online banking has been scaled up, EU member states have failed in protecting an €80bn market, thereby undermining the EU’s main tool to reach climate objectives.”

But EU climate commissioner Connie Hedegaard rejected accusations that confidence in carbon markets has been damaged by fraud.

“It’s not the system that is wrong,” she told Bloomberg on the sidelines of the World Economic Forum in Davos. “Wherever you have financial assets of some kind, you can experience fraud. We see that in all sorts of other areas. Just because someone robs a bank, you do not say the whole banking system doesn’t work.”

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