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EU emissions trading anti-fraud measures 'could backfire'
Proposed changes to the EU Emissions Trading Scheme (ETS) to fight fraud could leave the carbon market vulnerable to further manipulation, Brussels has been warned.
Simone Ruiz, EU policy director for the IETA, welcomes the European Commission (EC) proposal to tighten carbon trading rules and upgrade security in the wake of the theft of more than three million emissions allowances (EUAs) from national registries in January.
But she believes that some of the measures in the 82-page draft document could help rather than hinder the spread of fraudulent activity.
The IETA’s biggest concern is a proposal to remove serial numbers from EUAs and Certified Emission Reductions (CERs), to prevent a recurrence of the paralysis this year when several national registries were hacked and the commission was forced to suspend trading.
If buyers are blind to whether a transaction is good or bad because the numbers have been removed, they should, in theory, bear no liability if a transaction turns out to have been bad. That in turn should boost confidence, the EC reasons.
But Ruiz says fraud has been prevented by traders spotting discrepancies because they know the serial numbers, and since the hacking crisis, some clearing houses are checking on the origin of individual units. Without serial numbers, they will no longer be able to do so.
She tells Recharge that non-disclosure of serial numbers would prevent companies from doing due diligence on the provenance of carbon credits before buying them “and could lead to much greater market paralysis”.
Another measure would make transfers of allowances irreversible, giving purchasers the right to keep units even if they were fraudulent. “In the UK and France, this is an issue — if you own something that’s not yours, you could be held liable, even if you’ve acquired it in good faith,” she says.
UK-based environmental group Sandbag also has grave concerns about removing serial numbers from CERs generated by UN Clean Development Mechanism projects in developing countries for compliance with the EU ETS.
“The removal of serial numbers would result in a lack of traceability that would present serious obstacles in ensuring that banned Kyoto units are not being used for compliance under the EU ETS,” Sandbag says.