Carbon trading in Europe has been somewhat of a bumpy affair in the five years that the markets have been open.
Several years ago it was realized too many carbon credits had been allocated to some industries, leading to a sudden and steep drop in carbon prices.
Late last year London’s Telegraph reported on phony companies in the U.K. set up to trade emissions credits on the European mainland.
And now it appears fraudsters successfully used faked e-mail messages to get access codes for accounts on national emissions registries to sell them and pocket the profits.
All this certainly doesn’t help the already beleaguered effort to start up a trading system for carbon in the U.S. But are all these problems an intrinsic part of carbon markets, asks Victor Flatt over at Flatt Out Environmental?
The short answer to this question is “no.” The fraud perpetrated on the EU exchange was basic garden variety thievery. Criminals got access to an asset (carbon credits) and stole them. This could (and has) happened with many assets, and is a risk of electronic records and trading. Does this mean that we should not be concerned or aware of the risks? Absolutely not.
The one way that this can be attributed as uniquely related to the carbon market is that the entire trading system is new, and new systems present more opportunities for thievery, rent-seeking, and fraud. It seems clear that the security protocols on some of the EU country registries were not sufficiently strong or that market participants were not educated enough about the protocols of the exchanges to protect their security information from “phishing.”
Luckily, the amounts in play were relatively small, they were quickly discovered, and this will provide lessons for future security upgrades.
Carbon markets will have a lot of moving parts and will be pretty complicated, however, warns Flatt. So the temptation to try and commit fraud in them will still be there.