The following blog entry was written while performing research for a Vital Signs report on Carbon Markets. To learn more about Worldwatch’s Vital Signs click here.
The European Union’s Emissions Trading Scheme has been under public scrutiny over the past couple weeks after officials found that cyber-criminals had breached security on its registries to steal and sell $40 million worth of carbon emissions permits. The breaches forced the European Commission to suspend trading on the EU-ETS for two weeks so that it could reexamine its regulatory strategy before finally reopening on February 4th.
The fraudulent activity involving the EU-ETS has primarily economic, rather than environmental, ramifications. The environmental integrity of the cap – the scheme’s ability to contain carbon dioxide emissions – has not been compromised. Only when governments generate more permits or regulators fail to correctly measure emissions from regulated sources is the cap compromised. Rather the effect of the events is to cripple trader confidence and raise transaction costs in a way that undermines the economic efficiency of the market.