EU Commission moves to combat carbon fraud

Reuters News
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Posted: Oct 20, 2011 6:08 AM
EU Commission moves to combat carbon fraud

BRUSSELS (Reuters) - European Union carbon allowances -- the bloc's main tool to combat climate change -- face regulation alongside other financial instruments under proposed laws published on Thursday as the Commission seeks to bolster a market shaken by fraud and oversupply.

"By treating emission allowances as other financial assets, the proposal extends financial market protection to the carbon market," EU Climate Commissioner Connie Hedegaard said.

"It will provide further certainty for carbon market participants as the market grows and matures. This way, the carbon market will better play its full role to mobilize the substantial investments needed for the transition to a low-carbon economy," she added in comments emailed to Reuters.

A Commission source said companies that only bought allowances to cover emissions, rather than to trade, would face "much lighter requirements."

Traders and industry representatives had argued against the inclusion of the entire carbon market in the new EU rules on financial instruments, arguing they required special treatment.

The European Commission's proposals show derivatives such as futures, forward instruments and options as well as spot carbon, used to meet prompt requirements, needed to be covered.

"This proposal, once adopted, will close the regulatory gap that currently exists regarding the trading of spot allowances where most incidents and fraud occur, even though they represent only 5-10 percent of the carbon market," the source said.

A series of frauds, together with oversupply and concern about the European debt crisis has battered the carbon market, meaning allowances no longer cost enough to be an adequate deterrent to polluters.

The EU carbon market crashed to a 31-month low of less than 10 euros this month.

Justifying its decision to include the entire market in the proposed new legislation, which still has to go before the European Parliament and the Council of EU member states for adoption, the Commission said the carbon market had grown significantly in size and sophistication.

Its figures show the market grew from about 6 billion euros ($8.2 billion) to 90 billion euros in five years and was expected to grow 10-fold by the end of the decade.

The EU, which has sought to take a global lead in battling climate change with a set of 2020 goals, including to reduce carbon emissions by 20 percent by that date, launched its carbon trading scheme in 2005.

Large carbon emitters are required to monitor their CO2 emissions and if they exceed a certain level, must buy carbon permits to compensate.

On the question of which market participants would be required to disclose inside information on carbon allowances, the Commission said an exemption was foreseen for those whose activity was below a certain threshold, which it would determine. ($1 = 0.725 Euros)

(Reporting by Barbara Lewis; editing by Rex Merrifield)