Carbon Credits Stolen Electronically: The Latest Twist in IP Theft

The story of low cost manufacturers knocking off branded products is so common that it barely receives notice these days. However, innovation is not limited to garment or electronics producers. Hackers have now figured out how to steal one of the ultimate monetized intangibles: carbon dioxide emissions allowances. This is noteworthy both because the hackers figured out how to do it AND because they perceived that there was enough value in these truly ephemeral financial units to make it worth their while. The thieves' audacity should not be celebrated, but that such credits have attained such status is a cause for quiet glow of satisfaction to those who believe such concepts may hold one of the keys to future value creation.

Flemming Emil Hansen has the story in WSJ Europe:

"About €7.5 million in carbon dioxide emissions allowances stolen in a hacking attack in Austria are being returned to an Austrian national emissions registry from foreign accounts, the state prosecutor's office said Monday.

The imminent retrieval of 488,141 emissions certificates from Liechtenstein and Sweden comes as leading energy traders Monday urged registries to reopen quickly following a series of thefts under the EU's Emissions Trading System that have led the EU to shut the spot market until security is improved.

Spot trading on the European ETS has been suspended since Jan. 19 following thefts of €29 million ($39.77 million) of allowances from three national emissions registries. While the vast majority of the ETS trading is in the futures market and is unaffected by the ban, the EU's travails with the ETS have undermined a centerpoint of the EU's strategy on climate change.

The incidents have also spurred cross-border investigations aiming to find the thieves and recover the certificates—no small feat given the variety of laws at the national level. In some jurisdictions, such as Germany, national law may thwart efforts to return stolen certificates to their rightful owner.

Austrian investigators said the theft dates to Jan. 10, when perpetrators of the cybercrime grabbed the certificates from the Austrian registry.

"We haven't yet found out who are behind the crime," said Thomas Vecsey, spokesman of the Vienna State Prosecutor's office." They have |covered their tracks very well."

The stolen Austrian certificates come from the registry's reserve account and aren't associated with a particular company. In other cases, leading industrial companies, including Czech-based power company CEZ AS and Holcim Ltd. have reported the theft of certificates valued at millions of euros.

The prosecutors are still contemplating how to further pursue the cross-border internet crime case and what charges could be filed against the perpetrators if they are ever found, Mr. Vecsey said.

Some critics say the messy ETS security problems have shown the need for the EU to harmonize national laws relating to the ETS certificates.

In Germany, national emissions registry officials say CO2 allowances become property of account holders once the certificates are registered on their accounts, provided the buyer acted in good faith. That means authorities might not be able to recovery stolen certificates in Germany.

The Czech registry has said that registry officials in Germany and Estonia have confirmed they together have located 610,000 of the 1.3 million allowances stolen last week. German officials have declined to comment on the Czech claim.

Officials from some leading companies, including CEZ and German utility RWE AG, said the EU should take steps to standardize registries and security.

The European Commission has directed member states to submit reports attesting to adequate security measures before agreeing to reopen the spot market. Late Friday, the commission said some European countries that have already filed the documents may resume spot trading on the carbon market late next week, though others will likely be shut for several weeks.

On Monday, the European Federation of Energy Traders called on registries in the U.K, German and France to reopen no later than Feb. 7.

"The EU-wide suspension of registries [following the theft of emissions allowances] does have a serious impact on the market, which has been dismissed too easily over the last few days," the EFET said.

"The resulting lack of a spot market reference will have cascading effects on contracts indexed on spot. Furthermore, as a number of structural sellers use spot contracts as a route to the market, the absence of a spot market risks modifying the supply-demand balance," the group said