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Clifford Chance

Clifford Chance

Briefings

Changing times: trading carbon in Phase 3 and the fallout from cyber thefts

10 August 2011

The EU Emissions Trading Scheme (EU ETS) is facing the prospect of a new wave of regulation as the European Commission looks to clamp down on potential vulnerabilities that could expose the carbon market to further fraud and theft.

The Commission unveiled the draft regulation following the recent cyber theft of carbon credits from the national registries of EU member states and the Commission's decision to shut down all registries in January 2011.

The new draft regulation, which has yet to be approved by the EU's Climate Change Committee, is the fourth iteration of EU regulation addressing the functioning of the member state registries. It is expected to become law in the autumn.

This means that, when all the new Registry Regulation is taken into account, there are five main areas of changes affecting the EU ETS:

• Dealing with the introduction of aviation into the EU ETS and Phase 3;
• Moving trading into a single Union Registry;
• Enhancing the security of the registries;
• Granting new regulatory powers to the authorities; and
• Addressing the legal consequences of the cyber thefts.

The changes proposed by the Commission are likely to have a significant practical impact in the way the emission trading scheme operates. One likely consequence of the new draft regulation is that OTC standard documentation will need to be amended.

The success of the new regulation, however, will depend on its ability to increase the security of the EU ETS and restore confidence to Europe's carbon market.

Although the proposed changes are intended to be beneficial, the speed at which they were drawn up might mean that certain unintended consequences may follow from the hasty change of rules.

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