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EU Attempts to Prevent Insider Dealing of Emissions Scheme

The European Commission is examining ways of improving its supervision of the EU's emissions trading scheme (ETS) in a bid to prevent alleged insider dealing, market manipulation and other types of fraud.

The Commission yesterday wrote to the European Parliament and Council, outlining plans to examine how it could enhance oversight of the ETS to ensure emission allowances are protected from market abuse.

The Commission is concerned the market will become increasingly vulnerable to insider dealing and manipulation as it expands and wants to prevent an escalation of fraudulent activities that have undermined confidence in the market over the past few years.

Since 2009, the ETS has seen cases of Value Added Tax fraud; 'phishing attacks' from fraudsters trying to get unauthorised access to accounts of market participants; and certified emission reduction (CER) recycling, when the Hungarian government breached the rules of the scheme by reselling CERs that had already been used for EU ETS compliance purposes.

Options being considered include the tightening of regulations on the immediate spot markets and moves to place the European carbon market under financial markets legislation. Currently, only a handful of Member States have extended rules to cover spot markets within their jurisdiction.

Commissioner for Climate Action Connie Hedegaard said the proposals were crucial for ensuring the rapidly growing carbon market expands safely over the coming years.

"With a climate crisis and an economic crisis, the world more than ever before needs cost-effective means of reducing greenhouse gas emissions," she said in a statement. "It is therefore important that the market can continue to expand and safely be relied upon to give an undistorted carbon price signal to investors and decision-makers in boardrooms across the EU."

She added that there was evidence to suggest the market will increasingly be targetted by fraudsters and as a result it is "critical that it continues to be subject to appropriate and effective regulatory oversight".

After yesterday's initial stock-take on the current state of the market, the Commission now plans to launch an in-depth study and a stakeholder consultation early next year that will examine the structure of the carbon market and the current level of supervision in greater detail.

If that consultation suggests further action does need to be taken, it could propose new legislative measures by the end of next year.

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