By JOHN W. MILLER
BRUSSELS—European markets for permits to emit carbon dioxide will start reopening in the next week after a shutdown following the dramatic cybertheft of permits valued at tens of millions of euros two weeks ago, EU officials said Tuesday.
The theft, by a ring of hackers who phoned in a bomb threat to the Czech carbon exchange and stole permits during the ensuing confusion, was the latest in a series of security breaches in the market, which has turnover of $100 billion a year. Permits valued at about €28 million ($38 million) were stolen in three European countries, EU officials said.
The trade in permits is aimed at cutting companies' greenhouse-gas production. European companies buy and sell the permits, which give firms the right to emit CO2 above quotas set for their industries.
Interpol, Europol and national police in several countries say they are continuing to recover stolen permits, but questions remain about the security of the registries where transaction records are kept for each of the 30 national markets.
Markets in Germany, France, the Netherlands and the U.K. are expected to be first to restart trading, but it remains unclear how much longer other registries will remain closed. Traders expressed concerns over the further market disruption caused by Germany's canceling of its Tuesday spot auction because some security issues hadn't yet been resolved.
The European Commission, the European Union's executive arm, says the markets can only reopen once it has certified their security systems. But delays in writing and testing the software have extended the time frame, and some countries might not be ready to restart trading for several months, EU officials said.
"It's been a true crisis," said Simone Ruiz, European policy director of the Brussels-based International Emissions Trading Association.
The EU's Emissions Trading System, inaugurated in 2005, covers some 12,000 power, steel and cement plants, as well as oil refineries and other industrial installations, which together produce roughly half of Europe's greenhouse-gas emissions.
The credits are traded freely across the EU's 27 member nations, as well as in Norway, Liechtenstein and Iceland, in transactions cleared through electronic registries.
It is these registries that have proved a weak link. Last year, hackers in Denmark and the U.K. robbed millions of dollars worth of certificates after stealing security codes from traders. They had obtained the codes by persuading traders to type confidential data into a website, an Internet scam known as "phishing."
There have been other problems, too. The premature release of confidential data by the exchanges has triggered volatile market swings. Some firms have falsified emissions data, while some traders have illegally profited from differences in value-added tax rates between EU countries, according to EU officials.
Czech authorities said last week that they had located, though not yet recovered, roughly half of the 1.3 million certificates stolen in the January incident. On Tuesday, $2.75 million in allowances were returned to Halyps Building Materials SA, a Greek unit of Italian cement maker Italcementi Group, according to a person familiar with the matter.
Emissions Savings
Highlights in the history of the European certificate system
2005:The European Union launches its Emissions Trading System, allowing companies to buy and sell CO2 emissions on open markets.
2007: The EU increases the number of companies required to buy permits, as well as the number of permits on the market.
2009:Data leaked from exchanges leads to volatile markets swings.
2010:Cyberthieves use 'phishing' to steal data from traders and rob certificates.
2011: Hackers steal over $30 million in certificates from three European countries, prompting the EU to close all European exchanges.
Source: WSJ research
.On Monday, the Austrian state prosecutor's office said it had recovered 488,141 certificates valued at $10.3 million from Liechtenstein and Sweden.
Europol said on Tuesday that organized crime might be behind the recent attacks, and that the thieves may be connected to previous frauds.
"We suspect that the persons behind those attacks are linked to some of those who earlier have used the trading system for carbon-credit fraud, although the modus operandi seems more sophisticated now," said Rob Wainwright, Europol's director.
A continent-wide effort involving international police alliances Europol and Interpol, as well as national forces, acted "quickly within four hours after the thefts occurred," said the person familiar with the matter. The hackers were based in Romania, this person said.
EU regulators in Brussels originally said the registries should be able to reopen by Jan. 26, a week after the thefts were reported. Last week, the commission said countries complying with security norms "may be able to resume normal operations in the second half of the week beginning 31 January." But on Tuesday, EU officials said some registries may not reopen until April.
The software at Czech registry OTE AS was written by CDC Climat, a French concern. The company "has responded to all the mandates of the commission," said CDC Climat spokeswoman Maria Solan.
The closure has affected only the daily spot market, where two million tons a day are traded and which accounts for 10% to 20% of total volume. The market in carbon futures, 20 million tons per day, has remained unruffled.
Markets are "alive and well, but there are more and more questions on the impact of these closures on operations," said Emmanuel Fages, head of power, gas, carbon and coal research at Société Générale Commodities in Paris.
Prices for Dec. 2011 futures have risen to €15 a metric ton from €14.38 at the time of the thefts, an increase attributed to cold weather and instability in Egypt.
Particularly worrying, Mr. Fages said, was the cancellation of the German weekly auction of 300,000 carbon allowances on Tuesday. The auction was postponed to a new date within three weeks.
—Nick Skrekas in Athens, Sean Carney in Prague and Alessandro Torello in Brussels contributed to this article.
Write to John W. Miller at john.miller@dowjones.com
Wednesday, 2 February 2011
South African energy is at a fork in the road
With a coal-fired past and a part-renewable, part-nuclear future, jobs and cost will determine the country's path
The problem didn't develop overnight, of course. There was more than a decade of policy failure, as the government swung between a desire to introduce independent power producers and humour union demands that electricity generation remain a state-owned function. That meant no new generation capacity was built even as the economy expanded at a nice pace and an entire segment of the population, ignored under apartheid, was quickly connected to the grid.
State power company Eskom caused maintenance slippage and saw some power stations supplied with poor quality or wet thermal coal. Failure to invest in the transmission network meant it was impossible to shunt sufficient power from the generation hotspots in coal fields to the north to industrial hubs in the south and east.
But all of this only came home when, in the middle of unseasonably cold weather, ordinary South Africans were suddenly introduced to the concept of "load-shedding"; planned rolling blackouts that saw sections of the national network turned off for hours at a time.
The process was later refined, but initially nothing and no one was spared: homes, hospitals, offices and factories were all shut down. Buildings posted prominent schedules outside elevators. Portable generators sold out as quickly as they could be stocked, and customers flocked to stores and restaurants that could continue operating while their neighbours fell dark.
The situation improved relatively swiftly. After years of political paralysis, the government rapidly implemented energy-saving campaigns, while Eskom told neighbouring countries who had been buying power on the cheap to sod off, got its maintenance scheduling sorted out and secured coal supplies and transportation. A near collapse of the grid in January 2008 eased into less frequent outages by April, and by the time of the 2010 football World Cup, blackouts had become nothing but a bad memory.
The damage had been done, however. During those dark days mines and heavy industrial customers were occasionally shut down, and at other times forced to reduce operations. Plans for new shafts and smelters were hastily scrapped and forward output targets were reduced. As it became clear just how big an investment would be required in new generation, and that electricity prices would more than double in the course of just a few years, even those companies who can deal with intermittent supplies started looking for other investment destinations.
South Africa desperately needs power right now – and we need it on a budget. With half the population unemployed or underemployed and poorly skilled, only three sectors hold the possibility of lifting much of the country out of poverty: mining, manufacturing and agriculture. For generations all three were built on a combination of cheap electricity and cheap labour. With exploitation now legislated against instead of actively encouraged, and Asian markets offering workers at a discount, the labour isn't all that cheap anymore. Expensive electricity would be nearly as ruinous as no electricity.
Cheap, in South Africa at least, means coal-fired. In parts of the Mpumalanga province high-quality coal is so plentiful you wouldn't be able to give the stuff away if it weren't for strong foreign demand. Hence the Medupi coal-fired plant, which will push out 4.8GW at full tilt once finished, and its sister station Kusile, which will max out at 4.8GW when it is finally finished some time after 2018. Both will rank among the top 10 largest power stations ever constructed. By comparison, the UK's largest power station, Drax, a bête noir of activists, has an output of 4GW.
Just how much carbon those two behemoths will pump into the atmosphere is a matter of some debate, with scrubbing and sequestering techniques still to be finalised. Between the greenhouse gas emissions, the water usage and the impact on organic farming in the region, however, they're decidedly unpopular with environmentalists. Groups like the WWF eventually dropped opposition to Medupi, recognising its necessity, but still lobbied intensely (though ultimately unsuccessfully) against a critical World Bank loan for Kusile. South Africa, the greenies argued, just needs to get with the times and build more sustainable power solutions.
What they got instead was a relative token: a 100MW windfarm and plans for another 100MW concentrated solar plant. After those the country faces a fork in the road, a choice between a nuclear future or one powered by solar and wind. Jobs will again determine the path, except this time those advocating for green solutions may be happier with the result.
The Koeberg nuclear power station near Cape Town has been chugging along for more than a quarter of a century, but remains the only nuclear power plant in the country. After spending £800m, the government last year abandoned attempts to become a world leader in safe and easily built nuclear generation in the form of the pebble bed modular reactor, which turned out to be a little futuristic for current needs.
On the other hand, the phrase "green economy" has increasingly been popping up in economic planning documents, both from the government and the ruling African National Congress, which most recently said it wants that see that sector employ 300,000 people over the next decade. Becoming a hub for green technologies, if only within Africa, should be a lot easier because over the next 30 years electricity production is going to see consistent spending on mega-projects.
But paying several times the price of a megawatt of coal-generated electricity for the pleasure of being beholden to the wind or sun is a tough sell. The sudden fad for believing green infrastructure can create many jobs may well pass, as has the belief in the call centre industry and jewellery manufacturing before it.
Politically the stars are in alignment. Money for renewable energy projects is available on easy terms, with or without carbon trading. Independence from finite coal reserves and foreign-made nuclear components is always attractive. And hey, it would be nice to host the COP17 meeting at the end of 2011 and be seen as a beacon of progress rather than an irredeemable smokestack country.
• Phillip de Wet is the deputy editor of The Daily Maverick, a South African news and analysis website
The problem didn't develop overnight, of course. There was more than a decade of policy failure, as the government swung between a desire to introduce independent power producers and humour union demands that electricity generation remain a state-owned function. That meant no new generation capacity was built even as the economy expanded at a nice pace and an entire segment of the population, ignored under apartheid, was quickly connected to the grid.
State power company Eskom caused maintenance slippage and saw some power stations supplied with poor quality or wet thermal coal. Failure to invest in the transmission network meant it was impossible to shunt sufficient power from the generation hotspots in coal fields to the north to industrial hubs in the south and east.
But all of this only came home when, in the middle of unseasonably cold weather, ordinary South Africans were suddenly introduced to the concept of "load-shedding"; planned rolling blackouts that saw sections of the national network turned off for hours at a time.
The process was later refined, but initially nothing and no one was spared: homes, hospitals, offices and factories were all shut down. Buildings posted prominent schedules outside elevators. Portable generators sold out as quickly as they could be stocked, and customers flocked to stores and restaurants that could continue operating while their neighbours fell dark.
The situation improved relatively swiftly. After years of political paralysis, the government rapidly implemented energy-saving campaigns, while Eskom told neighbouring countries who had been buying power on the cheap to sod off, got its maintenance scheduling sorted out and secured coal supplies and transportation. A near collapse of the grid in January 2008 eased into less frequent outages by April, and by the time of the 2010 football World Cup, blackouts had become nothing but a bad memory.
The damage had been done, however. During those dark days mines and heavy industrial customers were occasionally shut down, and at other times forced to reduce operations. Plans for new shafts and smelters were hastily scrapped and forward output targets were reduced. As it became clear just how big an investment would be required in new generation, and that electricity prices would more than double in the course of just a few years, even those companies who can deal with intermittent supplies started looking for other investment destinations.
South Africa desperately needs power right now – and we need it on a budget. With half the population unemployed or underemployed and poorly skilled, only three sectors hold the possibility of lifting much of the country out of poverty: mining, manufacturing and agriculture. For generations all three were built on a combination of cheap electricity and cheap labour. With exploitation now legislated against instead of actively encouraged, and Asian markets offering workers at a discount, the labour isn't all that cheap anymore. Expensive electricity would be nearly as ruinous as no electricity.
Cheap, in South Africa at least, means coal-fired. In parts of the Mpumalanga province high-quality coal is so plentiful you wouldn't be able to give the stuff away if it weren't for strong foreign demand. Hence the Medupi coal-fired plant, which will push out 4.8GW at full tilt once finished, and its sister station Kusile, which will max out at 4.8GW when it is finally finished some time after 2018. Both will rank among the top 10 largest power stations ever constructed. By comparison, the UK's largest power station, Drax, a bête noir of activists, has an output of 4GW.
Just how much carbon those two behemoths will pump into the atmosphere is a matter of some debate, with scrubbing and sequestering techniques still to be finalised. Between the greenhouse gas emissions, the water usage and the impact on organic farming in the region, however, they're decidedly unpopular with environmentalists. Groups like the WWF eventually dropped opposition to Medupi, recognising its necessity, but still lobbied intensely (though ultimately unsuccessfully) against a critical World Bank loan for Kusile. South Africa, the greenies argued, just needs to get with the times and build more sustainable power solutions.
What they got instead was a relative token: a 100MW windfarm and plans for another 100MW concentrated solar plant. After those the country faces a fork in the road, a choice between a nuclear future or one powered by solar and wind. Jobs will again determine the path, except this time those advocating for green solutions may be happier with the result.
The Koeberg nuclear power station near Cape Town has been chugging along for more than a quarter of a century, but remains the only nuclear power plant in the country. After spending £800m, the government last year abandoned attempts to become a world leader in safe and easily built nuclear generation in the form of the pebble bed modular reactor, which turned out to be a little futuristic for current needs.
On the other hand, the phrase "green economy" has increasingly been popping up in economic planning documents, both from the government and the ruling African National Congress, which most recently said it wants that see that sector employ 300,000 people over the next decade. Becoming a hub for green technologies, if only within Africa, should be a lot easier because over the next 30 years electricity production is going to see consistent spending on mega-projects.
But paying several times the price of a megawatt of coal-generated electricity for the pleasure of being beholden to the wind or sun is a tough sell. The sudden fad for believing green infrastructure can create many jobs may well pass, as has the belief in the call centre industry and jewellery manufacturing before it.
Politically the stars are in alignment. Money for renewable energy projects is available on easy terms, with or without carbon trading. Independence from finite coal reserves and foreign-made nuclear components is always attractive. And hey, it would be nice to host the COP17 meeting at the end of 2011 and be seen as a beacon of progress rather than an irredeemable smokestack country.
• Phillip de Wet is the deputy editor of The Daily Maverick, a South African news and analysis website
Oliver Letwin could break deadlock over green investment bank
Minister of state is proposing to set up the beleaguered bank 'off balance sheet', allowing it to trade in far bigger sums
Allegra Stratton, political correspondent guardian.co.uk, Tuesday 1 February 2011 13.13 GMT
One of David Cameron's closest cabinet colleagues is actively considering privatising the much-vaunted green investment bank (GIB) in order to allow it to trade in much bigger sums.
The set-up of the bank has been the subject of intense inter-Whitehall wrangling as Conservatives and Liberal Democrats battle with Treasury officials to allow them to fulfill a commitment made in both their manifestos. Lib Dem minister and energy secretary, Chris Huhne, wants the GIB to operate as a fully fledged bank that is able to issue bonds and underwrite loans, rather than just a fund, which would be more limited and unable to release the required capital. The Treasury is reluctant to add billions of pounds of liabilities to the UK's public borrowing sheet at a time when the UK government is trying to reduce the deficit and wants the GIB to operate as a fund.
Vince Cable's Department of Business (BIS) is now taking the lead on the project and remains optimistic it is close to a deal to make the institution a public bank, with strict lending limits imposed by the Treasury.
But it has now emerged that avowed environmentalist and minister of state Oliver Letwin is looking into breaking the impasse by allowing the bank to be set up "off balance sheet". This would see private institutions contribute funds alongside some government money. It would allow the GIB to trade in far larger sums.
The government has already pledged £1bn in start-up funds and is now expected to announce initial capitalisation of "more than double that", raised through asset sales, according to ministerial aides.
Setting up the bank would help the UK fill the invesment gap in renewable technology. Recently a report by Ernst & Young said the bank would have to be able to lend up to the value of £450bn if the UK were to develop the alternative technologies to meet its low carbon energy requirements by the year 2025. At the moment, Ernst & Young says there is only £50bn-£80bn of upfront investment available, meaning there is at least a £370bn shortfall in funds.
The Department for Energy and Climate Change and BIS, run by Huhne and Cable respectively, are both "confident" that they can reach agreement on fixed lending and borrowing. Letwin and Osborne are reported to be increasingly minded to take it off balance sheet.
A ministerial source said: "If you can agree strict lending and borrowing rates then it doesn't have to be off balance sheet but Letwin is looking at making it unconstrained because then it would be able to borrow more."
GIB campaigners would be disappointed by this, believing that, while it gets around the truculence of Treasury officials, it carries with it greater risk. If the GIB were to be private, they fear it would have to "satisfy private shareholders".
Campaigners for a public GIB say another advantage to it being public rather than private would be that loans would have a government guarantee – precisely the element the Treasurys fear – but, according to campaigner Ed Matthew, director of Transform UK, would "reduce risk for the projects it invests in and allows it to raise the cheapest possible finance."
There are also fears that a private GIB would be less accountable to the public.
Cable will be in front of the environmental audit committee of MPs to discuss the GIB tomorrow. A decision is expected imminently.
• This article was amended on 1 February to say £1bn of funds instead of £1m
Allegra Stratton, political correspondent guardian.co.uk, Tuesday 1 February 2011 13.13 GMT
One of David Cameron's closest cabinet colleagues is actively considering privatising the much-vaunted green investment bank (GIB) in order to allow it to trade in much bigger sums.
The set-up of the bank has been the subject of intense inter-Whitehall wrangling as Conservatives and Liberal Democrats battle with Treasury officials to allow them to fulfill a commitment made in both their manifestos. Lib Dem minister and energy secretary, Chris Huhne, wants the GIB to operate as a fully fledged bank that is able to issue bonds and underwrite loans, rather than just a fund, which would be more limited and unable to release the required capital. The Treasury is reluctant to add billions of pounds of liabilities to the UK's public borrowing sheet at a time when the UK government is trying to reduce the deficit and wants the GIB to operate as a fund.
Vince Cable's Department of Business (BIS) is now taking the lead on the project and remains optimistic it is close to a deal to make the institution a public bank, with strict lending limits imposed by the Treasury.
But it has now emerged that avowed environmentalist and minister of state Oliver Letwin is looking into breaking the impasse by allowing the bank to be set up "off balance sheet". This would see private institutions contribute funds alongside some government money. It would allow the GIB to trade in far larger sums.
The government has already pledged £1bn in start-up funds and is now expected to announce initial capitalisation of "more than double that", raised through asset sales, according to ministerial aides.
Setting up the bank would help the UK fill the invesment gap in renewable technology. Recently a report by Ernst & Young said the bank would have to be able to lend up to the value of £450bn if the UK were to develop the alternative technologies to meet its low carbon energy requirements by the year 2025. At the moment, Ernst & Young says there is only £50bn-£80bn of upfront investment available, meaning there is at least a £370bn shortfall in funds.
The Department for Energy and Climate Change and BIS, run by Huhne and Cable respectively, are both "confident" that they can reach agreement on fixed lending and borrowing. Letwin and Osborne are reported to be increasingly minded to take it off balance sheet.
A ministerial source said: "If you can agree strict lending and borrowing rates then it doesn't have to be off balance sheet but Letwin is looking at making it unconstrained because then it would be able to borrow more."
GIB campaigners would be disappointed by this, believing that, while it gets around the truculence of Treasury officials, it carries with it greater risk. If the GIB were to be private, they fear it would have to "satisfy private shareholders".
Campaigners for a public GIB say another advantage to it being public rather than private would be that loans would have a government guarantee – precisely the element the Treasurys fear – but, according to campaigner Ed Matthew, director of Transform UK, would "reduce risk for the projects it invests in and allows it to raise the cheapest possible finance."
There are also fears that a private GIB would be less accountable to the public.
Cable will be in front of the environmental audit committee of MPs to discuss the GIB tomorrow. A decision is expected imminently.
• This article was amended on 1 February to say £1bn of funds instead of £1m
China's big hydro wins permission for 21.3GW dam in world heritage site
Hydroelectric power company Huadian will build a cascade of 13 dams in the spectacular "Grand Canyon of the Orient"
Jonathan Watts, Asia environment correspondent guardian.co.uk, Tuesday 1 February 2011 16.09 GMT
China's dam builders will press ahead with controversial plans to build a cascade of hydropower plants in one of the country's most spectacular canyons, it was reported today, in an apparent reversal for prime minister Wen Jiabao.
The move to harness the power of the pristine Nu river - better known outside of China as the Salween - overturns a suspension ordered by the premier in 2004 on environmental grounds and reconfirmed in 2009.
Back then, conservation groups hailed the reprieve as a rare victory against Big Hydro in an area of southwest Yunnan province that is of global importance for biodiversity.
But Huadian - one of the country's five biggest utilities - and the provincial government have argued that more low-carbon energy is needed to meet the climate commitments of the fast-growing economy.
Their lobbying appears to have been successful, according to reports in the state media.
"We believe the Nu River can be developed and we hope that progress can be made during the 12th Five-Year Plan period (2011-2015)," Shi Lishan, the deputy director of new energy at the National Energy Administration, told Chinese national radio.
The plan envisages the construction of 13 dams on the middle and lower reaches of the river, with a total generating capacity of 21.3GW that is similar to that of the Three Gorges Dam.
The Nu ("angry river" in Chinese) flows from its source in the Himalayas through the heart of a United Nations world heritage site that has been called the "Grand Canyon of the Orient". It is home to more than 80 endangered species, including snow leopards and Yunnan snub-nosed monkeys. Downstream, it provides water for Burma and Thailand, whose governments have joined a coalition of conservation groups and scientists in expressing opposition to the dam plans.
A recent report by China's Economic Observer suggested the hydropower industry has overcome the political and environmental obstacles of the past five years and will now accelerate dam building.
Last month, the National Energy Agency said China plans to build an additional 140 gigawatts of hydropower capacity in the next five years as it tries to achieve the goal of producing 15% of its energy from non-fossil fuel sources by 2020.
As well as the Nu, the next round of projects is also likely to include hydropower plants in Sichuan, Qinghai and Tibet.
Last month, conservationists expressed dismay at moves to redraw the boundaries at a vitally important fish reserve on the Jinsha to allow for dam construction.
Jonathan Watts, Asia environment correspondent guardian.co.uk, Tuesday 1 February 2011 16.09 GMT
China's dam builders will press ahead with controversial plans to build a cascade of hydropower plants in one of the country's most spectacular canyons, it was reported today, in an apparent reversal for prime minister Wen Jiabao.
The move to harness the power of the pristine Nu river - better known outside of China as the Salween - overturns a suspension ordered by the premier in 2004 on environmental grounds and reconfirmed in 2009.
Back then, conservation groups hailed the reprieve as a rare victory against Big Hydro in an area of southwest Yunnan province that is of global importance for biodiversity.
But Huadian - one of the country's five biggest utilities - and the provincial government have argued that more low-carbon energy is needed to meet the climate commitments of the fast-growing economy.
Their lobbying appears to have been successful, according to reports in the state media.
"We believe the Nu River can be developed and we hope that progress can be made during the 12th Five-Year Plan period (2011-2015)," Shi Lishan, the deputy director of new energy at the National Energy Administration, told Chinese national radio.
The plan envisages the construction of 13 dams on the middle and lower reaches of the river, with a total generating capacity of 21.3GW that is similar to that of the Three Gorges Dam.
The Nu ("angry river" in Chinese) flows from its source in the Himalayas through the heart of a United Nations world heritage site that has been called the "Grand Canyon of the Orient". It is home to more than 80 endangered species, including snow leopards and Yunnan snub-nosed monkeys. Downstream, it provides water for Burma and Thailand, whose governments have joined a coalition of conservation groups and scientists in expressing opposition to the dam plans.
A recent report by China's Economic Observer suggested the hydropower industry has overcome the political and environmental obstacles of the past five years and will now accelerate dam building.
Last month, the National Energy Agency said China plans to build an additional 140 gigawatts of hydropower capacity in the next five years as it tries to achieve the goal of producing 15% of its energy from non-fossil fuel sources by 2020.
As well as the Nu, the next round of projects is also likely to include hydropower plants in Sichuan, Qinghai and Tibet.
Last month, conservationists expressed dismay at moves to redraw the boundaries at a vitally important fish reserve on the Jinsha to allow for dam construction.