10 Nov 2011
Security measures under the Clean Energy Scheme: Are they adequate?
Australia has learnt from phishing and cyber theft of permits in the EU carbon market.
When the "flexible price" phase of Australia's Clean Energy Scheme commences on 1 July 2015, with it will come new opportunities for spot trading in over-the-counter (OTC) carbon derivatives (PDF 1006.5KB).
In the EU carbon market, "phishing" and cyber theft of permits has recently severely undermined confidence in the market. Bona fide purchasers of units without notice of their defective title have been victims because the legal frameworks failed to provide for this problem.
In Australia, the legislation has adopted a significant improvement in market design over the EU scheme in order to address this issue.
How does the Regulator address security risk and protect customers?
The Clean Energy Regulator will be empowered to act to prevent the system from being undermined. The Regulator will be able to:
unilaterally close, with notice, any Registry account if an account holder has breached the Registry regulations; and
correct any errors in the Registry, on the Regulator's own initiative, if an entry was made without cause, is wrongly in the Registry or has been wrongly removed.
The Regulator can also do any of the following in order to ensure the integrity of the registry or to prevent, mitigate or minimise abuse of the Registry or prevent, mitigate or minimise criminal activity involving the Registry:
suspend the operation of the Registry;
defer giving effect to a transfer instruction for up to 48 hours;
refuse to give effect to a transfer instruction;
impose conditions restricting or limiting the operation of an account for a specified period; or
suspend a person's registry account; and
refuse to make an entry in the Registry for a Kyoto unit being transferred in from a foreign account if it has reasonable grounds to suspect that the instruction is fraudulent.
The Regulator's powers do not protect the innocent upon whom the fraud was perpetrated.
Negotiable title – the Australian answer to the European phish
The Clean Energy Bill does protect the innocent defrauded by providing for negotiable title to units. It sets out that the registered holder of a carbon unit is the legal owner of that unit, provided that they purchased it in good faith for value without notice of any defect in the title. The Clean Energy (Consequential Amendments) Bill provides the same protection for registered holders of eligible international emissions units entered onto into Registry.What does this mean? If the Regulator fails to prevent a holder from becoming the registered holder of a fraudulent unit, for value without notice of a prior fraud, you will nonetheless have good title without the need to prove a chain of title all the way to the original holder of the instrument.
What if another person has obtained and hold units fraudulently? The courts are empowered to act when a person has been convicted of specific crimes under the Criminal Code 1995, relating to fraudulent conduct or making misleading and deceptive statements. The court may order the relinquishment of units if any or all of the person's units are directly attributable to their offence.
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