Carbon Markets, consisting of carbon taxes, auction of allowances and direct payments to meet compliance obligations raised in 2018 more than USD 44 billion for governments, increasing by 70 % since 2015. The growing number of jurisdictions implementing carbon pricing initiatives like carbon taxes and emission trading systems (57 jurisdictions in 2019) will increase the carbon revenue sharply in the next decade.
Carbon credits as digital assets are different in comparison with traditional commodities which must be physically delivered to someone and many market player haven’t understood this in the past. Thus, carbon markets like other financial markets are interesting for illegal activities, especially because of the large amount of money invested.
Interpol classified these crimes into the following segments:
- Manipulation of measurements to claim more carbon credits from a project
- Sales of carbon credits that either doesn’t exist anymore or changed ownership
- Money laundering, security fraud or tax fraud
- Computer hacking/pishing to steal carbon credits
Several security issues raised attention in the last decade. Matthew Beddoes, a British hacker, has been arrested in November 2011 for a break into governmental and corporate registries (Spain, United Nations) and stole almost 800.000 carbon credits with the value of 8 million euros.
The cement producer Holcim Ltd. lost 1.6 million carbon credits in 2010 due to a cyberattack on the Romanian registry. Some 600.000 carbon credits could be tracked due to the unique identification number of the carbon credits, but Holcim wasn’t able to recuperate the carbon credits due to varied legal status across different jurisdictions.
Also the registry of countries like Austria, Poland and Greece have been victims of hackers which stole 2 million carbon credits in January of 2011. These events made clear that due to the existence of national registries and security standards widely varying between countries, the European Emission Trading System (EU ETS) was quite vulnerable to cyber-attacks. The European Commission initiated the transition to a single registry, the European Union Transaction Log which opened in August of 2012.
A solution…
Distributed ledger technologies like Blockchain can increase the cybersecurity and make disappear those crimes. DECA, a project which is looking forward to create a green economy by digitally signing carbon credits in blockchain can give several benefits like cybersecurity.
Sources:
https://globalinitiative.net/interpol-guide-to-carbon-trading-crime/
https://www.europol.europa.eu/newsroom/news/carbon-credit-fraud-causes-more-5-billion-euros-damage-for-european-taxpayer
https://openknowledge.worldbank.org/handle/10986/31755
http://pubdocs.worldbank.org/en/668851474296920877/CPLC-Use-of-Revenues-Executive-Brief-09-2016.pdf