By Christine Cordner on February 3, 2010 3:25 PM | No Comments | No TrackBacks

Carbon cap-and-trade started the year with somewhat of a dark aura, with President Barack Obama not even using the contentious phrase in his State of the Union address. He supports the market approach to cutting greenhouse gas emissions, but he may have been wise to eschew the terminology, which has taken on some political toxicity. And a little news out of Europe this week couldn't help.

Fresh off a value-added-tax scam involving carbon allowances and fraudulent deals that denied sales tax revenue to EU governments, the German Emissions Trading Authority discovered that computer hackers cracked codes and gained access to company EU Allowance accounts, enabling them to steal and sell EUAs into the EU Emissions Trading Scheme market.

According to the Financial Times Deutschland, the hackers sent e-mails with the official DEHSt logo to companies in several European countries as well as in Japan and New Zealand. They urged the companies to register again to avoid an imminent hacker attack.

The amounts stolen remain unknown, but one medium-sized company in Germany reportedly lost EUAs worth €1.5 million ($2.1 million). DEHSt responded by barring access to the database to register EUA deals for at least the rest of this week.

The news comes as Congress is deciding whether to do an energy-only bill or a combined energy and climate bill, and whether to do cap-and-trade at all. While key Democrats like Senator John Kerry of Massachusetts hold on to cap-and-trade as the most cost-effective way to get GHG cuts, some members, Republicans especially, stand firm in their opposition to a market after seeing oil and gas prices spike during Hurricane Katrina, power prices skyrocket in California in the Enron-related crisis, and financial markets crash after derivatives abuses.

Some Democrats, like Senator Maria Cantwell, want to avoid the market altogether by instituting a cap-and-dividend approach whereby allowances are auctioned to GHG emitters only, leaving no reason for a secondary trading market.

With some looking to kiss cap-and-trade goodbye, little things like the German news could make a difference in whether Congress finally approves such a program. The hackers may not only have taken down a German agency and made some serious cash, but unbeknownst to them may also have nudged cap-and-trade a little closer to the cliff's edge.