Cautionary Carbon Tale: Hackers Cash in on Cap-and-Trade

(MoneyWatch)  The latest attack from cyberspace honed in on the big -- and growing -- European carbon market. Yup, hackers stole emission (or carbon) credits and then sold them to other companies for an estimated market value of $4.4 million, Wired reported.

Cap-and-trade laws place a limit (cap) on the amount of greenhouse gas emissions companies can emit. Companies that produce less GHGs emissions can sell their remaining carbon credits to other businesses that emit more than their allowable amount of pollution. And there you have it: cap and trade. Out of this a carbon market was born -- essentially a place where carbon permits are bought and sold. This is where the hackers cashed in.

Hackers gained unauthorized access to online accounts where companies manage their carbon credits. They then launched a "phishing attack" by e-mailing employees of these companies asking them to re-register their accounts with the German Emissions Trading Authority. Hackers used information submitted by these workers to access company accounts and transfer emissions credits out. From there the credits were sold on the free market.

The incident is not the first exploitation of government environmental controls. Last year, hackers accessed the Brazilian government's timber logging databases and stole extra "transport permits" to remove resources from the Amazon, Wired reported. The result? Somewhere around 1.7 million cubic meters of illegal timber was harvested because of the hacks.

It's not a reason to shy away from cap-and-trade. However, it does highlight how policies intended for good can so easily be perverted. It's something the U.S., which is weighing the pros and cons of a cap-and-trade policy, needs to prepare for because where there is money, there are folks looking to cash in.

Last year, the U.S. Department of Agriculture, examined the possible impact of climate legislation on the agricultural and forestry industries. The study found cap-and-trade system would increase energy costs for farmers and push their income down by 1 percent through 2018.

However, farmers would be poised to make money -- and lots of it -- through a carbon offsets program. Basically, by planting trees, reducing methane and nitorus oxide emissions they would reduce their emissions and then sell those as carbon credits. The study found farmers could generate $1 billion to $2 billion a year in income from 2012 to 2018. By 2050, U.S. could have annual net returns of $20 billion.

There are a number of questions still hanging around the issue of a carbon offsets program including the impact on commodity prices. The hacking incident brings up the issue of security, which will, I promise, be a continuing issue. There's simply too much money to be made. The $4 million stolen via the hacker attack was a drop in a very large carbon market bucket. The global carbon market is expected to hit $170 billion -- that's 33 percent higher than in 2009, according to a report last month from market analysis firm Point Carbon. In 2009, more than 8 billion metric tons of carbon was traded for a value of $136 billion.