Navigant Research Blog

Cyberthieves Shut Down the European Union’s Emissions Trading Scheme

— January 31, 2011

Late in January, cyberthieves stole about €30 million worth of carbon allowances from several national registries of the European Union’s Emissions Trading Scheme (ETS). As a result, EU carbon offset trading, “a cornerstone of the European Union’s policy to combat climate change,” according to the ETS site, has been shut down for over a week.

The national registries, which are government agencies, did not discover the thefts. Blackstone Global Ventures first noticed that their allowances had been stolen from the Czech registry. Their website has the following notice:

Stolen EUA. Yesterday at 12 CET 475 000 allowances were unlawfully removed from our account with the Czech registry (OTE). We are doing our outmost [sic] to resolve the problem and want to make all market participants aware of the incident. Please find the serial ID numbers in the following link: SerialIDs.pdf

There is no central registry of EU carbon allowances, even though they are traded as a single market. Each nation manages and secures its own registry, as it sees fit. In addition to the Czech Republic, allowances were missing from the national registries of Austria and Greece. The Czech Republic thefts coincided with a bomb threat that required evacuation of their building, suggesting insider collusion.

How could the national registries have known that they would be targeted? Easily. This wasn’t the first attack.

In February 2010, a phishing attack stole 250,000 carbon allowances worth over €3 million at the time, forcing 13 national registries to close. The attack was elementary. Phishers created a phony email asking traders to log on to their site and revalidate their information. The email contained a link to a bogus website, enabling the attackers to capture the traders’ logon IDs and passwords. The attackers then logged on as the traders, transferred the allowances to their accounts, and then quickly sold them.

After the February 2010 attack was discovered, administrators of the ETS promised a “security review”. In light of the current attack one must hope that the review’s recommendations have not yet been deployed. Regardless, the ETS had already been attacked one year ago.

Two days after the most recent attack – while the ETS was still closed – an ETS governance committee convened to propose a ban on trading in certain carbon allowances from Asia. Trading governance continued unabated even as trading was impossible. Business went on as usual while in the midst of a cyber-attack, suggesting that the ETS may not have a Business Continuity Plan.

What is the real problem here? Just like Smart Grids, no one is in charge in cyber security. No one person or body owns the end-to-end security of the ETS. Each of the many and varied players is allowed to secure their systems as well (or poorly) as they choose. Meanwhile, these variously secured systems are linked to form a single marketplace. Security is only as strong as its weakest link and the criminals have found the weakest link. Twice.

The answer, which the ETS appears to have identified, is to centralize the security. Or at the very least, centralize security policy. So, in time all national registries will have a consistent level of protection. “In time” appears to mean “in 2013” – so there remain two more years of inconsistent protection. Still, there’s a plan to centralize protection.

Now – how do we accomplish the same objective for smart metering?


Could the United States Lose its Share of the Global Fuel Cell Market?

— January 28, 2011

In my last post, I opined that the United States was at risk of losing its share of the global fuel cell market to Germany, South Korea, Japan, and perhaps China. Unfortunately, this is a story that the United States knows all too well. For example, in solar and wind, the United States had an early advantage, only to see its leadership position fade away to Europe and China. Some of this is due to forces beyond government control, such as China’s significantly lower manufacturing labor costs, but it was also the result of a lack of sustained government commitment in the United States. By contrast, the Chinese government developed a long term strategy to create a successful domestic solar industry and provided sustained support for adoption and for solar companies. For example, through innovative financing mechanisms.

Could we see this story repeated with the fuel cell industry? There are differences. For one thing, the United States already shares the front stage with several other countries such as Germany, Japan, and South Korea. Still, the U.S. Department of Energy’s fuel cell vehicle development program was the standard for this industry, but has now been all but abandoned under the Obama administration. Even more worryingly, the administration seems to view cars as the sole measure of fuel cell technologies, even though, as my colleague Kerry-Ann Adamson pointed out, fuel cell cars are going to be one of the last to go fully commercial while applications such as powering base stations are seeing real traction.

If the U.S. government is stepping back on fuel cells, governments in Germany, Japan, South Korea, China, and Scandinavia are stepping forward with long term subsidies and other support. This could mean not only that the United States will fall behind in developing a domestic fuel cell market, but also that U.S. companies will have trouble exporting into these foreign markets. For example, take Japan’s Large Scale Residential Stationary Demonstration program. This program, developed jointly by government and industry in the early 2000s, has subsidized thousands of mCHP units deployed by Japanese PEM companies. Now, these subsidies are shifting to adopters in order to spur demand. While US products can qualify for the subsidies, the Japanese companies have already formed local distributor partnerships, possibly squeezing out U.S. companies from the distribution supply chain. These partnerships also have an early foothold in the market so may gain a permanent “first mover” advantage.

I’ll admit, I am not entirely comfortable with the idea that the U.S. fuel cell industry must have direct government support in order to succeed. There can be something of an unspoken assumption in the clean energy field that these technologies have a “claim” to taxpayer support. Certainly, fuel cell technologies have to prove that they offer a real value proposition and companies need to be able to transition from technology development to sales, production, and service. But it is also realistic to note that conventional energy receives significant subsidy in the US, and that even well-managed, nimble new technology companies face a very real challenge in crossing the “valley of death”, something that programs like Japan’s residential stationary fuel cell program acknowledge and seek to address.


Launch of Rocky Mountain Institute’s RetroFit Depot

— January 27, 2011

This past Friday Rocky Mountain Institute, a leading think tank that engages with the building, energy, and transportation sectors to drive the efficient and restorative use of resources, launched a groundbreaking website to accelerate the retrofit industry in the United States. Through its larger RetroFit Initiative, RMI has been working with its client partners to test the waters for deep retrofits on actual projects. With the launch of the RetroFit Depot, the results of these projects are now available to the public. RMI’s RetroFit Depot is a unique resource that will serve as a clearinghouse for information that builds the business case, how-to best practices, and tools designed specifically to help building sector stakeholders achieve deep retrofits. “With these tools and resources in place,” says Victor Olgyay, RMI Principal, “building industry stakeholders will be in a much stronger position to pursue deep retrofits.”

What exactly are “deep retrofits” and how do they differ from the retrofits we typically see today? In a nutshell, deep retrofits are energy efficiency retrofits that improve the economics of efficiency and achieve bigger energy savings (and other benefits) at equal or lower cost compared with typical retrofits. A deep retrofit can achieve much more dramatic energy savings (more than 50%) than conventional, “shallow” retrofits.

That may sound too good to be true, but the reality is that many building industry professionals report that they are already engaging in deep retrofits and are interested in seeing more of them. That was the result of a recent study that Pike Research conducted on behalf of RMI.

However, the study also revealed that building ownership entities and financial institutions lack informational resources that would help assess the true value of deep energy efficiency retrofits. In addition, the study revealed that the technical limitations of qualified energy modelers and perceived high up-front costs of whole-systems energy modeling are barriers that must be overcome before deep retrofits can be rolled out on a broader scale. (A white paper discussing the findings of the study can be downloaded here.)

With a clear sense of the market’s needs in mind, RMI developed a set of unique tools and other resources including an energy modeling toolkit, a tool for lifecycle cost assessments and an integrated design checklist that, together, will help building owners and engineers undertake deep retrofits smoothly and cost effectively.

In addition, RMI has published the results of several successful deep retrofit case studies including the Empire State Building and the Byron Rogers federal office building in downtown Denver. These resources and tools will help building industry stakeholders with not only the “why” of deep retrofits but also the “how”. “As a ‘think-and-do’ tank that not only researches solutions to the building sector’s energy challenges but also puts them into practice in real-life projects,” adds Olgyay, “we both understand the industry’s needs and can develop unique resources to address them.”

These resources are now available to the people that hold the keys to deep retrofits, such as energy service providers, energy modelers, property owners/managers, and others. RMI is also working with a number of industry partners in the building systems and real estate sectors to develop useful content going forward. As RMI engages in a greater number of proof-of-concept, deep retrofit consulting engagements, the tools and resources available on the RetroFit Depot website will continue to grow.

Pike Research projections show that retrofits for commercial buildings in the U.S. could save over $41.1 billion per year in energy costs. With deep retrofits, the U.S. could save even more energy and money in the long term, and we applaud RMI on the launch of the RetroFit Depot.


Fuel Cells Should Be Part of the Mix in Push for U.S. Cleantech Exports

— January 26, 2011

Once again, the need to increase U.S. exports has been a major topic in the U.S. news. Several coinciding events pushed the topic to the headlines again last week: The visit to the United States of China’s president Hu Jintao; President Obama’s pending State of the Union speech; and the ongoing stream of Q4 2010 economic data.

Much of the year end economic numbers are positive, showing the U.S. economy making tentative, but increasingly firm, steps toward revival. But job growth is still much slower than the U.S. public and U.S. politicians want. President Obama is clearly planning to make job growth a central policy aim for 2011. It is expected to be a major theme for his State of the Union speech and he has been previewing it in the weeks leading up to the speech. And the Chinese state visit served as a concrete reminder to Americans of the major competitor to US economic dominance as well as a huge potential market for U.S. goods and services.

As part of this focus on job growth, both near and long term, the administration is spearheading a new Renewable Energy and Energy Efficiency Export Initiative. This was announced to relatively little notice in December, although the Commerce Secretary did post about it in the White House blog (there’s a sentence I wouldn’t have imagined writing ten years ago) and is a natural follow-on to the billions in stimulus package support for new energy technologies. The initiative is designed to help US renewable and energy efficiency industries increase exports by providing new financing options, overcoming barriers for U.S. technologies in foreign markets, and providing trade promotion opportunities.

Eligible technologies are renewables, which are not defined to include fuel cells, and a range of energy efficient products. While fuel cells are not mentioned there either, I would hope they would be included categories like combined heat and power. The Board of Directors does include a fuel cell company – FuelCell Energy, whose fuel cells can run on biomass – so I am hopeful that fuel cells will not be left out. But it is not clear if only fuel cells running on biomass or perhaps electrolysis-produced hydrogen will count as renewable. This is an ongoing issue for fuel cells, as they are often left out of renewable energy policies like RPS standards.

It is too early to know whether this initiative will be sufficiently funded and managed to have a real impact, but U.S. fuel cell companies would do well to make sure that their interests are being considered. It will also mean that the fuel cell companies will have to show that they have a real product, ready for prime time, and that they understand how to deliver and service said products, not simply pursue R&D.

As with wind and advanced batteries the United States faces stiff competition from countries like South Korea, Japan, and Germany that are implementing aggressive fuel cell industry roadmaps. With my next blog I will talk about the risk the United States faces in losing its position in the global industry and why export barriers for U.S. companies may lie more in these countries’ commitments to building a domestic industry, not direct trade barriers.


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