Recent problems in Europe's carbon markets are lessons from which Australia should learn when it devises any emissions trading scheme.
Another area of focus for the legal session at the AGM was the significant uncertainty in the future of carbon trading post-2012 in Europe arising from the future expiration of Kyoto Protocol combined with the absence of any successor scheme to replace it.
ISDA acknowledged that it will be a difficult task to restore confidence and liquidity in the markets with no clear industry standard documentation to allow for Phase 3 EU Allowance or Kyoto Unit trading.
Rising uncertainty in the EU carbon market has not been helped by the recent spate of phishing and cyber theft of permits from EU National Registries which have severely undermined confidence in the market. It was noted that enhanced IT security measures are required across all Member States National Registries including improved "know your client" (or KYC) processes on new and existing accounts which market participants should be individually responsible for.
In Australia, as both political and public momentum for an Australian emissions trading scheme is building, we should consider in respect of any future scheme that we ensure sufficient security measures are implemented and a strong and robust regulatory regime exists so that Australia can avoid the same problems encountered by the European carbon markets.
This might include, for instance, legislative provisions acknowledging carbon instruments as negotiable instruments under which a registered holder for value without notice of a prior fraud could obtain good title without the need to prove a chain of title all the way to the original holder of the instrument.