Hungary to hold talks on Kyoto offset sales

Hungarian oil and gas group MOL's main Duna (Danube) refinery is seen in Szazhalombatta, 20km (12miles) south of Budapest, in this January 8, 2007 file photo.

BUDAPEST/LONDON (Reuters) - Hungary will hold talks this week over the potential sale of more Kyoto carbon offsets, the Hungarian environment ministry said on Monday.

Budapest will hold talks with a London trading house on Monday over the sale of sovereign emissions rights called AAUs, Hungary's environment ministry chief Jozsef Molnar told a Parliament hearing on Monday.

The ministry has also scheduled talks with a large Japanese trading house later this week about AAU and potentially certified emissions reduction (CER) sales. Hungary has in total around 140 million AAUs to sell.

"Interest in our CERs has increased as we got publicity recently," Molnar said.

On March 11, Budapest agreed to sell around 1.8 million CERs which Hungarian companies had already used to offset against their emissions in the European Union's emissions trading scheme (EU ETS), saying it would put aside the equivalent number of AAUs.

That deal allowed Budapest to benefit from a higher price for CERs compared with AAUs, whose trade is also much less liquid and disparaged by some environmentalists as "hot air."

Such used CERs are invalid as carbon offsets in Europe and the EU executive Commission on Thursday amended trading rules to stop them from re-entering the EU carbon market.

When some recycled CER units appeared on the Paris-based emissions exchange BlueNext, spot CER trade was suspended.

EXCHANGE

Molnar said on Monday that some 7,000 used CERs found their way onto the BlueNext exchange last week.

He repeated that Hungary will not sell any further CERs before being guaranteed they will not return into the EU ETS.

Last week, Hungary said it sold 800,000 CERs at 9-9.50 euros ($12.16) a tonne to a Hungarian trading house called Hungarian Energy Power kft, after Hungarian companies had already submitted these against their emissions targets, with the understanding that they could not be re-used in the EU scheme.

The Budapest trade was legal, exploiting a loophole under the U.N.-backed Kyoto Protocol, but it would be illegal for a company to count the permits against their emissions in Europe, making them invalid there.

Hungarian Energy Power kft said it received a letter from UK buyer Microdyne Ltd, which said it made sure its Hong Kong-based buyer knew the CERs could not be re-used in the EU ETS. Hungarian Energy Power forwarded the letter to Reuters.

Microdyne was not immediately available for comment.

The focus is now on the identity of the trading firm which had subsequently sold the CERs without a buyer beware warning, leading them to appear on BlueNext.

BlueNext has so far declined to name the company.

(Writing by Nina Chestney; Editing by Sue Thomas)