Carbon trade lobby calls for rule clarity from EU

LONDON (Reuters) - An emissions trading lobby group has called for the European Commission to clarify rules on UN-backed carbon offset use in the third phase of its emissions trading scheme in order to boost ebbing market confidence. In an open letter to EU Climate Commissioner Connie Hedegaard on Tuesday, the International Emissions Trading Association urged the commission to rule the number and types of offsets that scheme participants can use between 2013-2020 should the bloc adopt a deeper 2020 emissions cut target.

"A vital principle of private financing appears to have been lost: the need to guarantee regulatory certainty and business continuity for investors," said IETA President and CEO Henry Derwent.

The EU is currently considering whether to raise to 30 percent its current pledge to cut greenhouse gas emissions by 20 percent below 1990 levels by 2020. A decision is due in the autumn.

Key to either goal is the bloc's trading scheme. Firms must submit permits for their emissions, but they can also use cheaper offsets, which are generated through investment in low-carbon clean energy under the Kyoto Protocol's Clean Development Mechanism (CDM), for part of the requirement.

The EU is mulling restricting the use of some types of CDM offsets from 2013 as well as barring those from developing countries that lag in their carbon-cutting efforts.

IETA, which wants clarity on these rules, warned that ongoing uncertainty would lead to a further reduction in private sector investment in the CDM.

"The only existing mechanism to incentivise private sector low-carbon investment in developing countries is the CDM," Derwent said. "The EU has been key for the development of the CDM. Yet largely as a result of decisions taken or expected by the EU, market confidence in the CDM is at very low ebb."

IETA also wants the EU to introduce new market mechanisms including green bonds and carbon offsets for nuclear energy, avoided deforestation and plants that capture and store greenhouse gas.

(Reporting by Michael Szabo; Editing by Jane Baird)