EU likely to delay 2013 carbon offset ban: sources

LONDON Wed Jan 19, 2011 10:54am EST

LONDON (Reuters) - A European Commission plan to ban the most commonly used carbon offsets from its emissions trading scheme from January 2013 is likely to face delay under pressure from EU member states, sources close to the matter said.

A European Union vote is due on Friday on the timing of the ban, which would block factories and power plants from meeting emissions targets by paying for cuts in greenhouse gases from big industrial projects in China and India.

The projects, which destroy powerful greenhouse gases such as hydrofluorocarbon-23 (HFC-23) and nitrous oxide (N2O), have been criticised for providing developers with excessive profits and crowding out other projects such as those favoring renewable energy.

Last year, the Commission proposed to ban the use of such offsets from January 1, 2013 from its emissions trading scheme (ETS) under the U.N.-led Kyoto Protocol.

EU member states such as Italy, France, Britain, Germany and Poland want to see the start date pushed back to May 2013 or later. Some are under pressure from energy firms who want to protect their investments.

"It seems likely there'll be a move toward May 1 as an entry date. There is more than a blocking minority in favor of May 1," Simone Ruiz, EU policy director at the International Emissions Trading Association emissions trading lobby group, told Reuters.

PRESSURE

The EU's Climate Change Committee, made up of representatives from EU member states, is due to vote on the proposal on Friday. A blocking minority would require 90 votes out of 345.

According to environmental group Sandbag, 84 percent of all offsets surrendered into the ETS have come from HFC and N2O projects at a cost of around 1.6 billion euros ($2.1 billion).

"There is a broad acceptance that the phase-out is going to happen, but the Commission is looking at different dates," a source close to the matter told Reuters.

Companies are worried that a January ban would make carbon offsets dated from 2012 invalid, given that most do not submit allowances until the following April -- in 2013 in this case.

That could mean tens of millions of credits generated from reductions made in 2012 would be ineligible.

"Investors are pushing very hard for the right to use banned offsets well into Phase 3 of the EU ETS, which in substance would mean delaying the entry into force of the quality restrictions," said environmental group CDM Watch, which would weaken the impact of the ban.

A May start date would allow 30-40 million extra offsets to be used for compliance, according to analysts.

The Italian environment ministry said it did not agree with the EU Commission's proposal because it changed the rules, which undermined the certainty of investments.

"(...) The use of credits linked to realized (emission) reductions, should regard a period of at least until May 2014," the ministry added in a statement.

Britain wants new restrictions to avoid retroactive impacts on the current, second phase of the trading scheme from 2008 to 2012.

"This is why we have been raising the issue around the start date since the last Climate Change Committee," the UK Department of Energy and Climate Change said in a statement.

A Polish environment ministry source said Poland was in favor of a later start date but added that a blocking minority had not been formed yet, while Germany said it was flexible on the date.

"May 2013 would be okay as well as long as it's not years later," a German government source said.

(Additional reporting by Pete Harrison, Gerard Wynn, Gabriela Baczynska, Svetlana Kovalyova, Markus Wacket; Editing by Anthony Barker)

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