EU may discuss use of sovereign CO2 permits in ETS

Mon Apr 23, 2012 7:45am EDT

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* Poland wants use of AAUs in EU ETS

* EU could be open to discussion 'at later stage'

WARSAW, April 23 (Reuters) - The European Commission could discuss the possibility of allowing Europe's emitters to use some government-held Kyoto carbon permits to meet caps under the European Union's emissions trading scheme, an EU official said on Monday.

Poland has called for Europe's biggest emitters to be allowed to use government-held Kyoto emission rights to meet carbon caps under the bloc's carbon market, a policy paper proposed last week.

The Polish paper said allowing AAUs to be used in the EU scheme would help Europe link its carbon market to those emerging in other countries, and could eventually help establish bilateral offset mechanisms with its neighbours.

So-called Assigned Amount Units (AAUs) are allocated under the U.N.'s climate pact, the Kyoto Protocol. Countries cannot currently use them to meet EU climate targets.

The Polish proposal faces opposition from some western EU nations as it is feared that if AAUs are used in the EU scheme, it could drive EU carbon prices further down, as they are currently trading near record lows.

"Global AAU supply is estimated at 10-15 gigatonnes while the size of ETS is 2 gigatonnes. That means if you bring that into the market, the price would immediately go to zero," Artur Runge-Metzger, the EU's chief climate negotiator, said at a conference in Warsaw.

"But inclusion of a fraction of the AAUs in the ETS could be discussed at a later stage," he added.

EU carbon prices have crashed by almost two-thirds over the past year as slow economic growth has crushed demand and supply of U.N-backed offsets, which can be used by ETS installations to cover around 10 percent of their emissions, has swelled.

Eastern European nations have built up a surplus of around 2.4 billion AAUs under the 2008-2012 Kyoto compliance period, and no decision has yet been made on how many of these units governments can use to meet post-2012 targets. (Reporting by Gabriela Baczynska; writing by Nina Chestney; editing by James Jukwey)

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