(Published by Thomson Reuters Point Carbon)
LONDON, March 4 - U.N. offsets earned from cutting industrial gas emissions could still find their way into the EU ETS after May 2013, despite the EU banning their use in January, according to an EU policy officer.
The European commission official told Point Carbon News this week that the bloc is examining the possibility of allowing companies to use carbon credits from cutting nitrous oxide emissions (N2O) at adipic acid plants under new bilateral deals.
"We are looking into sectoral crediting for N2O emissions ... Adipic acid could help to kick-start (sectoral crediting) and to gain experience on setting up the infrastructure ... probably easier than a bigger sector such as steel or energy could," Thomas Bernheim told Point Carbon News on the sidelines of an industry event this week.
"We still want a broader approach for sectoral crediting for sectors such as the steel and aluminum sectors, but the fact is adipic acid is a much smaller sector where the monitoring has been done in a very extensive way already."
The move would mean companies regulated under the ETS will be allowed to use the same type of N2O credits that are currently barred from the scheme's third phase (2013-2020) to help them meet their carbon caps.
The EU in January decided from May 2013 to ban its companies from using offsets sourced from cutting emissions at HCFC 22 and adipic acid clean development mechanism (CDM) projects due to concerns over their environmental integrity.
However, far fewer adipic acid offsets could be imported under any bilateral pact than the CDM as stricter EU benchmarks would be applied, Bernheim said.
Green group CDM Watch said it did not oppose the idea provided tougher benchmarks were used.
"It's something that's obviously on their agenda ... but our concern is that the benchmark they use is rigorous enough not to lead to a situation where millions of fake credits are being created," said Natasha Hurley of CDM Watch.
"We don't want the mistakes of the CDM to provide a blueprint for future mechanisms."
CDM Watch last year said profits from selling N2O credits were so big that in some cases they subsidized adipic acid production costs to below zero, giving CDM plants a large competitive advantage.
This, and the noted subsequent shift in adipic acid production to CDM plants from non-CDM plants, were the main reasons for the EU's post-2012 ban on the credits.
Bernheim, who sits on the executive board of the CDM, said N2O adipic acid credits generated under the CDM post-2012 could also be given the green light for use in the EU ETS once again, provided similar benchmarks are adopted by the CDM, although he acknowledged this was unlikely.
While bilateral pacts between the EU and large developing countries, such as China and India, could theoretically allow project developers to continue to invest in emission reduction schemes with greater certainty, any such deal may come too late for investors.
"We are still looking at projects that can be registered before 2012 and of course we're keeping an eye on post-2012 developments," Giuseppe Montesano of Italian utility Enel said this week.
"But given the current situation ... increasing our portfolio is not at all likely."
Montesano said Enel has a pre-2012 CER portfolio of 185 million units and a pre-2020 portfolio of 200 million.
His views were echoed by other project developers.
"We currently do not do any investing in (CDM) projects that will not register before 2012," said Rick Kwan, head of portfolio management at Climate Change Capital.
"We're still seeing a lot of opportunities out there right now, but perhaps not at the right prices ... The ability to do an investment now is extremely limited to those that can be done efficiently and are priced to a level that can compensate for the incredible amount of risk in the market right now."