EU bans disputed carbon offsets from May 2013

LONDON/BRUSSELS (Reuters) - The European Commission will ban the most common type of carbon offsets, mostly from China and India, for use in the EU emissions trading scheme (EU ETS) from the start of May 2013, it said on Friday.

“Essentially, the ban means that companies will be able to use these credits for 2012 compliance under the EU ETS until April 30, 2013, but not thereafter,” the Commission said in a statement.

Under the scheme, the emissions of power plants and factories are capped and carbon permits are traded between participants.

In an unrelated development, the Commission on Wednesday halted spot trade on the EU ETS for one week to improve security after the theft from national carbon registries, at least partly by computer hackers, of emissions permits worth up to 30 million euros ($40.6 million).

A committee made up of representatives from the 27-nation bloc voted on Friday in favor of the ban that 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 Commission originally proposed that from January 1, 2013 it should exclude from its scheme offsets from the potent greenhouse gas hydrofluorocarbon-23 (HFC-23) and nitrous oxide credits from the production of adipic acid, an industrial chemical used to produce nylon.

The projects have drawn criticism for awarding excessive profits and crowding out others, such as projects favoring renewable energy.

The offsets, called certified emissions reductions (CERs), are generated under a U.N. scheme, which rewards companies investing in clean energy projects in developing countries. A certain number of CERs can be used to comply with the EU’s emissions targets in the ETS.

The benchmark CER contract rose nearly 0.50 percent to 11.00 euros ($14.89) a tonne at 9:17 a.m. EST.

An earlier Commission statement, saying the ban would start in January 2013, was made in error, but prompted a 10 per cent spike in the price of CERs for 2013 delivery.


Some EU countries, such as Italy, Germany, France, Britain and Poland, had lobbied hard for the start date to be pushed back to May 2013 or later, under pressure from energy firms who wanted to protect their investments.

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

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

Those who had lobbied for the postponement welcomed the change of date.

“The change of entry into force (...) will allow market participants to honor contracts for delivery of offsets even in the face of U.N. issuance delays,” the International Emissions Trading Association said in a statement.

Both Italy and Britain said the compromise decision was an improvement on the original proposal.

However, environmental group CDM Watch said it was unfortunate that member states bowed to pressure from investors.

“Delaying the entry into force of the ban will open the door to an additional 52 million credits, equating to 676 million euros,” said Natasha Hurley, CDM Watch EU Policy Advisor.

The European Parliament now has three months to comment on the proposal, after which the Commission will formally adopt it.

Reporting by Nina Chestney and Pete Harrison; Additional reporting by Svetlana Kovalyova; Editing by Anthony Barker