Carbon offsets could swamp EU carbon price -report

LONDON, Nov 25 (Reuters) - A ballooning global supply of carbon offsets could flood the European Union’s emissions market and dent prices, according to a report to be published next month by Britain’s Carbon Trust.

EU member states, lawmakers and the EU executive Commission are in negotiations now to revamp the bloc’s emissions trading scheme (ETS) from 2013-2020, and face a mid-December deadline.

The EU ETS is the cornerstone of European climate policy. It distributes to industry a fixed quota of carbon emissions permits, which trade at a certain carbon price.

The scheme allows companies a cheap alternative way to meet their carbon caps, buying carbon offsets from developing countries, funding emissions cuts there instead.

A global offset glut may require tight import limits to maintain the edge of the EU scheme in driving domestic emissions curbs, the Carbon Trust’s Chief Economist, Michael Grubb, said on Tuesday.

“The implication is the only way you have a carbon market at all is to have a fortress Europe,” he said, speaking at a conference in London organised by The Institue of Economic Affairs and Marketforce. That assumed that the United States, Japan and Australia didn’t collectively introduce ambitious cap and trade schemes which mopped up some of the carbon offset supply.

Some EU member states have expressed concerned in the present talks that the EU ETS will impose crippling costs on business entering a recession. Increasing the flow of carbon offsets would cut those costs.

The Carbon Trust is a government-funded agency which advises business and policymakers on how to cut carbon emissions.

The report estimates that under current trends the total global supply of carbon offsets from 2013-2020 will exceed 10 billion tonnes of avoided carbon dioxide emissions -- compared with a quota of EU carbon permits of 14.8 billion tonnes over the same period.

Such a volume poses a threat to EU carbon prices by potentially making it extremely cheap for industry to meet emissions targets, denting the impact of the scheme on driving low-carbon investments in Europe.

“It does have pretty strong implications for (EU carbon) price,” said Grubb, without commenting on the report’s price estimate. (Reporting by Gerard Wynn, editing by Anthony Barker)