Japanese firms eye Hungary's carbon credits

BUDAPEST/LONDON (Reuters) - Hungary held talks on Monday with a large London-based trading firm representing Japanese companies over the sale of Kyoto emissions rights, a Hungarian environment ministry official said on Tuesday.

According to the ministry, the London trading house said the four Japanese firms it represented were interested in Hungary’s sovereign emissions rights called Assigned Amount Units (AAUs).

Under Kyoto, governments that are comfortably under their emissions targets can sell the difference in the form of AAUs to other countries not able to meet their targets.

“These were small amounts, 1-2 million (tonnes of carbon dioxide),” said the ministry’s cabinet chief Jozsef Molnar.

He said the ministry informed the trading firm that the government would only decide on a sale after consulting with parliamentary committees.

“Now it will ask the Japanese buyers whether they will maintain their interest if publicity is bigger than usual,” Molnar added.

The Hungarian government has been criticized this month for selling 800,000 ‘recycled’ Certified Emissions Reductions (CERs), which Hungarian firms had already submitted to cover their greenhouse gas emissions under the European Union’s Emissions Trading Scheme.

Hungary said it intended to sell the CERs, which fetch a higher price at the market than AAUs, to Japan and retire the equivalent number of AAUs. Such a transaction is legal, exploiting a loophole under Kyoto, but it renders the CERs invalid for compliance in the EU scheme.

Molnar said 7,000 CERs were traded over Paris-based BlueNext

last week, a move that prompted the emissions exchange to suspend spot CER trading.

Molnar also said that another Japanese firm had contacted the ministry over the country’s 140 million AAU surplus.

Hungary says it has some 1 million more surrendered CERs to sell, but it requires stronger guarantees that they will not end up in the European market again before it sells them.


Both market and media attention is now focused on how the 7,000 recycled CERs appeared on BlueNext.

Hungarian Energy Power kft bought the CERs from the ministry for between 9-9.5 euros, selling them onto London-based Microdyne Ltd.

Microdyne was unavailable for comment this week but in a letter to HEP last week seen by Reuters it said it advised its unnamed Hong Kong-based buyer that the CERs were recycled.

Deutsche Bank was among the initial bidders for the Hungarian CERs but Molnar said a deal never went ahead.

A spokeswoman for the bank said this was because the deal was not acceptable under its due diligence rules.

“We absolutely did not purchase or facilitate the purchase of those CERs,” she said.

The bank declined to comment on whether it had bought any of these CERs further down the chain.

A trader requesting anonymity said a few London-based trading firms which had unwittingly bought recycled CERs over BlueNext were weighing their legal options, awaiting further action from the EU Commission or reimbursement from BlueNext.

Asked whether it will unwind trades or reimburse buyers, BlueNext spokesman Keiron Allen said: “We are working very hard to understand the complex picture of what has happened and as this market needs certainty, we will take appropriate action.”

Additional reporting by Michael Szabo in London; editing by James Jukwey