EU Should Consider JI Carbon Offset Limits for 2013, Groups Say

The European Union should consider controlling the use of some Emission Reduction Units in the third phase of its carbon market, the world’s largest, said research groups including the Stockholm Environment Institute.

ERUs stem from the Joint Implementation mechanism of the 1997 Kyoto Protocol and some are governed by nations with weaker rules than those overseen by the United Nations, the groups said in a report published Dec. 16 on the EU’s website. Phase three of the EU market begins in 2013.

In a separate report, the four research groups said the EU lawmakers may consider banning or discounting emission credits generated by large hydropower projects in the Clean Development Mechanism because the projects may have proceeded even if they didn’t receive approval to earn the credits. The four groups are the Stockholm institute, AEA Technology Plc, the Centre for European Policy Studies and CO2logic.

The EU said Dec. 15 it doesn’t plan to propose “anytime soon” any ban on UN Certified Emission Reduction credits from large coal and hydropower projects or on some offsets from the UN’s Joint Implementation program.

“While the CDM carries great promise in delivering cost- effective greenhouse gas emission reductions in developing countries, it has also given rise to criticisms and concerns about some project categories,” Jos Delbeke, director general for climate action at the European Commission, said Dec. 16 in a note on the EU’s website.

Further improvements to the CDM are necessary, he said. The research published by the four research companies can help guide future rules governing the CDM, which has instigated a review of itself, he said.

‘Further Action’

“Depending on the outcome of this policy dialogue, we may consider further action in Europe to potentially restrict the use of certain project categories, like we did earlier this year for industrial-gas credits,” Delbeke said.

UN CER credits for December next year rebounded 5.8 percent today and were at 4.36 euros as of 5:19 p.m. in London on the ICE Futures Europe exchange. They’ve dropped 61 percent in the year to date.

The probability that EU regulators may ban CDM emission credits from large hydropower projects has increased after the publication on Dec. 16 of consulting reports singling out those plants as contentious, Trevor Sikorski, an analyst at Barclays Capital in London, said today in an e-mailed research note.

Regulators of the Joint Implementation are already proposing changes that may help improve the strength of that program, said Lennard de Klerk, chairman of the JI Action Group, which represents project developers.

‘Don’t See Need’

Ukrainian and Russian projects are already using registered verification and certification firms, de Klerk, who is based in Utrecht, the Netherlands, said today by phone. The projects are generally monitoring and measuring reductions and not relying on estimates, he said. “So we don’t see a need for banning any JI credits before the JI reform is completed.”

Assuming Russia does not change its mind and declines to take part in a second Kyoto compliance period, it may have to stop supplying ERUs after 2012, de Klerk said. “I would expect Russia may not be able to issue ERUs,” he said.

“I think it’s a misrepresentation that Russia will issue ERUs out of nothing next year. It takes 2 to 3 years” to implement a project and start getting credits, de Klerk said.

To contact the reporter on this story: Mathew Carr in London at m.carr@bloomberg.net

To contact the editor responsible for this story: Stephen Voss at sev@bloomberg.net