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UN Challenges Ineos Request for More Emission Credits

June 9 (Bloomberg) -- The regulator of the United Nations emissions market has challenged a request, the first of its kind, by Ineos Group Holdings Ltd. to get more greenhouse gas offsets from a Korean chemicals plant starting this year.

The plant at Uslan, South Korea, is seeking 2.2 million metric tons of credits annually in the seven years through 2016, 57 percent more than the 1.4 million a year in a 2005 proposal, according to a document published on the UN Framework Convention on Climate Change website. It’s the first request for an extension of crediting at a plant that combusts a potent greenhouse gas called hydrofluorocarbon-23, which can trap 11,700 times more heat per molecule than carbon dioxide.

Four of 10 directors for the UN Clean Development Mechanism have placed the project’s request on review, according to the UN website. They asked Ineos and its advisers to explain why the emission levels variance “was so different” following the board’s decision to register the project for the seven years through 2009, according to documents dated May 22 and 23.

The UN is questioning the suitability of emission-reduction projects as the U.S., Japan, Australia and other nations consider trading programs that might allow use of offsets for compliance. CDM offsets known as Certified Emission Reductions credits are currently used for compliance in the European Union’s carbon market, the world’s biggest.

‘Shooting Themselves’

Scrutiny and potential new UN restrictions will probably curb issuance slightly for HFC-23 credits through 2012, said Emmanuel Fages, a Paris-based analyst with Orbeo, a venture of Societe Generale SA and Rhodia SA. Total issuance of CDM credits may fall as much as 30 percent to about 381 million tons through 2012, Fages said yesterday by phone. That’s because limits could potentially curb HFC credits by as much as 60 percent, he said.

The cut will likely be much smaller, he said. Otherwise, “they would be shooting themselves in the foot because it would show they have been issuing when they should not,” Fages said.

The UN is considering changing its method of calculating how many credits HFC-combustion plants deserve, according to UNFCCC documents. HFC credits make up about half the total CDM supply since 2005.

“We are not running this to maximize CER credits,” said Richard Longden, a Lyndhurst, England-based spokesman at Ineos, which owns the HFC-23 combustion plant in Ulsan that receives gas from a plant owned by Foosung Co., the South Korean chemical compounds maker. Ineos is the U.K.’s biggest chemicals maker.

Demand for HCFC-22

The gas is a byproduct of one produced by Foosung known as HCFC-22, Longden said yesterday by phone. That gas is used for refrigerators and air conditioners. The increase in emission reductions from the combustion project is “primarily down to demand for HCFC-22,” Longden said.

The project has operated about 7 percent below a CDM limit in the three years through 2009, he said. The project was issued credits for about 1.9 million tons in the year through March 2009, UN data show. They would be valued at 25 million euros ($30 million) at today’s benchmark price of 13.03 euros a ton, according to data from the European Climate Exchange in London.

The European Commission, regulator of the EU program, said last month that projects related to two industrial gases -- HFC-23 and nitrous oxide - create significant windfall profits and may be banned after 2012. Proposed U.S. law bans HFC credits.

HFCs gained favor in the 1970s as an alternative to chlorofluorocarbons, or CFCs, which scientists linked to depletion of the ozone layer. While HFCs don’t interfere as much with the earth’s shield against damaging sunrays, they trap heat and contribute to global warming.

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

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