UN Carbon Offsets Drop as EU Nations Near Vote on Restrictions

United Nations carbon offsets for 2013 swung to a discount against those for 2012 for the first time in a month on speculation that European nations may delay a proposed ban on some imported industrial gas credits.

UN Certified Emission Reductions for delivery in March 2013 reversed to a 9 cent discount compared with offsets for December 2013, according to the spread contract traded today on London’s ICE Futures Europe exchange.

Emission credits for December this year fell 0.1 percent to 11.13 euros a metric ton before a vote on the ban scheduled for Jan. 21. They are down 5 percent since Nov. 25, when the European Commission proposed restricting the use of UN offsets linked to hydrofluorocarbon-23 and nitrous oxide from adipic acid production in the EU cap-and-trade system, the world’s largest, as of Jan. 1, 2013.

“The market moves yesterday afternoon and today seem to suggest the market expects the ban to start May 1,” said Alessandro Vitelli, director of strategy and information at IDEAcarbon in London.

More than 11,000 facilities in the European cap-and-trade program can now use UN offsets as a cheaper way to comply with their pollution quotas. The commission, the EU regulator, has said that credits related to the two industrial gases may create windfall profits for investors and undermine the integrity of the carbon market.

The ban would affect credits from the UN Clean Development Mechanism, the world’s second-biggest emissions market, and the Joint Implementation program. The CDM-supervised credits are awarded to investors in projects that cut greenhouse gases in developing nations.

Vote This Week

The EU Climate Change Committee, including representatives of the bloc’s 27 national governments, is due to vote on the commission proposal this week after having a first discussion in December. The measure will then be subject to a three-month scrutiny by the European Parliament and member states before it is officially adopted by the commission.

National governments showed “broad support” for the proposed ban and “are not discussing whether to do this but when to do this,” EU Climate Commissioner Connie Hedegaard told a hearing in the European Parliament in Brussels on Jan. 12.

The current five-year period in the EU emissions trading program ends in 2012 and the deadline for surrendering allowances for that year is the end of April 2013. The system will be in its third phase in the eight years through 2020.

Biggest Emitter

The International Emissions Trading Association called last year on the commission and the EU governments to consider delaying the planned ban to May 1, 2013, and provide for banking of international credits from emission reductions achieved up to Dec. 31, 2012.

EU member states, as well as Europe’s biggest emitters, remain at odds over the implementation date.

Germany’s emissions trading authority DEHSt proposed in a letter to the commission last year that “the EU should give a clear signal to the market and exclude disadvantageous project types from the CDM in the third phase of the ETS.” Italy’s biggest utility Enel called on the regulator to limit the scope and delay the start of the planned ban.

Hedegaard said last week that the commission was sticking to its position on starting the ban on Jan. 1, 2013. This date may be a challenge for some countries that don’t allow emitters to surrender offsets before they submit verified emission reports, a step that usually takes place later in the first quarter, said IDEAcarbon’s Vitelli.

Market Risk

If the deadline is delayed, the market will face a risk of banking of industrial gas CERs into the third phase of the EU program until 2020, according to him.

“If the ban starts any time after Feb. 28, which is the deadline for 2013 EU allowances be issued, then we have potential for 100 percent banking or swapping of all industrial gas CERs,” he said.

EU carbon permits for December 2011 delivery dropped 1.2 percent today to 14.44 euros a metric ton, hurt by closures of emission registries after Blackstone Global Ventures, a Czech carbon trader, reported about 6.9 million euros of allowances missing following a hacking attack.

The EU cap-and-trade system requires companies to have a permit for each ton of CO2 they emit, with those that exceed their quotas having to buy more allowances and businesses that emit less being able to sell their surplus.

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