Jan. 21 (Bloomberg) -- The European Union decided to ban the import of carbon credits linked to certain industrial gases as of May 2013, delaying by four months the starting date for the curbs in the world’s largest greenhouse-gas market.
The agreement by the EU’s 27 national governments targets energy and manufacturing companies’ use of United Nations-sponsored offsets linked to hydrofluorocarbon-23 and some nitrous oxide credits. The decision to push back the Jan. 1, 2013 date proposed by the European Commission, the EU’s regulatory arm, widened the discount of March 2013 offsets.
The EU said the credits facing the ban, generated for reducing emissions of the industrial gases, offer “exorbitant” return rates, can create a “perverse incentive” for investors and undermine the market’s integrity.
“Our aim is not to reduce the number of credits available but to ensure the international carbon market is based on a better quality and distribution of credits,” European Climate Commissioner Connie Hedegaard said in a statement published today in Brussels.
More than 11,000 power plants and factories in the EU carbon system may use UN credits as a cheaper way to comply with their pollution quotas. Regulators around the world are clamping down on HFC-23, whose warming potential is 11,700 times more powerful than carbon dioxide. Officials at the UN carbon market in November called for a revision of its procedures.
The EU emissions-trading program, known as ETS, is a cornerstone of European efforts to tackle the heat waves, storms and floods tied to climate change. The current five-year phase in the system ends in 2012 and the deadline for surrendering allowances for that year is the end of April 2013.
The delay of the ban is in line with calls by the International Emissions Trading Association, which urged the commission and the EU governments to delay the starting date to May 1, 2013.
Some companies in the European cap-and-trade system, including Italy’s biggest utility, Enel SpA, called on the regulator to limit the scope and delay the start of the ban.
“The agreement means that any UN credits issued between January 2013 and the end of April 2013 can still be used for 2012 compliance,” Peter Zapfel, head of policy coordination at the commission’s climate department, said by phone. “The difference between the final date for compliance that we suggested and the one that was approved is -- according to different analyst estimates -- 30 million to 40 million credits more.”
The discount of UN carbon offsets for March 2013 against those for December 2012 widened by 5 cents to 14 euro cents as of 4:46 p.m. on London’s ICE Futures Europe exchange.
The ban will apply to UN credits linked to HFC-23 and nitrous oxide from adipic acid production from the Clean Development Mechanism, the world’s second-biggest CO2 market, and the Joint Implementation program. The measure will be subject to a three-month scrutiny by the European Parliament before it’s officially adopted by the commission.
The 23 projects that cut HFC-23 and nitrous oxide from adipic acid production registered under the CDM account for two-thirds of all credits generated by the mechanism, according to the commission data. Most of them are located in China and other developing countries.
In the 2008-2012 trading period, emitters in the European program can swap as many as 1.6 billion UN credits with EU permits on a one-for-one basis. The EU average annual emissions cap for that period is 2.04 billion metric tons of carbon dioxide, valued at nearly 30 billion euros at today’s prices. One permit represents one ton of CO2.
“Today´s vote marks an historic victory for environmental integrity over financial interests and puts the EU ETS back on the right track,” said Natasha Hurley, EU policy adviser at environmental lobby group CDM Watch. “While we welcome the outcome of today´s vote, it’s unfortunate that member states were not entirely immune to pressure from a small group of investors who lobbied hard to extract as many concessions as possible throughout this process.”
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