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EU Mulls Allowing Carbon Offset Swaps From May, Draft Shows

The European Union is considering from May 1 allowing emitters to swap international carbon offsets into EU allowances eligible for compliance in the next phase of the region’s emissions market.

Manufacturers, utilities and airlines in the EU program will be able to request until the end of March 2015 to swap offsets generated for emission reductions before 2012, the European Commission, the bloc’s regulatory arm, said in a draft revision of the EU carbon registry regulation obtained by Bloomberg News. In the third phase of the EU emissions trading system, which starts next year, companies will need to exchange imported carbon-reduction credits into EU permits before surrendering them for compliance.

International credits for cutting greenhouse gases from 2013 onward would be exchanged until the end of 2020, the commission said. The measure has been submitted to member states for talks and needs approval from governments.

The EU law allows about 12,000 factories and power plants in the bloc’s emissions trading system to use United Nations offsets as a cheaper way to comply with pollution quotas. The rules of the program will tighten from next year when emitters will be permitted to use UN credits from new projects only as long as they are based in least developed countries.

The swapping allows companies with pollution limits in the world’s largest emissions cap-and-trade system to manage their eligibility risk, according to Konrad Hanschmidt, an analyst at Bloomberg New Energy Finance in London.

Remove Risk

“In return for an offset a company will receive an EU allowance that they do not have to immediately submit for compliance,” Hanschmidt said by e-mail today. “In essence that will remove the risk of holding credits that could become ineligible in the future.”

The EU will from May prohibit the import of offsets from projects linked to industrial gases hydrofluorocarbon-23 and nitrous oxide from adipic acid production under the UN Clean Development Mechanism, according to a ban approved in 2011.

The draft revision of the EU registry regulation would also impose limits on the use of some Emission Reduction Units, or credits generated under the UN Joint Implementation mechanism, the document showed. The commission proposed to bar from holding in the registry ERUs issued from 2013 for JI projects based in countries without binding post-2012 emission targets, according to the document.

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