UniCredit Recommends Swapping UN Carbon Offsets Into EU Permits

UniCredit SpA recommended that companies in the European Union emissions-trading system swap EU allowances into international carbon offsets after the spread between those two widened to a record.

The cost of pollution in the European cap-and-trade system is likely to fall and the difference in price between EU emission permits and United Nations offsets is likely to narrow again, UniCredit analysts wrote in a research note yesterday. UN Certified Emission Reduction credits and Emission Reduction Units can be used by companies in the EU market for compliance with their pollution quotas.

“We therefore recommend participants in the EU Emissions Trading System to realize swapping activities now within their allowed quota,” the bank’s research team said. “However, it is important for installation operators to ensure that the received CERs/ERUs are eligible for compliance.”

The European Commission, the EU’s regulatory arm, proposed earlier this month in a draft regulation that ERUs from countries without new emission-reduction targets in place until 2020, and whose greenhouse-gas cutting projects are approved by UN regulators, would be allowed for use in the EU as long as they were issued before the end of April 2013, and covered emissions reductions achieved before the end of 2012, according to two people with knowledge of the matter.

CERs, generated under another UN mechanism, are not subject to any restrictions under the commission’s proposal.