March 4 (Bloomberg) -- The European Union should ban the use of United Nations-approved carbon offsets from its emissions-trading system, or ETS, by 2020, an environmental group said in a submission to the European Commission.
Regulators should also restrict the use of some other carbon credits “as soon as possible” to help tackle a glut of permits in the bloc’s carbon market, according to Carbon Market Watch, an environmental lobby group based in Brussels.
“The use of Kyoto offset credits in the EU ETS was originally meant to be a cost-containment tool to allow ETS operators to choose the most cost-effective manner for greenhouse gas abatement at company level,” the group said in the submission to the European Commission dated Feb. 28 and published on its website. “Exceptional macro-economic developments and the fact that emissions have been substantially lower than the cap rendered the quantity limit of international credits in the period 2008 to 2020 too generous.”
Carbon has plunged more than 85 percent in the past five years as the euro area’s second recession since 2008 cut industrial demand for permits. The market’s surplus almost doubled to 887 million tons last year, Bloomberg New Energy Finance in London estimated on Feb. 4. Preliminary data for 2012 will be published in April.
UN Certified Emission Reductions were unchanged at 34 euro cents a ton on ICE Futures as of 3:10 p.m. London time. They fell to a record 28 euro cents on Jan. 21. Prices for EU allowances for December gained 1.7 percent to 4.74 euros ($6.16) a metric ton on London’s ICE Futures Europe exchange.
The use of UN offsets will represent nearly two-thirds of the market’s surplus by 2020, Carbon Market Watch said. By removing their eligibility after 2020, the EU would encourage allowance prices to rise, enabling more emissions cutting in Europe, it said. The so-called Phase 4 of allowance trading starts in 2021.
“In order to create the necessary scarcity in Phase 4, external international credits must be avoided,” the group said.
The European Commission is seeking public comment on a report outlining options for long-term changes to its emissions market to tackle oversupply and low permit prices.
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