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EU Factories Used Fewer Carbon Offsets Than Expected in 2012

May 2 (Bloomberg) -- Factories and power stations in the European Union surrendered 500 million carbon offsets to cover emissions last year, 20 percent less than analysts estimated.

The amount of United Nations-sponsored Certified Emission Reductions and Emission Reductions used in the EU’s carbon-market program was almost double the 254.6 million credits submitted in 2011, according to data published by the European Commission. The median estimate of five analysts surveyed by Bloomberg News was 600 million.

The credits, awarded to projects that cut greenhouse gases, are a cheaper form of compliance to cover the 1.79 billion metric tons of carbon dioxide released in 2012 and were used to offset about 28 percent of emissions. The lower-than-expected use of UN credits reflects weakening prices for EU permits as well as reduced expectations that the commission may postpone issuing some allowances to boost prices, Matthew Gray, an analyst in London at Jefferies Group Inc., said by e-mail.

“If companies were expecting regulatory intervention some time between 2013 and 2020 they would have kept more allowances in reserve and used as many offsets as possible, especially those offsets from projects banned after 2012,” he said.

Offset use has surged as credits for emissions of hydrofluorocarbon-23 and nitrous oxide, byproducts in the making of refrigerators and nylon, lose their eligibility in the EU market at the end of the second phase of the market, which ran from 2008 through 2012. These credits make up about half the total supply of offsets.

Third Phase

Total use of CERs and ERUs in the five years through 2012 was 1.055 billion tons, according to EU data compiled by Bloomberg New Energy Finance. That leaves a total offset quota of about 580 million tons during the third phase of the EU market, the eight years through 2020, Richard Chatterton, an analyst in London at New Energy Finance, said by e-mail.

UN CERs for December advanced 3.9 percent to 27 euro cents ($0.35) a metric ton on London’s ICE Futures Europe exchange today. They have fallen 94 percent over the past year.

The low price means the cost of monitoring and verifying emission reductions can be more than developers of carbon-reducing projects make from selling the credits, James Cooper, an analyst at New Energy Finance in London, said in April.

‘Naturally Limited’

“So many CERs have been issued that the offset limit of around 600 million tons for the eight years through 2020 could largely be met by already-issued allowances,” Trevor Sikorski, head of natural gas, coal and carbon in London at Energy Aspects Ltd., said by e-mail. “CER prices remain naturally limited to around the cost of issuance, as the incentive remains on most active projects to still undertake the emissions reduction and just hold off getting issued.”

The EU’s carbon program covers about 12,000 installations. Each country sets its own limit on the use of offsets ranging from zero in Estonia to 20 percent in Germany.

UN CERs and ERUs represent the reduction of one ton of carbon-dioxide equivalent.

To contact the reporter on this story: Alessandro Vitelli in London at

To contact the editor responsible for this story: Lars Paulsson at

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