EU Ban Leaves Buyers Holding 144 Million Homeless Carbon Credits

Companies holding United Nations carbon offsets equivalent to 7 percent of the European Union’s annual emissions cap risk losing their investment unless they find a buyer for the credits the bloc banned earlier this year.

Power stations and factories in the EU’s emissions-trading system still hold 144 million of the UN offsets after surrendering 552 million in the five years through 2012, EU data compiled by Bloomberg show. The bloc banned the use of credits awarded to projects that destroy nitrous oxide and hydrofluorocarbon-23, two powerful greenhouse gases.

The UN’s Clean Development Mechanism awards Certified Emission Reductions, or CERs, to projects in developing countries that reduce climate pollution. The projects can sell the offsets to buyers in cap-and-trade markets such as Europe’s, who use the credits to cover emissions, or to governments seeking to meet Kyoto Protocol emissions targets.

The banned credits, known as grey CERs, will “either end up in the hands of the sovereigns, or they become worthless,” Trevor Sikorski, an analyst in London at Energy Aspects Ltd., said by e-mail May 16. “With market prices where they are, one should be able to pick up an issued grey CER spot for 10 euro cents or so.”

Demand Outlet

Australia and New Zealand also banned the industrial gas CERs, which means the only current demand outlet is developed country governments that must surrender Kyoto permits or offsets to match their discharges for 2008 through 2012. This compliance, known as the Kyoto “true-up”, will take place by March 2015, according to UN rules.

Front-year CER futures have plunged 98 percent from their peak in July 2008 to 39 euro cents a metric ton on London’s ICE Futures Europe exchange.

The UN’s CDM issued a total 696 million of industrial gas offsets through last month, along with about 500 million credits to wind farms, hydro dams, biomass plants and energy efficiency initiatives. Each CER represents one ton of carbon dioxide.

Analysts including Matthew Gray at Jefferies Group Inc. in London had expected more of the banned offsets to be surrendered to the EU before they lost their eligibility. Gray forecast that 600 million CERs would be given up to the European Commission, the market’s regulator. Factories submitted 501 million of the credits in 2012, according to EU data released May 2.

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