UN Developed-Country Carbon Drops to Record on EU Ban Proposal

United Nations carbon credits for December slumped to their lowest ever after the European Union proposed to ban some offsets imported from countries including Russia unless they undergo additional checks.

UN Emission Reduction Units issued after 2012 from countries without new emission goals under the Kyoto Protocol may be held in the EU registry as long as it is certain they represent carbon cuts taking place before the end of last year, according to a draft regulation presented by the European Commission yesterday. ERUs for December plunged 61 percent, a record drop, to 20 euro cents ($0.27) a metric ton on the ICE Futures Europe exchange as of 11:59 a.m. in London.

The EU proposal seeks to ensure the world’s largest cap-and-trade market is closed as of this year to ineligible international offsets that would represent emission cuts made as of 2013 by nations without new climate goals. Emitters in the EU carbon market are allowed to use the credits as a cheaper way of complying with their pollution quotas.

“Russia and New Zealand would be immediately impacted by the proposed ban, but Ukraine could also become subject to the ban if its Parliament fails to ratify the second commitment period of the Kyoto Protocol,” Andrea Du Rietz, an analyst at New Energy Finance in London, said by e-mail today.

ERUs are generated under the UN Joint Implementation program, which encourages investments in low-carbon energy by industrialized countries in other nations that have emission goals under the Kyoto treaty. The first commitment period under the protocol expired in 2012 and the second will run from 2013 to 2020.

EU Vote

EU nations are scheduled to vote on the proposal included in a draft regulation on the bloc’s carbon registry on Jan. 23. Should it be approved, ERUs representing cuts made before the end of 2012 and approved by UN regulators for issuance under a process known as Track Two will be allowed to be held until March 2015, as envisaged in the existing law.

“If this proves not possible, they may be held if they are certified as corresponding to emission reductions before Dec. 31, 2012 by an independent entity accredited by the Joint Implementation Supervisory Committee,” according to the commission’s statement yesterday.

That means that ERUs representing emission cuts made in the 2008-2012 period and issued after last year by countries such as Russia in a procedure overseen by governments, known as Track One, will be allowed only if they are certified by one of 11 independent entities accredited to UN authorities, New Energy Finance said.

Not Verified

“According to UN data, a significant number of Track 1 projects in countries that didn’t join the second Kyoto period are not verified by those entities,” Du Rietz said.

The wording of the provisions related to ERUs raises some questions as it could suggest the project owner or some other participant would have to prove that verification under Track Two was or is not feasible at all, a step that is “just impossible,” according to Tuomas Rautanen, head of regulatory affairs and consulting at First Climate in Zurich.

“The text is to be law and every word counts,” he said by e-mail today.

The official proposal published yesterday is less stringent than an original draft that the commission was consulting with member states last year. In October the EU regulator sought to bar altogether emitters from holding ERUs issued after 2012 by countries that have national verification procedures and fail to adopt new Kyoto goals.

The commission last year was also mulling a provision to allow Track Two ERUs from countries without new emission goals in place as long as they were issued before the end of April 2013 in respect of emissions reductions which took place until 2012. Some member states voiced concerns over those plans, two people familiar with the matter said at that time.

Some sellers of ERUs may now roll their hedges forward from March to December 2013 contracts, according to New Energy Finance. The March contract, which earlier this month dropped to a record low of 10 euro cents on eligibility risk, closed at 11 euro cents on the ICE Futures Europe exchange yesterday.

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