Under the EU emissions trading scheme (EU ETS), firms can meet a part of their emission reduction obligations by buying international offsets generated under the UN's Clean Development Mechanism (CDM) through cheaper emission reductions in developing countries.
But some projects destroying a potent greenhouse gas HFC-23, a bi-product of manufacturing the refrigerant gas HCFC-22, have recently come under fire, as environmental NGOs have alleged that they are playing the system by boosting their production with the sole purpose of cashing in on more credits.
"I have asked my services to prepare a proposal for a measure to introduce further quality restrictions on the use of credits from industrial gas projects in the post-2012 EU ETS," EU Climate Action Commissioner Connie Hedegaard said in a statement.
The announcement comes as the UN last week said it was reviewing requests from five Chinese HFC projects for millions of offset credits (EurActiv 23/08/10).
The EU executive is now preparing an impact assessment, Hedegaard said, inviting input from carbon market participants and others involved to help design the restrictions.
The move responds to demands from carbon trading companies, which have been urging clarity on what credits will be acceptable under the world's biggest carbon-trading scheme after 2012.
The Commission has been using its position as the biggest market for international offsets to push other countries into an agreement on overhauling the CDM as part of a new climate treaty, but Hedegaard now conceded that it is time to "strike the right balance between leverage and clarity".
"The CDM has been successful in some aspects but has also given rise to criticism, e.g. with regard to environmental integrity. As a first step towards a more advanced carbon market, the CDM therefore needs a major overhaul," the commissioner stressed.
The Commission's proposal will be published before the high-level climate conference in Cancún, set to take place between 29 November and 10 December, but it will only be formally adopted next year, a spokeswoman for the EU executive told EurActiv.
The International Emissions Trading Association (IETA) wrote to Hedegaard earlier this week asking for certainty over how the EU will treat international offsets after 2012, when the revised ETS enters into force.
"If new regulatory risks impact investments already made, new investors will not come in or support new mechanisms. This principle is key to building private sector confidence in any offset mechanism, and to stimulating and incentivising abatement projects," it wrote.
The advocate of carbon-trading companies called on the EU to ensure that if restrictions on the types of project that qualify are introduced, these are not retroactive and are based on objective criteria and stakeholder consultation.
