Commission proposes ban on industrial gas offsets

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The European Commission yesterday (25 November) presented plans to ban the use of controversial international offset credits from certain industrial gas projects in the EU's cap-and-trade system after 2012.

The proposal would bar HFC-23, a refrigerant gas with a global warming potential 11,700 times that of CO2, from its emissions trading scheme (EU ETS) from 1 January 2013.

The ban would also apply to nitrous oxide credits from adipic acid production, used mainly to manufacture nylon.

Projects that destroy the potent greenhouse gas HFC-23, mainly in China and India, have so far produced the majority of international offset credits surrendered to the EU ETS. They have provided European companies with a cheap way to comply with their emissions reduction obligations.

The Commission said the restrictions would provide an incentive to reform the UN's carbon market mechanisms, which the EU sees as a prerequisite for their continuation. It would also remove obstacles to developing sectoral crediting mechanisms by creating sufficient demand for them, it said.

Eradicating industrial gas credits would also help shift investment under the UN's Clean Development Mechanism (CDM) from emerging economies to less well-developed countries, the Commission said.

It argued that cheap emission reductions such as those from some industrial gas projects "should not be done through the carbon market, but instead should be the responsibility of developing countries as part of their appropriate own action".

"I am strongly committed to the further development and expansion of this market and precisely therefore it is critical that we can all have full confidence in the emission reductions that are allowed to be counted in the system, whether they take place in Europe or elsewhere," said EU Climate Action Commissioner Connie Hedegaard in a statement.

Moreover, the EU executive said it had become necessary to bring to an end the use of HFC-23 credits to ensure that the projects produce emissions cuts that would not have occurred otherwise. It said the projects had in fact given a perverse incentive to produce more of the refrigerant gas HCFC-22, as companies could also cash in on credits by cheaply destroying the by-product HFC-23 gas.

Move welcomed

The proposal was welcomed by green NGOs as a step to ensuring that the EU ETS "does not turn into a refuse dump for poor quality offset credits," leading to increased global warming emissions.

"Today's proposal […] is a milestone in terms of removing fake carbon credits from the system and helping to improve the environmental effectiveness of the EU ETS," said Eva Filzmoser, programme director at CDM Watch.

But carbon-trading companies were more cautious, warning that the measures could have a retrospective element that is of concern to the market.

"The natural test for acceptability is the date the emissions reductions occurred," the International Emissions Trading Association (IETA) said in a statement. It added that there is "no justification" for applying restrictions to credits associated with emissions occurring before 2013, even if they are formally issued after 2012.

The proposal will now have to get the endorsement of member-state representatives, after which it will undergo a three-month scrutiny period by the European Parliament before final adoption.

Under the Kyoto Protocol, industrialised countries can meet some of their climate targets by investing in carbon reduction projects in developing countries.

The arrangement, called the Clean Development Mechanism (CDM), operates on the condition that projects generating credits have to ensure "additionality", or the principle that the reductions they achieve would not have occurred without the incentive of foreign finance.

The CDM has attracted criticism, however, as the additionality criterion has been abused. Credits granted for projects that should not have qualified in the first place have allowed developed countries to dodge their climate commitments, critics say.

In August, the CDM Executive Board halted the issuance of credits to a number of Chinese plants destroying a greenhouse gas called HFC-23. It started an investigation into whether the projects currently registered have led to the overproduction of CDM credits.

The European Commission responded some days later by announcing that it was going to prepare measures to limit the use of such credits in the EU emissions trading scheme after 2012. 

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