LONDON, May 5 (Reuters) - A European Union proposal to introduce new quantitative restrictions for using Kyoto Protocol
carbon offsets for compliance in the bloc's Emissions Trading Scheme has been praised by environmentalists and panned by
market players.
Under the proposal, first published in a draft EU document seen by Reuters last Friday, the value of "conventional" Kyoto
offsets could be halved as scheme participants would be required to buy at least two tonnes worth to cover one tonne of
carbon dioxide emitted.
The document said a multiplier of 2-for-1 could be introduced, meaning for every EU emissions permit required by an
installation, two tonnes of offsets, called Certified Emissions Reductions (CERs), would have to be surrendered.
"Every (CER) used to cover a tonne emitted in Europe would as a by-product result in another tonne reduced in a
developing country," the draft said.
"The introduction of a multiplier for conventional (CERs) ... would mean that additional reductions in Europe would be
accompanied by more mitigation action in developing countries incentivised but not funded by the carbon market," it said.
Observers said conventional CERs likely meant those from industrial gas projects, which currently account for around 75
percent of the market.
Under Kyoto's Clean Development Mechanism (CDM), efforts to cut greenhouse gases can be outsourced to emerging
countries through investment in clean energy projects, and investors receive CERs in return. Participants in the EU ETS can use CERs for compliance, though the EU restricted the quota to around 1.6 billion tonnes by 2020 in an energy and climate plan agreed in late 2008.
Green groups welcomed the proposal but said more was needed. "It's a welcome start, but we'd expect the multiplier to be higher," said Sanjeev Kumar of environmental think-tank E3G. "We want a high multiplier for the cheap credits that have very little environmental benefits, for example industrial gas CERs, and a lower multiplier for CERs from least developed countries or ones that push new green technologies in others."
The CER multiplier proposal is part of a wider European Commission analysis into whether the bloc can raise its current emissions goal to a 30 percent cut under 1990 levels by 2020, up from a 20 percent reduction target now. Under the 30 percent plan, the EU said the EU ETS emissions cap could be increased to 34 percent below 2005 levels, up from 21 percent below now.
BAD IDEA
"It's a very bad idea," said Emmanuel Fages, a carbon market analyst at Societe Generale/Orbeo. "The CER market is not liquid enough to try to propose different CER exchange rates ... This will complicate the existing market with different sub-markets and none of them will be liquid. It will be hell and not at all market friendly." Some emissions traders said this proposal is partly responsible
for a widening of the price spread between EU emissions permits, called EUAs, and CERs. The EUA-CER gap rose above 2 euros this week, a level not seen since last summer.
The draft also mentioned a proposal to recognise so-called "sectoral" CERs, for example those generated through cuts made against ambitious sector-wide thresholds in emerging countries.
LONDON, May 5 (Reuters) - A European Union proposal to introduce new quantitative restrictions for using Kyoto Protocol
carbon offsets for compliance in the bloc's Emissions Trading Scheme has been praised by environmentalists and panned by
market players.
Under the proposal, first published in a draft EU document seen by Reuters last Friday, the value of "conventional" Kyoto
offsets could be halved as scheme participants would be required to buy at least two tonnes worth to cover one tonne of
carbon dioxide emitted.
The document said a multiplier of 2-for-1 could be introduced, meaning for every EU emissions permit required by an
installation, two tonnes of offsets, called Certified Emissions Reductions (CERs), would have to be surrendered.
"Every (CER) used to cover a tonne emitted in Europe would as a by-product result in another tonne reduced in a
developing country," the draft said.
"The introduction of a multiplier for conventional (CERs) ... would mean that additional reductions in Europe would be
accompanied by more mitigation action in developing countries incentivised but not funded by the carbon market," it said.
Observers said conventional CERs likely meant those from industrial gas projects, which currently account for around 75
percent of the market.
Under Kyoto's Clean Development Mechanism (CDM), efforts to cut greenhouse gases can be outsourced to emerging
countries through investment in clean energy projects, and investors receive CERs in return. Participants in the EU ETS can use CERs for compliance, though the EU restricted the quota to around 1.6 billion tonnes by 2020 in an energy and climate plan agreed in late 2008.
Green groups welcomed the proposal but said more was needed. "It's a welcome start, but we'd expect the multiplier to be higher," said Sanjeev Kumar of environmental think-tank E3G. "We want a high multiplier for the cheap credits that have very little environmental benefits, for example industrial gas CERs, and a lower multiplier for CERs from least developed countries or ones that push new green technologies in others."
The CER multiplier proposal is part of a wider European Commission analysis into whether the bloc can raise its current emissions goal to a 30 percent cut under 1990 levels by 2020, up from a 20 percent reduction target now. Under the 30 percent plan, the EU said the EU ETS emissions cap could be increased to 34 percent below 2005 levels, up from 21 percent below now.
BAD IDEA
"It's a very bad idea," said Emmanuel Fages, a carbon market analyst at Societe Generale/Orbeo. "The CER market is not liquid enough to try to propose different CER exchange rates ... This will complicate the existing market with different sub-markets and none of them will be liquid. It will be hell and not at all market friendly." Some emissions traders said this proposal is partly responsible
for a widening of the price spread between EU emissions permits, called EUAs, and CERs. The EUA-CER gap rose above 2 euros this week, a level not seen since last summer.
The draft also mentioned a proposal to recognise so-called "sectoral" CERs, for example those generated through cuts made against ambitious sector-wide thresholds in emerging countries.
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