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Industrial gas credits to be banned from the EU Emissions Trading Scheme

EU Commission presents proposal for a directive

November 2010 - At the end of November 2010, the EU Commission presented a proposal to introduce “use restrictions” on the use of CERs for compliance in the EU Emissions Trading Scheme. The proposals call for HFC and adipic acid-N20 credits to be banned from being used for compliance from 1 January 2013. From then on, use of these credits will be prevented in the third ETS trading period (2013-2020). This includes the option to transfer credits from the second to the third trading period.

For the regulation to enter into force, the Member States and the European Parliament must approve the proposal. The Member States will consult on the Commission proposal in December. It appears unlikely that they will reject it, meaning that the Regulation could enter into force in Spring next year.

Environmental Integrity

Climate Commissioner Hedegaard had announced the proposal back in August after new studies fuelled concerns regarding the environmental integrity of these project types that have long attracted criticism. In its proposal, the Commission sets out a number of reasons justifying its need: HFC 23 is a by-product in the production of the ozone-damaging coolant chlorodifluoromethane (HCFC 22), which according to the Montreal Protocol should be halted in the interests of protecting the ozone layer.  The costs involved in destroying HFC 23 are, however, a fraction of the market price for Certified Emission Reductions (CERs). Destruction of HFC 23 under the CDM thus generates high revenue, which in turn fosters production of HCFC 22. Destruction of N2O under the CDM also results in high revenue and encourages relocation of adipic acid production from industrialised states to developing countries. The Commission is still of the opinion that the high revenue from these project types cannot be reconciled with the principle of cost-effectiveness. Also, most projects hosted in advanced developing countries that have the necessary funds to destroy these greenhouse gases should be self-financing. On a more general note, the CDM should be less focused on least developed countries (LDCs), while new sectoral mechanisms should be developed for the more advanced developing countries.

Executive Board puts HFC 23 methodology on hold

The CDM Executive Board (EB) Methodology Panel presented its report on HFC 23 projects to the EB at the end of November. The Board had commissioned the report in response to accusations that HCFC 22 factories were being operated solely with the intention of generating CERs. The EB did not adopt the report at its 58th meeting, but instead asked the Panel to work out some of the finer points. Nonetheless, the respective methodology ACM 0001 was put on hold with immediate effect.