EU votes to ban HFC-23 and N2O carbon credits from ETS

21 January 2011 17:18  [Source: ICIS news]

LONDON (ICIS)--The 27 EU member states voted on Friday to ban the use in their Emissions Trading System (ETS) of carbon offset credits generated from projects that reduce emission of hydrofluorcarbons and nitrous oxide.

The rates of return from some of these projects, because of the carbon trading credits they receive, was described by the European Commission as “exorbitant”.

The proposed ban, which has yet to be approved by the European Parliament, would directly affect the trading of credits generated by 23 industrial gas projects covered by the Kyoto Protocol’s Clean Development Mechanism (CDM). Most of these projects are in China and what the European Commission calls “other advanced developing countries”.

The ban would hit income streams for chemical companies generating CDM credits from gas emissions projects, including France’s Rhodia and Switzerland-headquartered INEOS.

Proposed by the European Commission five months ago, the ban would mean that companies would be able to use CDM-generated credits for 2012 compliance under the ETS only until 30 April 2013.

It would apply to projects that destroy trifluoromethane (HFC-23), produced as a by-product of chlorodifluoromethane (HFC-22) production and the nitrous oxide (N2O) emitted when the nylon precursors adipic acid is made.

“The EU considers that emission reductions which can be achieved relatively cheaply should not be financed through the international carbon market,” the Commission said. “The high proportion of CDM credits generated by the small number of industrial gas projects distorts the geographical distribution of CDM projects in favour of a limited number of advanced developing countries.”

Revenues from the sale of HFC-23 credits to EU ETS participants can represent up to 78 times the initial capital investment cost and operational costs of the project, it added.

“Our aim is not to reduce the number of credits available but to ensure the international carbon market is based on a better quality and distribution of credits,” the EU’s commissioner for climate action, Connie Hedegaard said. Just 23 industrial gas projects account for two-thirds of all the credits generated through the CDM, according to the Commission.

Western chemical companies have been applying their emissions abatement technologies in projects worldwide to take advantage of credits viable under the CDM.

INEOS was not able to quantify on Friday the impact of the EU’s proposed ban but a spokesman said the company was involved in projects to destroy HFC-23.

INEOS retained its partnership with three companies operating CDM projects after it sold its fluorochemicals business to Mexican chemical group Mexichem last year.

Rhodia’s large CDM projects are expected to generate 80m–90m tonnes of certified emission reductions (CERs) between 2007 and 2012. The specialty chemicals producer’s joint venture with Societe Generale, Orbeo, is used to monetise those credits on the carbon markets.

The company said at the start of last year that its Energy Services business was expected to generate around 14m tonnes of CERs in 2010, of which 40% had been hedged at €14.70/tonne ($19.90/tonne).

Rhodia has warned that a ban of this sort would lead to an increase in N2O emissions in the developing world. It also believes that reforms applicable to the CDM credits obtained from a reduction in nitrous oxide emissions can be achieved.

“Rhodia is in favour of introducing benchmarks for eligibility of Phase 3 CERs, based on standardised global baselines,” it said in a statement. “Only greenhouse gas reductions that are additional to these global baselines should be granted by credits in the future.

“This benchmark approach provides both a sufficient incentive to install and operate abatement technology and clear sustainable development benefits and no significant negative environmental or social impacts. The benchmark can be utilised both in the CDM and new market mechanisms."

Member state support for the proposed ban on the trading of CDM credits from industrial gases abatement projects comes as the EU seeks to plug holes in the ETS. Carbon trading on the ETS was suspended on 19 January after a large-scale theft of carbon credits from national registries was revealed. The ETS is not expected to be operational again until next week.


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By: Nigel Davis
+44 20 8652 3214

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