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Russia, Ukraine ERU surge pushes carbon allowance oversupply to 2bn

16 May 2013 19:02:56 | edcm

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Offset credits originating from projects in Russia and Ukraine made up the majority of the emission reduction units (ERUs) surrendered in 2012 for compliance in the EU Emissions Trading System (EU ETS), new data published by the European Commission showed on Thursday.

In an inversion of the historical trend, ERUs made up the largest chunk, or 56%, of the over 504m offsets surrendered in 2012 (see EDCM 2 May 2013) double the quantity handled in 2011, which put the overall EU allowance (EUA) oversupply at 2bn, as expected.

In 2012, ERUs accounted for 14% of total offsets surrendered. During phase II (2008-2012), the annual average was 3.9%.

The rush, the Commission said, was triggered by such credits being subject to quality restrictions from phase III (2013-2020). ERUs from projects located in countries without legally binding emission reduction commitments are not eligible for use in phase III unless their emission reductions have taken place in phase II (see EDCM 17 January 2013).

Some 98m of the 284m ERUs submitted in 2012 originated from projects in Russia, which did not sign up to the second commitment period of Kyoto. Another 169m came from projects in Ukraine.

On top of the ERUs submitted, 220m certified emission reductions (CERs) units were surrendered in 2012, making it the year the highest ever number of international credits were used for compliance in the EU ETS.

China (155m) and India (29m) accounted for the largest share of CERs surrendered. Total CERs surrendered in phase II stood at 6.9%.

Oversupply hits 2bn

The surge in offsets surrendered was the main driver for EU ETS oversupply doubling to almost 2bn EUAs from 950m at the end of 2011. In 2012, offsets represented 26% of total units surrendered, compared with 11% in phase II.

"The supply-demand imbalance has further worsened in large part due to a record use of international credits. At the start of phase III, we see a surplus of almost 2bn allowances. These facts underline the need for the European Parliament and Council to act swiftly on back-loading," said Connie Hedegaard, commissioner for climate action, in a statement on Thursday.

However, back-loading would only temporarily remove from the system less than half of the current calculated oversupply, as the proposal put forward by the European Commission is for 900m.

Other reasons mentioned by the Commission for the oversupply include phase II auctions and allowances from the new entrant reserve, sales of phase III allowances to generate funds for the NER300 programme and the early auctioning of phase III allowances.

Meanwhile, the Commission also published updated figures for 2012 emissions from installations covered by the EU ETS, which said stood at 1.87bn tonnes, some 2% below the 2011 figure.

Preliminary data covering 75% of the installations had previously shown that emissions stood at 1.786bn tonnes, a 1.4% drop compared with the same installations the year before (see EDCM 2 April 2013). Silvia Molteni

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