Carbon Credits from HFC projects under scanner

Posted on November 25, 2010 by

The EU has proposed banning carbon credits linked to HFCs from its carbon program from the start of 2013. This move could limit the options available to the emitters to cut pollution costs. The regulator, European Commission aims to prohibit offsets related to hydrofluorocarbon-23 and credits from nitrous oxide in response to concern raised on the “windfall” profits created by these credits. Given the large volumes of carbon credits generated from these projects, they are also seen as a threat to the market integrity.

There are more than 11,000 facilities in the EU covered under the cap-and-trade program EU-ETS. These emitters can use carbon credits (from CDM projects) as cheaper alternatives to EU allowances for meeting the compliance requirements. A statement issued by the commission today is “The acceptance of credits from industrial-gas projects has been controversial for some time. Certain gases have a very high global-warming potential, and abatement is very cheap. This can create huge financial rewards for project developers.”

The commission proposes to ban use of credits issued to HFC-23 and nitrous oxide from adipic acid production from the CDM and the Joint Implementation scheme. CDM is the world’s second-biggest market. The ban is likely to become effective from Jan.1, 2013. This move however is not expected to distort the supply-demand balance in the market. Enough credits are expected to be availbale from more than 2300 projects to supply to the EU ETS market. This event therefore is not expected to have a direct/significant impact on the allowance prices.

The EU states that these emissions, which are quite cheap to implement should not be done through the carbon market, but instead as the responsibility of developing countries as part of their NAMA ( Nationally Appropriate Mitigation Action) or possibly funded based on incremental costs only.

The climate change committee will first discuss this proposal on Dec. 15,after the CDM Executive Board discusses at its meeting due on Nov. 26 whether the methodology for awarding those offsets should be changed.

Posted in: Carbon Markets