Isra-Mart srl:Carbon traders slam "politicised" ban on industrial gas credits

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The Carbon Markets and Investors Association (CMIA) has criticised the European Commission's decision to ban the use of industrial gas offset credits in the EU's emissions trading scheme, warning that the uncertainty created by the move could restrict the availability of credit for greenhouse gas emission reduction projects.

In what was widely criticised as a poorly handled announcement, the EU's climate change committee stated on Friday that it has voted to ban the use of offset credits derived from projects to reduce HFC 23 and nitrous oxide, with effect from May 2013.

The announcement followed a previous statement that said the controversial industrial gas credits would be banned from 1 January 2013, which was then rescinded half an hour later.

The erroneous information drove up the price of carbon to a three-month high, before the correction resulted in the price falling back to €10.56.

The botched announcement angered carbon traders, many of whom lost money as a result of the changes, with one accusing the EU of running a "Mickey Mouse" market

"This is a significant mistake on the part of the European Commission," one trader told news agency Reuters. "Some traders have lost a lot of money today. If I want a Mickey Mouse market, I'll go to Disneyland."

Meanwhile, CMIA criticised the decision itself, accusing the commission of politicising the market and undermining investor confidence.

The trade association acknowledged there were "valid concerns" about industrial gas-based credits, which have been accused by environmentalists of being issued by projects that are "gaming" the carbon market by producing greenhouse gases for the main purpose of destroying them in order to gain credits.

But it warned that changes to the rules governing the EU ETS would damage investor confidence in the carbon market and urged the commission's climate change committee to provide advance notice of any future changes that are being considered.

"The frame of reference for future debates needs to be stated clearly, and political decisions need to be characterised as such," the group said in a statement. "Doing otherwise will reduce the pool of capital that is available by increasing the risk, and also the cost of capital available. It cannot be emphasised enough that stable regulation is central to the ability to raise money for the fight against climate change and that today's decision goes against that."

The criticism echoes that of James Cameron, executive director at Climate Change Capital, who last year warned that the banning of industrial gas credits would discourage investors from providing capital to future environmental projects.

"If at the same time [as reforms to the CDM] we have a completely irrational trade ban imposed by the EU on the importation of industrial gases, thereby destroying value created by investors in that market - including money that is owed to beneficiaries of European pension funds - and if that can be done and expressed as a solution to an environmental problem, we are never going to get the capital we need because institutional investors despise any element of retroactivity," he said.

The botched announcement completed a bad week for the EU ETS after a series of cyber attacks forced the EU to close carbon registries across Europe, bringing a halt to spot trading in the carbon market. The registries are now expected to re-open over the next few weeks, but only after measures are taken to imporve cyber security.