Isra-Mart srl:Updated: EU bans industrial gas carbon credits

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Controversial carbon credits gained by destroying greenhouse gases have been banned from the EU's Emissions Trading Scheme (ETS) after a European Commission vote this afternoon.

The majority of offsets in the EU ETS are derived from projects in India and China that destroy HFC 23 and nitrous oxide (N2O) greenhouse gases during the production of adipic acid, an industrial chemical used to produce nylon.

The credits have attracted criticism from green groups that claimed some project developers were "gaming" the system by manufacturing and then destroying the gases solely to earn Certified Emission Reductions (CERs) that can be sold into the EU ETS.

The European Commission announced today that the controversial credits will be banned from the May 1 2013, following a vote by member states on a proposal submitted by climate action commissioner Connie Hedegaard last year.

"These projects raise concerns relating to their environmental integrity, value-for-money and geographical distribution," Hedegaard said today.

"Not only are some of these credits of doubtful value, continuing to use them is also not in the EU's interest as doing so could discourage host countries from supporting cheaper and more direct action to cut these emissions. 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," she added.

The commission said in a statement that the ruling would apply to projects under the Kyoto Protocol's Clean Development Mechanism (CDM) and Joint Implementation mechanism (JI). The proposal will now be examined by the European Parliament for three months and, if no objections are raised, will be formally adopted by the commission.

Although no countries opposed the ban, some had pushed for it to be implemented at a later date to give them more time to get used to the new rules, which will mean that countries will not be able to put HFC or N2O credits towards their 2020 national reduction targets.

There was some confusion over the date on which the ban would come into effect. Earlier reports suggested it would come into effect from January 1 2013, but in its statement the Commission confirmed "the ban means that companies will be able to use these credits for 2012 compliance under the EU ETS until 30 April 2013, but not thereafter."

The ban is likely to delight environmental campaigners who have argued that the use of HFC and N2O credits undermines the environmental integrity of the EU's flagship carbon trading scheme.

However, many carbon traders and investors have criticised the move, arguing that it amounts to moving the goalposts for the scheme and will lead to a spike in the carbon price as the supply of credits is restricted.

There are also fears that with no new mechanism in place to incentivise firms to cut levels of industrial gases, emissions of HFCs and N2O could rise significantly.