Fwd: + Europe Can Lift CO2 Market From Gridlock, Gazprom Says (Update1)

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Europe Can Lift CO2 Market From Gridlock, Gazprom Says (Update1)
2010-12-06 14:03:55.482 GMT

(Adds Barry's comment on forestry in last four paragraphs.)

By Ewa Krukowska
Dec. 6 (Bloomberg) -- Europe needs to reinvigorate the
world's second-biggest emissions market as global climate talks
to reduce greenhouse gases stall, the head of a carbon-trading
unit of Russia's OAO Gazprom said.
United Nations carbon offsets for delivery in a year fell 4
percent last week amid signals that differences between 190
developing and industrial nations may preclude a binding treaty
at the climate meeting that started Nov. 29 in Cancun, Mexico.
    The $2.7 billion UN Clean Development Mechanism is an
offspring of the 1997 Kyoto Protocol, which expires in 2012
unless governments decide to extend it. Carbon offsets generated
by the CDM may be used for compliance in the European Union's
emissions-trading system, the world's largest cap-and-trade
program, also known as the EU ETS.
     "Given that nothing is likely to fundamentally change
between now and the next summit in South Africa in 2011, the EU
ETS will continue to be the global driving force in the
international carbon market," Dan Barry, head of carbon trading
at Gazprom Marketing & Trading, said in a interview from London.
     The EU, whose carbon market was valued at $119 billion last
year, could bolster investors' confidence in the UN market by
giving more "certainty and clarity" on what types of offsets
it will accept in the next trading period, which runs from 2013
through 2020, Barry said.
The ETS is a cornerstone of European efforts to tackle the
heat waves, storms and floods that scientists have linked to
climate change. The system, started in 2005 with a three-year
trading period, is now in a second phase, which ends in 2012.

European Demand

    Demand from European emitters has helped the CDM expand to
more than 2,500 registered projects that generate credits to
investors for cutting greenhouse gases in developing nations.
The UN program has issued 476 million credits so far and expects
projects in the pipeline to generate 2.7 billion offsets by the
end of 2012.
    Gazprom Marketing & Trading's carbon unit is involved in
more than 100 UN emission-reduction projects globally and plans
to add more, according to Barry. Gazprom and Trans Wonderland
Ltd., a Papau New Guinea transport company with contracts to
provide liquefied natural gas services there, will cooperate on
projects with plans to win UN credits, they said today in an e-
mailed statement.
    The European Commission, the EU regulator, proposed last
week to stop recognizing as of 2013 UN credits related to
projects that cut nitrous dioxide from adipic acid production
and hydrofluorocarbon-23, an industrial gas whose warming
potential is 11,700 times bigger than carbon dioxide. The EU
said it is concerned the projects create excessive credits and
undermine the market's integrity.

Insufficient Clarity

While HFC-23 projects represent less than 1 percent of all
registered CDM projects, their credits account for more than
half offsets issued so far.
    "Clarity that HFC-23 credits won't be eligible is useful,
but the EU has failed to give clarity on what will be eligible
for the next phase," Barry said. "That's a fundamental
requirement that needs to be sorted out very soon."
More than 11,000 operators in the European program can swap
as many as 1.6 billion UN credits with EU permits on a one-for-
one basis in the phase from 2008 through 2012. The bloc has
signaled it wants the CDM to continue, but said the mechanism
must be overhauled to improve its effectiveness and governance.

'Quite Comfortable'

    "The EU appears quite comfortable with credits from UN
projects registered pre-2012 to continue generating credits
eligible for the next phase," he said. "We may start to see
new mechanisms for future projects. The general consensus seems
to be as much support as possible to as many different project
types as possible in least developed countries."
UN Certified Emission Reductions for December 2011 closed
at 11.39 euros a metric ton on Dec. 3. EU allowances for
delivery in December 2011 were at 15.03 euros.
    The EU is unlikely to accept credits backed by forestry for
compliance in its cap-and-trade system in the near future, Barry
predicts. Even though deforestation may be one of the few areas
where envoys reach a deal in Cancun, the program will work only
if governments adopt emission-reduction commitments, he said.
    "We need to see a meaningful price on carbon, otherwise
forestry conservation just won't be able to compete against palm
oil," he said.
Gazprom Marketing & Trading announced last month its method
for generating carbon credits by voluntary forestry projects was
approved by auditors. The method will generate around 100,000
credits over the next 30 years in a project in the Rimba Raya
Biodiversity Reserve in Borneo, southeast Asia.
    First issuance of the credits should take place by the end
of this year, and Gazprom Marketing & Trading has already
brokered a sale of more than 5 million of the Rimba Raya
offsets, Barry said.

For Related News and Information:
Emission market news: NI ENVMARKET <GO>
Today's top energy stories: ETOP <GO>
European power-markets home page: EPWR <GO>

--Editors: Mike Anderson, Randall Hackley.

To contact the reporter on this story:
Ewa Krukowska in Brussels at +32-2-237-4331 or

To contact the editor responsible for this story:
Stephen Voss at +44-20-7073-3520 or sev@bloomberg.net