(EUR) Emissions trading: Commission welcomes vote to ban

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Emissions trading: Commission welcomes vote to ban certain indus
2011-01-21 10:30:05.765 GMT


Brussels, 21 January 2011

Emissions trading: Commission welcomes vote to ban certain industrial gas

The European Commission welcomes today's vote by Member States to ban from use
in the EU Emissions Trading System (EU ETS) emission offset credits from
certain projects which destroy industrial gases. The ban will take effect from
1st January 2013.

Connie Hedegaard, Commissioner for Climate Action, said: "I very much welcome
the Committee's decision to back this Regulation, less than 5 months after I
first proposed the idea. These projects raise concerns relating to their
environmental integrity, value-for-money and geographical distribution. 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."

The EU Climate Change Committee, which brings together representatives of the
27 Member States, voted for the ban today on the basis of a proposal tabled by
the Commission last November (see MEMO/10/614 ).

The ban will apply to projects which destroy two industrial gases:
trifluoromethane (HFC-23) produced as a by-product of chlorodifluoromethane
(HCFC-22) production, and nitrous oxide (N2O) from adipic acid production.
HFC-23 and N2O are both powerful greenhouse gases which contribute to climate

Just 23 such industrial gas projects account for two-thirds of all the credits
generated through the Kyoto Protocol's Clean Development Mechanism (CDM). Most
such projects are undertaken in China and other advanced developing countries.
The ban on the use of such credits in the EU ETS will apply to all such
projects undertaken under the CDM as well as any undertaken in developed
countries through Kyoto's Joint Implementation mechanism (JI).

What is the problem?

The acceptance of credits from industrial gas projects has been controversial
for some time. The main concerns are:

Allowing credits from the destruction of HFC-23 can create a perverse incentive
to continue to produce or even increase production of it and of HCFC-22, a gas
which both depletes the ozone layer and is also a powerful greenhouse gas.

This contradicts the Kyoto Protocol rule that credits may come only from
projects which lead to emission reductions that are additional to what would
have happened anyway. The environmental integrity of the credits is therefore

It also undermines attempts under the Montreal Protocol on protection of the
ozone layer to implement an accelerated phase-out of HCFC-22 for non-feedstock
use and to consider financing the destruction of HFC-23 on the basis of its
actual cost per tonne, which is far lower than the current market value of CDM

These projects do not provide value for money as they could have been funded
and implemented more cost-effectively by other means . Because of the credits
they receive, the rates of return are exorbitant — revenues from the sale of
HFC-23 credits to EU ETS participants can represent up to 78 times the initial
capital investment and operational costs of the project.

The EU considers that emission reductions which can be achieved relatively
cheaply — as with destruction of HFC-23 from HCFC-22 production and N2O from
adipic acid production - should not be financed through the international
carbon market. They should be undertaken by developing countries themselves as
part of efforts to reduce their own emissions. Alternatively, the actual
per-tonne cost of reductions could be directly funded.

The high proportion of CDM credits generated by the small number of industrial
gas projects distorts the geographical distribution of CDM projects in favour
of a limited number of advanced developing countries. This contradicts the
goal, strongly supported by the EU, of getting a more balanced spread of CDM
projects across the developing world, in particular by increasing the
involvement of least developed countries (LDCs).

In addition to these specific concerns, the EU wants to see the CDM
progressively phased out for the advanced developing countries. It should be
replaced by new mechanisms that would cover whole sectors and thus tap much
greater potential for emission reductions than the project-based CDM. Unlike
the CDM, these sectoral mechanisms would generate international credits only if
the sector achieved a pre-determined emissions performance threshold. The
existing EU legislation already provides that credits from new projects
registered after 2012 can only be used in the EU ETS if the projects are
located in Least Developed Countries (except where otherwise agreed through
future international or bilateral climate agreements).

Next steps

The European Parliament now has three months to comment on the proposal, after
which the Commission will formally adopt it. The restrictions will enter into
force on 1 st January 2013, giving market participants sufficient time to


The CDM enables governments and companies in developed countries to invest in
emission-saving projects in developing countries in return for credits which
can be used to offset their own emissions. The JI mechanism does the same,
except that JI projects are undertaken in developed countries.

Further information

Questions and answers on the Commission's proposal (November 2010)

For more information on the European Emissions Trading System, see

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