Quality Restrictions in the EU ETS:HFC and N20

12th January 2011Fionnuala Walravens – Environmental

Investigation AgencyRob Elsworth – Sandbag Climate Campaign

Introduction

• Sandbag / EIA supports the Commission’s proposal to ban HFC and N2O offset credits from 1st Jan 2013.

• Support based on a number of factors:– Undermining both the Montreal Protocol and the

EU’s international climate objectives– Value for money– Geographical distribution– Limited Sustainable Development benefits

Montreal Protocol

• The Montreal Protocol established the accelerated phase-out of HCFC-22 (an ozone depleting substance)

• However, the lucrative nature of HFC-23 projects discourages producers of HCFC-22 to reduce their production – rather it causes perverse incentives

• Subsidising HCFC-22 production through the CDM prevents uptake of environmentally friendly alternatives

• Carbon leakage production shift to developing countries• EU is financing the phase-out of HCFC-22 through the

Montreal Protocol, at the same time paying for HFC CERs

HFC interactions with EU’s international Climate position

EU position for Cancún – as adopted by EU environment ministers on 14th Oct 2010

Point 9 - Increased global abatement efforts from advanced developing countries

Point 14 - Montreal Protocol may be suited to abating HFCsPoint 21 - CDM reform: improved environmental integrity and

regional distributionUNFCCC has failed to address flaws in AM0001• CDM Methodologies Panel Investigation found AM0001 “may inflate

baseline emissions” and recommends a revision. However unlikely to affect first crediting period

Europe must take the lead and set an example for global carbon markets• Cannot afford to allow minority interests to undermine EU leadership

Value for money

• Technical and Economic Assessment Panel (TEAP) estimates HFC-23 abatement to cost about €0.17/tonne CO2-eq abated

• Europe is paying €12/tonne to abate HFC-23• To date (2008-2009) Europe has spent €1.2bn on HFC credits

for compliance in the EU ETS.• Real cost of HFC-23 destruction in CDM is €16.5 million-70

times higher • These credits originated from 18 CDM projects. There are

2718 registered CDM projects

• Diverting funds away from vulnerable regions

Geographical distribution

Project distributionCERs surrendered into the EU ETS to date: 160 million = €1.9bn

HFC CERs – 97 million = €1.2bn

Timing of ban

• Article 11.a (9) foresees that "from 1 January 2013, measures may be applied to restrict the use of specific credits from project types.“

• A ban as of the 1st Jan 2013 is consistent with the EU ETS Directive

• Market participants were aware of this date and its implications – strategy should have altered accordingly

• Secondary markets ready to accommodate 1st January ban, only small number of investors may be affected

NO Credit Exchange

• Sandbag / EIA categorically opposes any carryover of credits between phases

• Any carryover would fundamentally undermine this proposal

The ban must be clear and comprehensive – no HFC/N20 credits post 1st Jan 2013

Thank you for your attention!

Fionnuala Walravens - fionnualawalravens@eia-international.org

Rob Elsworth - rob@sandbag.org.uk