The controversy over the issue of use of international credits (mostly CERs issued under the Clean Development Mechanism - CDM) goes to the heart of the future of the EU ETS and relates to the over-supply of credits and lack of liquidity in the market. The EU could have, but did not, opt for a more restrictive regulation on the use of international credits banked from Phase II, which would have signalled a very important policy change from the historic support that the EU has had for international efforts to reduce emissions. Historically, the EU has been one of the strongest supporters of an international regime or mechanism to reduce emissions.
It is coincidental but not insignificant that this decision has been published in the middle of the meeting of thousands of government leaders and lobbyists in Warsaw for the 19th session of the Conference of the Parties to the UNFCCC under the Kyoto Protocol. This is where the international community is yet again (as they do yearly) attempting to get closer to a climate change deal, part of which means addressing the restructuring of the CDM. As a bit of background, the CDM generated the international credits that are the subject of this new EU regulation on banking of international credits, which is as a result of the EU Directive on linking with the UN’s Kyoto Protocol established back in 2003.
As to the next steps – the Member States have one month to provide to the Commission the international credit entitlement tables for installations in their jurisdictions. International credits will not be permitted to be exchanged for EUAs for this Phase III before the Member States have submitted their entitlement tables. It should also be noted that there will be several days in January 2014 that the EU registry will be suspended in order to conduct its automated exchange of the Phase II international credits valid in Phase III.
For further information on compliance with EU ETS Phase III please call us on +44 (0) 117 939 2000 and ask to speak to Rachel Blackburn.