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EU’s Recycled Carbon Credit Crisis Torpedoes Market

emissionatorThe increasing uncertainty over the legitimacy of certified emission reduction (CER) credits traded in the EU has sent the market into a massive downward spiral.

After it was revealed that the Hungarian government sold 2 million previously used CERs, the market became tepid. Then when prices fell from more than 12 euro per credit to less than one euro, trading was suspended on two exchanges, Bluenext and Nord Pool.

The issue has been brewing for about a week, since the “recycled” Hungarian credits were discovered being traded on Bluenext.

In response to the issue, the EU said it was “surprised and concerned” to discover that the CERs had re-entered the carbon market, reports Business Week.

The EU has its own type of certified emissions credits, called European Union allowances (EUAs), which it self-regulates. CERs are sold under the mantle of the United Nations, but are acceptable for use under the EU’s Emissions Trading System, so long as they are surrendered for compliance after their first use.

The International Emissions Trading Association warns that the EU’s emissions trading scheme could be decimated if governments cannot keep from selling “recycled” CERs, according to the Guardian UK.

So far, the market for EUAs has actually benefited from the lack of confidence in CERs. A UK auction of EUAs drew intense demand, resulting in 4.5 million sold. The price for EUAs is about 13 euro per credit.

Carbon trading exchanges ECX, Climex and Sendeco2 indicated they were unaware of recycled CERs sold on their exchanges, but that they were investigating the possibility, according to ChemInfo.

Whether or not such a situation was foreseen, in early February the UK suggested a plan to shut down markets for EUAs in the event of a rampant fall in price.

The UK’s cross-party parliamentary Environmental Audit Committee said intervention could involve a carbon tax when market prices fall below a set level, minimum prices for national carbon auctions, and cancellation of outstanding allowances under a reserve for new entrants.

In the U.S., a different kind of crisis of confidence faces the Regional Greenhouse Gas Initiative, a group of Northeastern U.S. states that have a cap-and-trade program for utilities.

The New Jersey government has raided about $65 million in funds raised in the RGGI auction. The funds were intended for use in developing renewable energy projects, but instead are going to the state’s general fund, Reuters reports.

Last year, New York similarly took $90 million from its carbon fund.

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