Process improvements can reduce Carbon Dioxide (CO2) air emissions. When that is done there can be left over permitted CO2 air emissions that can be sold to other users. In doing so a certain percentage of the original CO2 emissions are eliminated and cannot be sold. Hence a reduction in permitted CO2 air emissions overall.
Hungary last week carried out the first sale of certified emissions reductions (CERs) which Hungarian companies had already used to offset against their emissions in the European Union's emissions trading scheme. These emission offsets are sold internationally to other companies.
Under the Kyoto Protocol, countries were granted a certain number of permits to release greenhouse gases into the atmosphere, called Assigned Amount Units (AAUs), which are equivalent to one ton of CO2 and are roughly equivalent to a CER.
The Protocol was originally signed in 1997 and went into full effect in 2005. The Protocol is intended to help reduce green house gas emissions, such as CO2, and stabilize any potential climate change effects. Currently there are 187 countries that have ratified the Protocol.
Certain countries have a surplus of these AAU's partially due to much older or obsolete technology that was retired. This is particular so for some Eastern European countries such as Hungary and the former Soviet Union (Russia and Ukraine for example) due to the retirement of older less efficient industries. Other countries such as those in western Europe have a shortage of such credits and either have to reduce air emissions or buy these credits.
Such used CERs are invalid as carbon offsets in Europe and the European Commission as of March 19 when their trading rules were amended. However, other countries outside of Europe can still buy them from European sources.
As an example Spain in 2007 bought 6 million tons of such emissions from Hungary to help meet their Kyoto Protocol needs. With the European rule change this can no longer happen.
European governments have about 100 million used carbon offsets, equivalent to the national greenhouse gas emissions of Austria, which they can in theory resell to non-EU buyers. In theory air emissions will then gradually go down and allow some new development elsewhere.
Japan has been the biggest buyer of offsets outside Europe, and if it bought used CERs that would effectively increase the global supply and dampen prices. Tokyo said on Friday that it would not block Japanese companies from buying recycled credits.
"It's not a problem for companies to use them here to meet their voluntary emissions targets," said Eisaku Toda, head of the environment ministry's office of market mechanisms. In Japan such goals are all voluntary and not mandatory.
Hungary last week sold some 800,000 tonnes of used CERs, saying it would put aside the equivalent number of AAUs.
That deal allowed Hungary to benefit from a higher price for CERs compared with AAUs, whose trade is also much less liquid and disparaged by some environmentalists as "hot air".
The International Emissions Trading Association lobby group said Hungary had damaged the integrity of the European and Kyoto carbon markets, however, and asked for EU member states to set up "retirement accounts" for CERs submitted by companies, so that these could not be resold. Such an action would mean that such credits could not be used resulting in permanent air emission reductions but it may also affect developing countries ability to compete.
Japanese companies have already bought about 300 million tons of carbon offsets under the Kyoto Protocol for delivery between 2008 and 2012, almost all of which are thought to be CERs.