Guide to EU ETS offsets
I can use cheaper ‘offsets’ in place of EU Allowances for compliance with the EU ETS. How does this work? International Offsets are permitted for use in the EU ETS (and in some other Emissions Trading Systems), however, there are some specific rules that dictate how many and what kind of offsets can be used for compliance. Some companies are sensitive to the sustainability credentials of the offsets that they use due to their environmental and corporate social responsibility policies.
How many International Offsets am I entitled to use? Installations in the EU ETS since the beginning of Phase 2 (2008-2012): typically these installations are entitled to use the higher of 11% or their country specific % limit, multiplied by their 2008-2012 allocation.
‘New Entrant’ installations (from 2012): new entrants are entitled to use 4.5% of their actual emissions during Phase 3 (2013-2020).
Aircraft Operators: the aviation sector has a mixture of rules: 15% of their 2012 allocation and 1.5% of their actual emissions from 2013.
The simplest way to understand your actual entitlement is to check your registry account. Click here and we will send you a guide to checking your offset use entitlement.
What offsets are eligible for compliance? Within the EU ETS, only Commitment Period 2 (“CP2”, i.e. issued after 31st December 2012) Certified Emissions Reductions (“CERs”, i.e. carbon offsets issued by the United Nations Framework Convention on Climate Change) are eligible for use against compliance obligations. There are additional restrictions as follows: no large hydro (unless environmental integrity is backed by a World Convention on Dams report), no HFC or N2O (from adipic acid production) derived CERs and no CERs from Land Use Change or Forestry. Despite the restrictions EU ETS eligible CERs trade at a significant discount to EU Allowances and so represent good value to companies that have remaining entitlement to use them.
Use it or lose it. Under the Phase 4 (2021-2030) reforms it is currently proposed that the use of International Offsets in the EU ETS will be banned from 2021. This means that if you have a remaining entitlement it will expire at or around 30th April 2021. Get a quote for generic CERs.
Socially Responsible Compliance Carbon
As part of our procurement and trading activities we are often requested to source what Redshaw Advisors term ‘Socially Responsible Compliance Carbon’ (SRCC, also see box), that is CERs that have social and environmental benefits, such as local employment and air quality, that go beyond the UNFCCC’s minimum issuance requirements of a carbon reduction. Thanks to our extensive carbon market network, basic SRCC can often be sourced for prices close to generic EU ETS eligible CERs. SRCC means that those companies concerned about the environmental integrity of certain aspects of the Clean Development Mechanism can still take advantage of the discount to the compliance markets that International Offsets offer.
What is Socially Responsible Compliance Carbon?
For companies that are as interested in demonstrating good corporate social responsibility as they are in reducing their EU ETS compliance costs, Redshaw Advisors source Certified Emission Reductions (CERs) from Clean Development Mechanism (CDM) projects that have additional social and environmental credentials, often in the world’s poorest countries.
There are CDM offset projects in most developing countries and there is a wide variety of technology types, from industrial gas reduction to energy efficiency and renewable energy. Some CDM projects, in addition to reducing greenhouse gases, provide additional social benefits such as local job creation, poverty alleviation, reduction of air pollution or protecting the biodiversity of an area. Some of these projects are further distinguished by being certified by the Gold Standard, a non-profit organisation that helps projects demonstrate that they actively contribute to sustainable development. We call all of these CERs ‘Socially Responsible Compliance Carbon’.
Every project that we put forward to clients comes with details of it’s sustainability credentials and often comes with pictures that the purchasing company can use for its own purposes, for example, in an annual report. We normally provide a choice of projects so that the buyer can decide which one of them aligns most closely with its own corporate sustainability objectives.
Contact us for examples of what we can offer and to make sure that your company’s values are reflected by the quality of the international offsets that you use.