Plans to connect the European carbon market and carbon trade under the Kyoto Protocol on global warming from 2008 are proceeding despite technical issues, a European Commission official said on Wednesday. Member state talks to introduce the necessary rules were continuing with a deadline of April 10, the official said.
The European carbon market is the 27-nation European Union's key strategy to help it meet its Kyoto emissions targets, and works by forcing heavy industry to buy permits to emit carbon dioxide above a certain cap of so-called EU Allowances (EUAs).
EU countries have a separate cap under Kyoto called an assigned amount, which they can meet both by cutting their emissions and by buying various types of carbon credit. From 2008, EUAs will become tagged to Kyoto Assigned Amount Units (AAUs) when traded across borders, something which requires the two markets to link up.
That link has not yet happened, causing concern among some European companies that they will not be able to use Kyoto carbon credits that they have already paid for to help them meet their EU emissions limits.
"Our issuing AAUs independently is already a possibility," the Commission official said, pointing out that continuation of the European carbon market from 2008 was not therefore dependent on a link to the Kyoto carbon trading software, called the International Transaction Log (ITL).
"We need to further specify how the (European) transaction log and the ITL connection takes place." It is the link of all 27 EU member states simultaneously to the ITL which carbon market participants are concerned will cause delays to their getting hold of Kyoto carbon credits, called Certified Emission Reduction units (CERs).
"It's the uncertainty around the timing and procedures when and how CERs flow into the EU scheme that's the problem," said Garth Edward, trading manager for environmental markets at Shell. "It's high time we had clarity."