1. Quality Restrictions in the EU ETS: HFC and N 2 0 12th January 2011 Fionnuala Walravens – Environmental Investigation Agency Rob Elsworth – Sandbag Climate Campaign

2. Introduction Sandbag / EIA supports the Commissions proposal to ban HFC and N 2 O offset credits from 1 st Jan 2013. Support based on a number of factors: – Undermining both the Montreal Protocol and the EUs international climate objectives – Value for money – Geographical distribution – Limited Sustainable Development benefits

3. Montreal Protocol The Montreal Protocol established the accelerated phase-out of HCFC-22 (an ozone depleting substance) However, the lucrative nature of HFC-23 projects discourages producers of HCFC-22 to reduce their production – rather it causes perverse incentives Subsidising HCFC-22 production through the CDM prevents uptake of environmentally friendly alternatives Carbon leakage production shift to developing countries EU is financing the phase-out of HCFC-22 through the Montreal Protocol, at the same time paying for HFC CERs

4. HFC interactions with EUs international Climate position EU position for Cancún – as adopted by EU environment ministers on 14 th Oct 2010 Point 9 - Increased global abatement efforts from advanced developing countries Point 14 - Montreal Protocol may be suited to abating HFCs Point 21 - CDM reform: improved environmental integrity and regional distribution UNFCCC has failed to address flaws in AM0001 CDM Methodologies Panel Investigation found AM0001 may inflate baseline emissions and recommends a revision. However unlikely to affect first crediting period Europe must take the lead and set an example for global carbon markets Cannot afford to allow minority interests to undermine EU leadership

5. Value for money Technical and Economic Assessment Panel (TEAP) estimates HFC-23 abatement to cost about 0.17/tonne CO2-eq abated Europe is paying 12/tonne to abate HFC-23 To date (2008-2009) Europe has spent 1.2bn on HFC credits for compliance in the EU ETS. Real cost of HFC-23 destruction in CDM is 16.5 million-70 times higher These credits originated from 18 CDM projects. There are 2718 registered CDM projects Diverting funds away from vulnerable regions

6. Geographical distribution

7. Project distribution CERs surrendered into the EU ETS to date: 160 million = 1.9bn HFC CERs – 97 million = 1.2bn

8. Timing of ban Article 11.a (9) foresees that "from 1 January 2013, measures may be applied to restrict the use of specific credits from project types. A ban as of the 1 st Jan 2013 is consistent with the EU ETS Directive Market participants were aware of this date and its implications – strategy should have altered accordingly Secondary markets ready to accommodate 1 st January ban, only small number of investors may be affected

9. NO Credit Exchange Sandbag / EIA categorically opposes any carryover of credits between phases Any carryover would fundamentally undermine this proposal The ban must be clear and comprehensive – no HFC/N 2 0 credits post 1 st Jan 2013

10. Thank you for your attention! Fionnuala Walravens - fionnualawalravens@eia-international.org Rob Elsworth - rob@sandbag.org.ukfionnualawalravens@eia-international.orgrob@sandbag.org.uk