Environmental markets consultancy E3 International released a report a few days ago indicating that many tradable permits were retired more than once in the EU carbon emission trading program:
E3 International (E3) has analysed all the serial numbers of carbon allowances surrendered to date by liable participants in the EU Emissions Trading Scheme (EU ETS). About 4 billion carbon allowances have been surrendered by over 10,500 installations across Europe against their 2005 & 2006 carbon dioxide emissions. These serial numbers are publicly available from the Community Independent Transaction Log (CITL).
The CITL records display evidence of double counting on 13 out of 24 national emissions registries. “Double counting” means the same allowance block (originating registry; start serial number; end serial number) has been surrendered more than once. Excluding the Italian registry, E3 has discovered 238 cases of double counting, totalling nearly 18 million allowances and affecting 385 installations. Double counting appears rife on the Italian registry, with hundreds of cases affecting millions of allowances. E3 does not have access to individual registry accounts. We therefore cannot determine from the CITL records whether the problem lies with the CITL or with the individual national emissions registries.
The European Union says the allegations are wrong:
The Commission has verified and can confirm that the number of allowances put out of circulation (retired) in 2005 and 2006 corresponds to the number of verified emissions reported by companies in 2005 and 2006.
The confusion may have resulted from certain flexibility in the compliance program, the EU explained. Companies turn in allowances (equivalent to the emissions generated) to the government in their own country, and then the country’s government agency retires emission units to the UNFCCC. So long as the number of units retired by the government is the same as the number of units retired by companies within the country, it is not necessary that the country retire the exact units retired by the companies.
As they wrote on the EU emissions website:
This way of “accounting” is in line with the relevant legislation (Commission Regulation No 2216/2004 of 21/12/2004 for a standardized and secured system of registries pursuant to Directive 2003/87/EC of the EP and Council and Decision No 280/2004/EC of the EP and the Council.
Any allegation that there would have been double counting is pertinently incorrect.
BusinessGreen reported E3 International’s response:
[The EU was] “responding to an allegation we have not made”, adding that the research never accused the ETS of failing to ensure the right number of allowances were submitted over all.
“What we are saying is the fact that unique carbon allowances can be used by multiple firms within the scheme makes it very difficult for independent observers to track its environmental integrity,” Kerr said. “That national registries can recycle submitted allowances to other firms is a crazy system.”
Transparency is a virtue in such markets, so the program may benefit from eliminating this particular reporting flexibility provided to participating governments and thereby making it easier for independent observers to verify compliance with market rules.