Top green investor slams proposed EU industrial gas ban

One of the UK’s top green investors has warned that EU proposals to ban the import of UN-approved carbon credits derived from controversial industrial gas projects could have a catastrophic impact on investor confidence and undermine future investment in emission reduction and forestry projects.

Speaking at BusinessGreen’s lecture evening yesterday, James Cameron, executive director and vice chairman of Climate Change Capital, argued the draft proposals released yesterday by the European Commission represented a “completely irrational trade ban” for the growing carbon market.

Under the proposals put forward by the commission, the EU would from 2013 ban the use within the EU’s Emissions Trading Scheme (ETS) of carbon credits issued under the UN’s Clean Development Mechanism (CDM) that originate from projects that curb emissions of HFC and N2O greenhouse gases.

Industrial gas credits have been the target of a major campaign orchestrated by a coalition of green groups, which has alleged that some Chinese firms issuing industrial gas credits are “gaming” the CDM system and earning undeserved credits.

However, Cameron warned that banning the sale of industrial gas credits before a new system is introduced for curbing such gases would lead to an increase in powerful greenhouse gas emissions and discourage investors from participating in future environmental markets.

“If at the same time [as reforms to the CDM] we have a completely irrational trade ban imposed by the EU on the importation of industrial gases, thereby destroying value created by investors in that market – including money that is owed to beneficiaries of European pension funds – if that can be done and expressed as if it is a solution to an environmental problem, we are never going to get the capital that we need because institutional investors despise any element of retroactivity,” he said.

Cameron acknowledged that reforms were required to the CDM, but warned such a draconian move would have an impact on future investment in low-carbon projects.

“We are still under threat that the carbon market will take away value of those who have invested to date, the very people we need to find [future investment], and they are not going turn up with the next $100m or $200m if they have lost a packet on some irrational political decision,” he said. “The [sums required for low-carbon investment] cannot be met without the very people who are about to lose money from a set of poor decisions made by the European Commission and the CDM executive board.”

In particular, he warned that plans for a new forestry credit trading mechanism under the UN’s reduced emissions from degradation and deforestation (REDD) initiative would struggle to attract institutional investors if the EU goes ahead with its planned ban.

However, campaigners opposed to industrial gas credits were celebrating yesterday, arguing that the EU’s proposed ban would help drive up the price of carbon and improve the environmental integrity of the EU ETS.

The Sandbag NGO, which campaigns for reforms to the ETS, published a blog posting hailing the European Commission as a “bold document” that would bolster the ETS and strengthen the EU’s hand at the upcoming UN climate change negotiations in Cancun.

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