International credits from the Clean Development Mechanism (CDM) and Joint Implementation (JI) – two crediting programmes set up under the Kyoto Protocol to the UN Framework Convention for Climate Change (UNFCCC) agreed upon in 1997 - are allowed to be used towards fulfilling part of the European Union Emissions Trading Scheme (EU ETS) obligations up to 2020.
There are, however, some exceptions. These include:
- credits from nuclear and afforestation and reforestation projects,
- according to the Commission Regulation (EU) No 550/2011 of 7 June 2011 on determining, pursuant to Directive 2003/87/EC of the European Parliament and of the Council, certain restrictions applicable to the use of international credits from projects involving industrial gases credits generated by projects involving the destruction of industrial gases (HFC23 and adipic N2O) are no longer allowed as of the start of phase 3 of the EU ETS,
- in phase 3 of the EU ETS further restrictions came into effect for credits resulting from projects registered after 2013 in countries other than least developed countries (LDCs).
Entities with compliance obligations under the EU ETS have been allowed to use for this purpose units issued under CDM and JI by the so-called Linking Directive (Directive 2004/101/EC of the European Parliament and of the Council amending Directive 2003/87/EC establishing a scheme for greenhouse gas emission allowance trading within the Community, in respect of the Kyoto Protocol's project mechanisms).
In the first phase of the EU ETS (2005-2007) only CDM units were allowed for EU ETS compliance (units generated under JI were used from 2008).
Since 31 March 2015 and in accordance with Article 11a(3) and (4) of the EU ETS Directive, credits issued in respect of emission reductions in the first commitment period of the Kyoto Protocol (2008-2012) are no longer eligible for exchange with EU ETS allowances.
Article 11a(8) of the EU ETS Directive includes provisions related to the levels of use of international credits by category of operator and aircraft operator, and sets out minimum entitlements in this regard.
The rules for determining the entitlements of individual operators and aircraft operators up to 2020 are set out in the Commission Regulation (EU) No 1123/2013 of 8 November 2013 on determining international credit entitlements pursuant to Directive 2003/87/EC of the European Parliament and of the Council.
In phase 3 credits are no longer surrendered directly but instead exchangeable at any time throughout the calendar year for allowances.
See CER and ERU market as from 2013 for details of the aforementioned processes and broader context.
When it comes to volumes, although the exact amount of credit entitlements over phase 2 and 3 will partially depend on the amount of future verified emissions, market analysts estimate that it will amount to around 1.6 billion credits (Report on the functioning of the European carbon market, accompanying the document Report from the Commission to the European Parliament and to the Council, Climate action progress report, including the report on the functioning of the European carbon market and the report on the review of Directive 2009/31/EC on the geological storage of carbon dioxide of 18 November 2015 (COM(2015) 576 final), p. 17).
The said Report of 18 November 2015 refers, moreover to the fact that as of 30 April 2015 the total number of international credits used or exchanged in the EU ETS amounted to 1445 million.