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Enel sounds alarm over tight emission rules

March 17, 2010

by Guy Dinmore in Rome and Ed Crooks in London

Published: March 17 2010

Enel, Italy’s largest power company, has warned European ministers against changes to rules for carbon emissions permits, saying tighter restrictions could hit investment in projects to cut greenhouse gas emissions.

The Italian group is the world’s largest investor in the UN’s Clean Development Mechanism (CDM), which allots carbon credits to reward emissions reduction projects in emerging economies. These credits can be used to meet obligations for carbon permits under the European Union’s emissions trading scheme; an opportunity which has been worth tens of millions of euros to Enel.

However, there is pressure to change the rules to make some types of project, which have been heavily used by Enel, ineligible for meeting EU commitments.

Environmentalists are challenging the value of some projects in emerging economies on the grounds that they do not require the transfer of any sophisticated technology.

Mauro Albrizio, European affairs director of Legambiente, an Italian environmental group, said: “Instead of wasting money and undermining the spirit of the Kyoto protocol, it would be wiser to invest in the expansion of the Italian renewables sector.”

Enel says companies that have invested in these projects would face unreasonable losses on their assets if the EU were to impose retroactive “qualitative restrictions”, which could apply in phase three of the emissions trading scheme from 2013 onwards.

Enel entered the CDM market early and has 13 per cent of the 350m tonnes of CO2-equivalent avoided emissions certified to date by the UN secretariat in Bonn. Enel says that about 60 per cent of its 350m tonnes result from projects to prevent emissions of industrial gases, particularly HFCs and nitrous oxide (N2O), mainly in China.

Endesa, the Spanish power company 92 per cent-owned by Enel, was Europe’s heaviest user of CDM credits in 2008, according to Sandbag, an environmental group that monitors European emissions trading. Of the top 10 industrial sites using the CDM credits, five were Endesa-owned coal-fired power stations in Spain, according to figures from Carbon Market Data, a market analysis firm.

Because HFCs are believed to have an effect on global warming that is hundreds or even thousands of times greater than carbon dioxide, cutting HFCs can be a highly profitable way to earn credits.

Giuseppe Deodati, head of carbon strategy for Enel, said the European Commission wanted to put higher quality standards on those CDM projects, which could result in restrictions in the use of credits earned in this way. Mr Deodati said that HFC projects were the most efficient way of cutting emissions, and restricting their use would be “inappropriate”.

“Enel believes that pending regulatory actions that may create further uncertainties for private investors need to be avoided,” he said.

Bryony Worthington, of Sandbag, said Enel’s use of the CDM contradicted the assertion by Fulvio Conti, the company’s chief executive, that it would be “physically impossible” for the EU to move to the original plan of 20 per cent by 2020.

Use of CDM credits could be one of the ways that Europe could hit that higher target.

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