Spain buys 6 million emissions rights from Hungary

BUDAPEST, HUNGARY - Spain has bought rights from Hungary to emit 6 million tons of greenhouse gas through a government-level emissions trading scheme under the Kyoto Protocol, a Hungarian government official said.

"We have sold 6 million (emissions rights) to the Spanish government. According to our knowledge this is the biggest single sale (of its kind) in the world so far," said Lajos Olah, state secretary for Hungary's Ministry of Environment and Water.

Spain plans to buy 159 million tons of carbon credits and offsets over the next four years in an effort to meet emissions reduction goals under Kyoto, a spokeswoman for Spain's environment ministry told Reuters.

The Kyoto Protocol lets industrialized countries meet greenhouse gas targets by buying emissions credits under three different trading schemes.

One scheme under Kyoto allows nations that are comfortably below their emissions targets to sell excess quotas to other signatories in the form of credits, called Assigned Amount Units (AAUs), that are not necessarily related to emissions cuts.

Another scheme allows rich nations to invest in clean energy projects in poor nations, and in exchange receive offsets called CERs. The third scheme sees rich countries buy offsets called ERUs from similar projects in former communist countries.

"The strategy is to get as many CERs as possible and the rest will be in AAUs and ERUs," the Spanish spokeswoman said.

In a separate deal, U.S.-based project developers Natsource said that the government of Portugal will purchase $15 million in CERs through one of its funds.

Hungary's Ministry would not confirm terms of the AAU deal with Spain, saying it could affect future negotiations.

In a similar deal done in September, Hungary sold Belgium 2 million AAUs, also for an undisclosed price.

Latvia, Russia and Poland have said they are in similar discussions with nations like Ireland and Japan.

Olah said Hungary is also in talks with countries in and outside Europe, but will likely not sell all its AAUs this year.

"The total amount which we have can be estimated around 60 million units, but that's not a final figure and it has not been decided yet how many units we intend to sell," he said.

The majority of AAUs are held by former communist countries whose emissions dropped significantly in the 1990's when Eastern European industry slowed.

Critics have dubbed the credits "hot air", saying they are not generated as a result of investment in clean energy and are a cheap way for countries to meet commitments under Kyoto.

Such criticism has forced governments to introduce binding clauses to the deals that force the seller to re-invest proceeds in low-emissions technologies. Transactions that carry this caveat are known as Green Investment Scheme agreements.

In both deals, Hungary said it will invest proceeds in energy efficiency in residential and public sector buildings in order to cut emissions by 30 percent below 1990 levels by 2020.

"The spending of the proceeds will be audited, in this way the buyers can check how their money is spent," Olah said.