The European Union's top climate official proposed on Wednesday new limits on the use of carbon offsets from industrial gas projects, under fire by  green groups, in the EU's emissions trading scheme (ETS) after 2012.

"The Clean Development Mechanism (CDM) has been successful in some aspects but has also given rise to criticism, e.g. with regard to environmental integrity," said Connie Hedegaard, commissioner for climate action, in a statement. "As a first step towards a more advanced carbon market the CDM therefore needs a major overhaul."

Under the 27-nation bloc's $100 billion trading scheme, participants can use cheaper offsets from carbon cutting projects in emerging countries  approved under the United Nations' CDM towards their emissions goals.

But some lucrative CDM projects that inexpensively destroy a potent greenhouse gas called HFC-23 are being accused by green groups of gaming the system, intentionally boosting their production in order to claim more offsets.

Offset requests by six projects in China and India are now under investigation by a United Nations panel, which has requested production and demand figures from the project owners.

"I have asked my services to prepare a proposal for a measure to introduce further quality restrictions on the use of credits from industrial gas projects in the post 2012 EU ETS," Hedegaard said.

Hedegaard also said she had been asked by market participants to clarify what offsets will be accepted in the scheme's third phase (2013-2020), as rules surrounding possible qualitative or quantitative restrictions remain undecided. The proposals will be announced after the EU commission completes an impact assessment ahead of UN-sponsored climate talks in Cancun, Mexico at the end of November, a commission spokeswoman told Point Carbon News.

An emissions trading lobby group on Tuesday sent an open letter to Hedegaard urging her to clarify rules for the sake of the regulatory certainty required by investors.

"At last (the European commission) takes a position on the proposed restrictions, which is good, but it remains vague because it's not clear exactly  what types of industrial gas offsets would be restricted," said Emmanuel Fages, an emissions analyst at France's Societe Generale/Orbeo.
Orbeo, a joint venture between Societe Generale and chemicals maker Rhodia, profits from CDM projects that destroy another potent gas called N2O.