BUDAPEST/LONDON (Reuters) - Hungary is selling 2 million U.N.-backed carbon emissions permits which have already been surrendered by companies, it said on Friday, raising concern that their buyers could use them again to comply with the EU’s Emissions Trading Scheme ETS.

The Environment Ministry said late on Thursday that it has signed an agreement to sell the permits to a trading firm which could probably resell them to Japan.

“The units are certified emission reductions (CERs) previously surrendered by Hungarian firms to comply with caps,” the ministry’s spokeswoman Boglarka Olt told Reuters.

She said the CERs are covered by the withdrawal of the same amount of AAUs (assigned amount units), credits assigned to governments, which firms are not allowed to use to comply with their caps under the ETS.

The European Commission has warned that CERs, once surrendered by firms to comply with their caps to a member state, can not be re-used for compliance later.

Jos Delbeke, the Commission deputy director general for environment said in a statement that he was concerned about government sales of such CERs even though such sales were possible under the rules of the Kyoto Protocol.

“However, European legislation does not allow for such CERs to be re-used for compliance in the EU ETS to avoid double counting of emission reductions,” Delbeke said. “Furthermore, a company buying such CERs in good faith and for compliance use in the EU ETS could incur economic losses.”

Olt said Hungary sold CERs because that was the instrument for which it saw demand. She said there were guarantees that the buyers would know that the CERs cannot return into the ETS.

“First, we had it in the contract that the buyer acknowledges that those CERs cannot return,” she said. “Second, the EU has published the list of the withdrawn units, therefore it can be checked that they cannot be sold legally (in the ETS).”

Miles Austin, director of the Carbon Markets and Investors Association said Hungary’s deal used a gap in EU regulations by selling CERs and covering it with AAUs which have a lower price.

“There is the risk that other countries might go to market and buy the AAUs and pocket the price difference,” he told Reuters.

“This is the first instance of this happening,” he said. “If this becomes a widespread practice it could double the volume of CERs available to the market which would have an effect on the CER price and therefore the (ETS trading unit) EUA price.”