By Oliver Bayani
The emission credits regulated under the C.D.M. have been used in the carbon markets of the European Union, Japan and other nations that adopted the 1997 Kyoto Protocol.
The United Nations Clean Development Mechanism (C.D.M.) executive board will suspend the issuance of carbon credits for hydrofluorocarbon-23 (HFC-23) to investigate allegations that some groups are manipulating the $2.7 billion scheme to their advantage.
C.D.M. Watch, a green coalition, pointed out that some C.D.M. projects in South and Central America, China and India deliberately produce more quantities of HFC-23, a byproduct of hydrochlorofluorocarbon-22 (HCFC-22) production, than required to create more emission credits to be sold on the carbon market.
There are 19 registered HFC-23 projects under the Kyoto Protocol’s C.D.M., which account for 51 percent of the 430 million emission credits issued by the United Nations to date.
China hosts 11 of these registered projects, which generates about 65 million credits annually. These represent around 650 million euros ($825.72 million) in annual revenues for the government, the Environmental Investigation Agency (E.I.A.) reported.
However, the C.D.M. board already blocked last week HFC-23 emission credits for five facilities in China. The board will first review carbon offset issuances requests from the projects of Shandong Dongyuen, Zhehiang Dongyang, China Fluoro, Zhonghao New Chemical Materials Company Limited and Zhejiang Juhua Company for at least two months before releasing its decision.
Projects that eliminate HFC-23 pay up to 75 times more than the actual production of HCFC-22 through credit sales. The high price can be due to the fact that the greenhouse gas is 11,700 times more potent that carbon dioxide.
Clare Perry, senior campaigner for the E.I.A., noted that the C.D.M. made the disposal of HFC-23 so valuable that some manufacturers now regard the greenhouse gas as the product rather than the byproduct.
One Indian producer revealed in its financial report for 2009 that 66 percent of its entire fluorochemical revenues came from selling HFC-23 credits. Likewise, Gujarat Fluorochemicals announced that it made 66 million euros from selling 6.5 million credits, exceeding its income from HCFC-22 production.
"The evidence is overwhelming that manufacturers are creating excess HFC-23 simply to destroy it and earn carbon credits," said Mark Roberts from the agency.
"This is the biggest environmental scandal in history and makes an absolute mockery of international efforts to combat climate change."
With the integrity of the entire carbon mechanism at stake, the C.D.M. board had to investigate whether manufacturers have manipulated the system to generate more revenues from emission credits. The investigation will entail sifting through 10 years of detailed data on HCFC-22 supply and demand, production and sales from the projects.
If the claims of dishonesty are proven true, then this could lead to a revision of the system’s methodology to prevent further abuse.
The emission credits regulated under the C.D.M. have been used in the carbon markets of the European Union, Japan and other nations that adopted the 1997 Kyoto Protocol, which requires mandatory cuts in greenhouse gases.
Industrialized nations can buy credits that pay for greenhouse gas mitigation projects on developing countries to cut their greenhouse gas emissions instead of putting up their own mitigation projects.
However, Mr. Perry said that industrialized nations could be wasting billions of dollars on perverse financial incentives since some of the largest projects funded by the scheme are not making meaningful cuts in emissions.