The UN has recently confirmed that it will delay issuing offset credits to three already approved industrial gas projects, pending a review. This is a sign that they are taking the allegations that some projects are gaming the system seriously and could signal the beginning of the end for the inclusion of such projects in the carbon market.
Over recent weeks the use of carbon credits generated through Clean Development Mechanism (CDM) ‘HFC 23’ projects have come under increased scrutiny. HFC-23 is a potent greenhouse gas (GHG) which is the unwanted by product of manufacturing the refrigerant gas HCFC-22. HFC-23 is a green house gas (GHG) which is some 12,000 times more potent than CO2, this means under the CDM HFC-23 projects are able to generate a vast number of emissions credits at low cost which are then sold to companies to meet their targets under the EU emissions trading system (ETS).
There are a number of concerns surrounding the use of these credits for compliance within the EU (ETS). The one that has risen to prominence recently is the alleged gaming of the system undertaken by some of these projects. The financial benefits of HFC projects are so lucrative that the CDM is increasingly acting as a perverse incentive, encouraging projects to over produce GHGs in order to destroy them and claim the credits. Likewise the favourable conditions created by including such projects in the CDM also prevent domestic legislation as well more effective international legislation dealing with this waste gas. The Montreal Protocol – tasked with eliminating ozone-depleting gases – could offer a feasible alternative to addressing HFC-23 emissions. The USA, Canada and Mexico submitted a draft decision to address the issue but this submission was met with opposition by China and India, both of whom profit substantially from the inclusion of HFC-23 projects in the CDM.
Furthermore, the continued use of HFC credits does not represent good value for money for Europe, which pays around €8- €12 a tonne to destroy this gas compared to a mere [€0.17](http://www.eia-international.org/cgi/news/news.cgi?t=template&a=598&source= “”) a tonne if it was dealt with through the Montreal Protocol. If HFC 23 were to come under the remit of the Montreal Protocol the total cost of destruction is estimated to be around €7.7m per year. Considerably less than the estimated €371-556m the EU spent on HFC credits in 2009 for compliance use in the EU ETS alone. The use of HFC credits dominates the compliance market; in 2009 59% of all CERs surrendered into the EU ETS were HFC CERs, originating from a mere 18 projects which represent just 0.8% of all CDM projects worldwide. If they were removed this would open up a market in projects which much clearer sustainability benefits that represented better value for money.
The CDM executive board (EB) met at the end of July 2010 and tasked the methodology panel with investigating the claims of gaming of the system by HFC projects. Following this meeting, the recent decision taken by the EB to review the request for CER issuance of three Chinese HFC projects is further evidence that the EB is taking the allegations against these projects seriously. Nevertheless, this review of the issuance requests is a fact finding mission which does not guarantee that HFC projects will be removed from the CDM. This review process will delay the issuance of HFC credits, but it is likely that any more fundamental decision on the removal of HFC projects from the CDM will be a political one, which will be taken at the Conference of the Parties (COP), this year held in Mexico.
In the meantime, under the EU Emissions Trading Scheme, (the main source of demand for offset credits), a review of policy urgently needs to get under way and reforms need to be agreed.
The CDM is a crucially importance mechanism that has been incredibly effective in creating a legitimate method of funnelling investment into developing counties. It has the capacity to help fund meaningful projects in corners of the world that are in desperate need of foreign investment. Europe’s role is crucial, it drives the demand for the global carbon market and thus has a responsibility to only accept credits that meet the highest level of environmental integrity. Furthermore, with an expected time delay before the UNFCCC is able to effectively address the HFC issue, the onus is on the EU to make a stand and set the standard. The EU has set out in the ETS Directive the clause to ‘restrict the use of specific credits from project types’. It’s time for Europe to rule out HFC and other credits from industrial gas projects and ensure investment is sent to projects with only the highest environmental integrity and stop this irrational subsidy of Chinese and Indian chemical works. For the time being HFC credits are down but they are not out.
Click [here](http://redactie.radiocentraal.org/2010/100814_Sandbag_RobElsworth.mp3 “”) to hear an interview with Sandbag Climate Campaign