Press Release: CDM Panel Calls for Investigation over Carbon Market Scandal

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A coalition of environmental NGOs today said that the UN CDM Executive Board must react on the CDM Panel’s recommendation for a thorough investigation to adequately address fundamental flaws in Clean Development Mechanism (CDM) rules that incentivize production and issuance of phony carbon credits. The coalition is demanding strong and immediate action to halt the documented abuses in the UNFCCC carbon trading scheme.

Certified Emissions Reduction Units (CERs) for the destruction of HFC-23 represent over half of the more than 420 million CDM credits issued to date. The CDM’s HFC-23 projects pay an estimated 65-75 times more for HFC-23 destruction than the actual cost to manufacturers. A revision request submitted earlier this year by CDM Watch to the CDM Executive Board provides overwhelming evidence that manufacturers are gaming the CDM system and undermining carbon markets by producing more potent greenhouse gases (GHGs) just so they can get paid to destroy them. The revision request called for an immediate overhaul in the rules governing the number of credits being issued and removal of the perverse financial incentives that currently exist.

The Methodologies Panel under the CDM Executive Board discussed the issues raised by the coalition for the first time in a meeting last week and released a report yesterday. The Panel agreed that many of the claims in the revision request could cause perverse incentives, i.e. that plants are producing dramatically more HFC-23 per tonne of HCFC-22 than technically feasible, that some factories are only producing HCFC-22 if they are receiving CDM credits, and that the existence of the CDM credits may be causing an increased production of HCFC-22. The Panel said that further investigation is required to “identify situations” resulting in excessive issuance of carbon credits and how “to improve the methodology”.

“If the UN CDM Executive Board wants to reinstall the integrity of the mechanism it has no other choice than to put the current crediting methodology on hold with immediate effect and cease issuance of all credits for the destruction of HFC-23 until the Panel has fully investigated the issue and revised the crediting methodology” Said Eva Filzmoser Director of CDM Watch.

Last week Clifford Mahlung, Chair of the CDM Executive Board stated the methodology should be adjusted if the issues were confirmed by the UN Methodological Panel.

“The CDM has certified millions of credits that do not present real emission reductions and is continuing to finance production of super GHGs at industrial plants in China, India, South Korea, Argentina and Mexico. The Board should now request the Methodologies Panel to prepare a revised methodology which closes the current loopholes” said Chaim Nissim from Noe21.

Suggested changes to CDM rules governing HFC-23 credits are also gaining industry support. “Reducing the flow of HFC-23 credits into carbon markets will direct investment to where it is needed and allow renewable energy projects to flourish. Beyond a revision, a Montreal-Protocol-type ban for HFC use would be a much more efficient way of dealing with this type of GHG-emissions.” said Rémi Gruet, Climate Change Advisor at the European Wind Energy Association.

The World Bank’s Umbrella Carbon Facility is reported to have purchased over 130 million CER credits from two Chinese HFC-23 destruction projects at a cost of about US $1 billion. For both HCFC-22 manufacturing facilities the evidence shows that the plants are maximising their HFC-23/HCFC-22 production to reap profits from selling CDM emission offsets.

Many of the backers of HFC-23 CDM projects are large financial institutions and utility companies including global investment giant Deutsche Bank as well as Endesa and Enel, leading energy suppliers in Spain and Italy. HFC credits constitute the vast majority of offsets used in the EU Emissions Trading Scheme. According to watchdog group Sandbag nearly 1000 EU installations have used credits from the 15 projects implicated by these findings to comply with their legal emissions’ caps. Governments across Europe, including the Dutch government have also heavily invested in these projects that provide a less expensive means of achieving GHG emission reductions.

It remains largely unreported that the global warming impact of the HCFC-22 production (from which HFC-23 is an unwanted by-product) is five times higher than that of the HFC-23 itself, due to the high volume of HCFC-22 produced.

“It is clear that the CDM’s current HFC-23 program is financing and working against its own goal of producing reductions of greenhouse gas emissions for offsets. This type of abuse is gambling with our planet’s ecology.” said Fionnuala Walravens of the Environmental Investigation Agency. “The world cannot afford this corrupted type of carbon trading; squandering climate money is bad enough, but in this case many of the alleged benefits are simply a charade that actually increases the problem of global warming.”

The Methodology revision request can be found at

https://cdm.unfccc.int/methodologies/PAmethodologies/revisions/58215

The report from the Methodology Panel can be found at

http://cdm.unfccc.int/Panels/meth/index.html

The note on the revision request by the Methodoloy Panel can be found at

http://cdm.unfccc.int/Panels/meth/meeting/10/044/mp44_an02.pdf

To view the following underlying documents, see http://www.cdm-watch.org/?p=979 .

For more information contact:

Eva Filzmoser, Director of CDM Watch

Tel: +32 499 21 20 81

Email: [email protected]

Fionnuala Walravens, Campaigner at Environmental Investigation Agency

Tel: +44 207 354 7871

Email: [email protected]

Ends.

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