Ethically Bankrupt: World Bank Defense of the HFC-23 Scandal

The Environmental Investigation Agency (EIA) has published a response to the World Bank’s Q&A on HFC-23. Below the Executive Summary.

You can download the pdf file here.

Executive Summary: The United Nations Clean Development Mechanism (CDM) was created in 2003 to allow emission-reduction or removal projects in developing countries to earn carbon credits, each equivalent to one tonne of CO2. These certified emission reduction (CERs) can be traded and sold, and used by industrialized countries to a meet part of their emission reduction targets under the Kyoto Protocol. Since that time, CDM projects have generated almost 430 million offsets or CERs.

The World Bank’s Umbrella Carbon Facility is invested in two of the most lucrative HFC-23 incineration projects. In 2006, the Carbon Facility contracted to purchase almost 130 million CERs, worth 775 million Euros (US $ 980 million) from two HFC-23 incineration projects in China – Jiangsu Meilan Chemical Co. Ltd. (CDM project #11) and Changshu 3F Zhonghao New Chemicals Material Co. Ltd (#306). Both of these plants have been identified as operating to maximize generation of HFC-23 up to the level that it receives CERs, resulting in superfluous (fake) carbon credits as detailed in the Revision Request for the HFC-23 Destruction Methodology and as set forth below.

In April 2010, a Revision Request was submitted to the CDM Methodologies Panel that provided strong evidence that HCFC-22 manufacturers are likely to manipulate their operations to increase the amount of HFC-23 generated for destruction and subsequent crediting with CERs. Using the plants’ own submissions to the CDM, the Revision Request documented that for many plants the amount of HCFC-22 and HFC-23 generated corresponds to the amounts that are eligible for gaining carbon credits. Two plants produced lower rates of the HFC-23 waste product during periods where no carbon credits could be claimed, and increased their waste production once carbon credits could be gained. In several plants, the HCFC-22 production corresponded each year to the amount that is eligible for crediting, while lower or more variable amounts were produced before the carbon credits could be generated. Subsequent letters and public statements from environmental organizations have protested the CDM sanction of tens of millions of phony carbon credits and insisted that the HFC-23 Methodology be revised to remove the perverse financial incentives responsible.

In response, the World Bank posted a Q & A on their website, defending the HFC-23 Destruction Methodology, and by association their investment in HFC-23 CERs, and dismissing the entire body of evidence documenting the widespread abuse among CDM HFC-23 projects. The World Bank Q & A fails to provide the information needed to understand the HFC-23 controversy, ignores some key findings by relevant institutions such as the CDM Methodologies Panel and the Montreal Protocol’s Technical and Economic Assessment Panel (TEAP), and does not address or discuss many of the issues identified in the revision request. The World Bank Q & A is based on an astonishing amount of false or misleading information, and utterly fails to examine any of the wider issues at stake.

The dismissive nature of the World Bank’s statement is surprising in light of the fact that the UN CDM Executive Board has started an investigation of the key concerns that has not yet been finalized. On 18 August 2010, the World Bank’s Changshu Zonghao project’s request for the issuance of 3,260,020 CERs was delayed pending a detailed investigation of the exact issues that the World Bank has cavalierly dismissed. As of 25rd August, in total six HFC-23 CDM projects are under investigation, questioning the issuance of more than 9 million CERs.

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