Carbon Credits Under Fire

The United Nations is reviewing carbon credits it awards to firms that claim to be reducing greenhouse gas emissions in China and elsewhere. Critics contend that the firms are gaming the carbon-trading system that awards credits to industrial companies that need to meet Kyoto protocol obligations for carbon emissions.

The executive board of the UN’s Clean Development Mechanism (CDM), the body that registers and issues carbon credits under the Kyoto protocol, says it will study six projects whose operators receive credits for destroying the fluorocarbon HFC-23, a potent greenhouse gas.

CDM has awarded credits to projects in China, India, South Korea, Mexico, and Argentina, where factories manufacture the refrigerant HCFC-22. The HFC-23 destroyed at the facilities is a by-product that could otherwise be legally released to the atmosphere. Critics claim that chemical firms are producing more HCFC-22 than the market demands to profit from the carbon credits.

The projects under review belong to five Chinese and one Indian chemical maker and are aided by investments from financial firms in Europe, one of the places in the developed world where carbon credits are sold. Thirteen similar projects registered by CDM have not been singled out for review. For example, French chemical company Arkema has a Chinese HCFC-22 joint venture for which it has earned carbon credits. And U.K.-based Ineos recently requested carbon credits from CDM for an HCFC-22 project in South Korea.

A European environmental group, CDM Watch, has demanded that the UN cut carbon credits it awarded to the projects by more than 90%. The reduction “would remove the current financial incentive that causes plants to produce gas for the sole purpose of getting paid to destroy it,” says CDM Watch Director Eva Filzmoser.

The carbon credit marketplace is likely to change when the Kyoto protocol expires in 2012. The EU’s climate commissioner, Connie Hedegaard, called on the UN to put in place more stringent restrictions on credits for industrial projects after 2012. A first step toward a more advanced carbon market would be an overhaul of CDM, she said.