Jane Burston argues that the inclusion of HFC gases in carbon offset mechanisms can leave them ineffective and open to corruption

Assaults on the integrity of the Clean Development Mechanism (CDM), the UN-approved standard for carbon offsetting and the source of credits for both national governments and privately owned companies, are not rare.

In the past two years alone, VAT fraud, suspended auditors, governments reuse of credits and huge inefficiencies have led many to question whether the mechanism is delivering the results it should.

And now, negotiators and campaigners at the UN climate conference in Cancun have had the latest scandal on their agenda – the production of offset credits from projects that destroy HFC gases.

Environmentalists claim that the CDM creates a perverse incentive to increase rather than decrease emissions. They say that companies are over-producing the potent greenhouse gas HFC-23, purely so they can be paid to stop doing it.

A powerful GHG

HFC-23 is a by-product of air-conditioning and refrigeration systems. Crucially, it is 11,700 times more powerful a greenhouse gas than CO2. This means that just one project to reduce HFC-23 can produce millions of tradable carbon credits.

Of approximately 2,000 registered CDM projects, there are only 19 involving HFC-23. But this small number of projects counts for just over half of the 475m credits issued to date. Further, it is estimated that buyers inadvertently pay 65 to 75 times more to destroy HFC-23 than it actually costs.

A host of evidence adds weight to claims that some plants are operated in such a way as to maximise the production of offset credits. The NGO coalition CDM Watch reviewed data from the Ulsan project in South Korea, revealing an artificial increase in HFC-23 production during the period of project registration under the CDM.

Also implicated in these accusations are two HFC-23 projects in China, in which the World Bank has invested around $1bn through its Umbrella Carbon facility. The World Bank however denies claims that these lucrative projects are attempting to fix the system and attributes the increase in HFCs to a growing demand for refrigerators and air-conditioners.

Projects suspended

As a result of claims such as these, the approval of HFC-23 projects was suspended between August and November 2010, while the CDM executive board investigated the allegations. The inquiries uncovered some serious flaws in the HFC-23 methodology, which will now be revised.

But the board did not find any project developers guilty of misconduct, meaning these projects can once again start generating offset credits. Immediately, millions of credits were issued from HFC-23 projects.

This has sparked fury from NGOs. Natasha Hurley, policy adviser at CDM Watch, says: “This move is totally incoherent. It doesn’t make sense for the board to suspend issuance of credits while the investigation is ongoing and then lift the suspension the very moment it finds that there is a problem.”

The EU is also unlikely to welcome the move. Artur Runge-Metzger, a senior negotiator with the European commission, said, early on in the talks, that the generation of offsets from HFC-23 projects “is something that we have to address”.

ETS initiative

Instead the EU would like large developing nations themselves to pay for the cost of destroying HFC-23. They are prepared to take matters into their own hands to achieve this. On November 25, the European commission proposed to ban carbon credits generated from HFC-23 for use in the EU emissions trading scheme from January 1 2013.

Yet this controversy is likely to be around for months, if not years, to come. Further HFC-23 projects, with the potential to generate over 16m more credits, are lined up for approval before spring 2011. Environmental groups are fighting to bring exclusion of HFC-23 projects forward.

On the other side, project developers and offset retailers have been joined by the Chinese government, which calls the EU’s decision “irresponsible” and are lobbying to retain HFC-23 projects within the CDM as a whole.

Jane Burston is co-founder of Carbon Retirement, a company which buys “permits to pollute” directly from the European emissions trading scheme and then permanently removes them from the scheme. www.carbonretirement.com