UNITED NATIONS -- Starting today, the members of the Executive Board of the Clean Development Mechanism (CDM) sit down to tackle arguably the most serious controversy since the beginning of the Kyoto Protocol system for offsetting greenhouse gas emissions in developing countries.
The Bonn, Germany-based U.N. affiliate will examine a dozen projects that constitute two-thirds of all offset credits issued to date. The projects involve the destruction of hydrofluorocarbon-23 (HFC-23), a potent greenhouse gas that results when chemical companies produce a refrigerant and propellant called hydrochlorofluorocarbon-22 (HCFC-22).
Paying firms through the issuance of lucrative credits to destroy the gas is necessary to combat global warming, board members and proponents say. A coalition of outside groups, on the other hand, has uncovered evidence that these companies are deliberately producing more of the waste just for the sake of destroying it to earn offset credits -- in essence, creating pollution to profit.
The CDM's harshest critics say outright fraud is at work and suggest that up to half of all the Certified Emission Reductions (CERs) ever issued are bogus. CERs are the offset credits earned from CDM projects, sold primarily into the European Union's cap-and-trade scheme.
Board members say it may be just a matter of tightening the rules to reduce the volume of CERs allowed per project.
"What the discussion is about now is: Are we seeing the adequate levels of safeguards?" said Pedro Martins Barata, current vice-chairman of the CDM Executive Board. Though he acknowledged that the evidence presented does indicate there's a problem, "it's not necessarily that they are gaming the system, but whether or not they are exploiting a flaw in the methodology."
Some worry that the review happening this week is a procedural delay, to kick the controversy down the road for further discussion.
"What we have now is that they've decided they're going to study the problem, which, as you well know, is oftentimes a surrogate for any real actions," said Samuel Labudde, a researcher with the nonprofit Environmental Investigation Agency.
CDM spokesman David Abbass insists the review is not meant to delay action.
A touchy political subject
But the HCFC projects are a touchy political subject, as they have given billions of dollars of extra proceeds to HCFC-22 factories, mainly in India and China. Two of the board members hail from those countries, and there are no rules in place which forces them to sit out the discussion.
At the center of the controversy are 19 chemical gas manufacturers, mainly located in China and India, with others in South Korea, Argentina and Mexico. Their production of HCFC-22 helps to avoid the production of ozone-eating substances now banned under the Montreal Protocol. But encouraging protection of the ozone layer has inadvertently led to emissions of HFC-23.
For years, these 19 plants have been earning the vast majority of CERs to destroy the byproduct gas. Today, these greenhouse gas offsetting projects utterly dominate the CDM. Research by Sandbag, a U.K.-based nonprofit monitoring emissions trading, says just 10 of them were the source of fully 66 percent of all CERs sold into the E.U. carbon market in 2009.
The disparity is justified, says CDM board Chairman Clifford Mahlung, because HFC-23 is some 11,000 times more potent a greenhouse gas than carbon dioxide.
"They have always attracted attention, however any doubts surrounding them that the board could act on have only recently emerged," Mahlung explained in an e-mail response to questions.