|Deals questioned, bureaucrats deluged in ’carbon credit’ rush
By CHARLES J. HANLEY
THE ASSOCIATED PRESS
AS THE WORLD GROWS warmer, poorer nations are helping the rich by reining in heat-trapping gases, in a multibillion-dollar ‘‘carbon trade’’ that is outrunning its U.N. overseers and founding principles, and spawning conflicts of interest and possible abuse.
Even pig manure has gone from a hot commodity to a controversial one in the 2-year-old ‘‘CDM’’ market, in which industrial countries obliged by treaty to cut their greenhouse-gas emissions can get credit for reductions in the developing world. Less is being achieved than claimed, critics say.
Under the Clean Development Mechanism, a Japanese utility benefits from a hydroelectric dam in Vietnam, a British broker collects credits from a ‘‘green’’ cement plant in China, and Canada buys emission reductions from Brazilian farms where methane from pig waste is now burned instead of left to rise into the atmosphere.
From 40 approved projects last December, this gas exchange has grown to 356 projects today, in 35 countries. The deals totaled $4 billion in the first half of 2006, even before the biggest yet was announced Aug. 29 - a European-Asian consortium’s contract to buy $1 billion worth of emission credits from two Chinese chemical plants.
From London to Tokyo, hundreds of financiers, traders, lawyers and consultants are cashing in on a market seen as essential to combating climate change. Some believe it’s a boon to the poor, too. CDM is a ‘‘most promising instrument to promote sustainable development,’’ says Indian CDM official Shri Naresh Dayal.
But others note many projects do little to create jobs, encourage energy efficiency or protect the local environment, and say the exploding market is ripe for abuse.
When his company withdrew from CDM dealing in 2004, Swiss cement executive Bruno Vanderborght told a U.N. conference the system would create ‘‘other Enrons and Arthur Andersens,’’ referring to the U.S. energy and accounting scandal.
The 1997 Kyoto Protocol requires 36 industrial nations to reduce emissions of carbon dioxide, methane and other transportation, industrial and agricultural gases blamed by scientists for atmospheric warming. The protocol, rejected by the United States, requires an average 5 percent reduction below 1990 emission levels by 2012.
Kyoto’s Clean Development Mechanism is an alternative for northern companies that deem it too costly to reduce emissions at home.
The European Union runs a system for trading emission allowances within the EU. Oversight of the north-south CDM trading, meanwhile, fell to an underfunded U.N. climate treaty secretariat in Bonn, Germany, and its part-time CDM Executive Board.
As entrepreneurs rushed in, a backlog of project proposals built up. More than 850 now await approval, and developers complain of slow-moving, ‘‘Kafkaesque’’ scrutiny by the board.
'Incentives for corruption'
The secretariat’s CDM manager, Kai-Uwe B. Schmidt, said his expanding staff should number 43 by next year, double the size a year ago, and may take on additional duties to aid in board decision-making.
The U.N. body relies on private accounting and inspection firms to validate that projects will cut emissions and enhance economic development and the environment, and to verify later that gases are being reduced - all while being paid by project participants.
Specialist firms can act as both developers for some projects and validators or verifiers for others. Critics see conflicts of interest.
‘‘You’re creating all kinds of incentives for corruption,’’ said Daphne Wysham, a CDM expert at Washington’s Institute for Policy Studies. Gareth Phillips, a Briton who has worked as both a validator and now a CDM project developer, told The Associated Press the bias is natural.
‘‘If you give them a negative response’’ - not validate a client’s project - ‘‘they’re not going to be very happy,’’ he said.
'Really very disgusted'
The secretariat’s Schmidt said the CDM Executive Board requires combined developer-validator firms to segregate the functions. But ‘‘the board is concerned about the perceived conflict of interest,’’ he said. ‘‘It’s clear this is a very difficult issue.’’
The rush for ‘‘certified emission reductions,’’ traded in units equivalent to one metric ton of carbon dioxide, has produced a mountain of CDM paperwork that skeptics suspect hides false claims.
In India, the private Center for Science and the Environment uncovered a half-dozen apparent examples, seeming breaches of Kyoto rules requiring developers to consult with local communities to take environmental and other concerns into account.
In two sets of projects, all widely separated, these ‘‘villager’’ discussions as summarized in CDM submissions were the same, word for word for many lines - carbon copies for carbon credits, the environmental group suggests.
‘‘We were really very disgusted,’’ said its director, Sunita Narain.
One set of two projects involves chemical plants expected to earn at least $30 million a year in credits for incinerating the greenhouse gas HFC-23, a byproduct of the plants’ refrigerant production.
The firm PriceWaterhouseCoopers India, which prepared those submissions, rejected the environmentalists’ claim, pointing to appendixes attesting to two separate consultations, with names and other distinctive details. But the center’s investigators say village leaders told them they knew nothing of such ‘‘stakeholder’’ consultations.
The Indian Environment Ministry official who certified the projects as contributing to sustainable development said these ‘‘cut-and-paste’’ cases have not been investigated. ‘‘We believe these consultants have to be driven by their own code of ethics,’’ R.K. Sethi told AP.
Kyoto’s ‘‘sustainable development’’ criterion is routinely ignored, say market participants and environmentalists.
‘‘You see a lot of host countries that sign off on any project that comes their way,’’ said Michael Schlup of Gold Standard, a Swiss-based campaign to encourage ‘‘quality’’ emissions reductions.
The U.N. office may be tightening up.
In late July, for the first time, it rejected four projects, from Mexico and India, finding they did not meet another criterion - ‘‘additionality,’’ which requires proposals not be business-as-usual projects trying to capitalize belatedly on the new CDM bonanza, while adding no unexpected reductions to the gas balance.
Large hydroelectric dams, though emission-free, can be blatant violators of ‘‘additionality,’’ since they generally have been planned for years. The U.N. board last February suspended consideration of such dams for CDM credits, though for another reason: Drowned, decomposing vegetation in their reservoirs emit methane.
That decision illustrated the CDM’s complex weighing of environmental and other factors. The U.N. board, in another example, has yet to approve new commercial tree plantations for credits. Trees absorb carbon dioxide, but the science for measuring that - against negatives, such as tree harvesting - is unsettled.
'Trading is Kyoto'
Measurement is also the problem with manure, the commodity in more than 100 projects in Latin America, China and elsewhere.
For five months this year, the U.N. board put a hold on credits for new methane-capture projects at cattle, pig and poultry farms, until real-time monitoring could replace emission estimates, to allay suspicions the animals were emitting less gas than projected.
Because it hasn’t encouraged wind, solar and other renewable-energy ventures so much as big-payoff schemes like the Indian chemical projects, the CDM disappoints environmentalists.
‘‘It’s become more convoluted and corrupt development, rather than sustainable development,’’ complained India’s Narain.
Market players like Phillips, with the British CDM developer Sindicatum Carbon Capital, protest that many projects are truly ‘‘green,’’ such as his firm’s plan to capture methane from Chinese coal mines to use as energy.
‘‘That’s a strong definition of sustainable development,’’ he said.
Critics say this simply enhances the profitability of coal, blamed for much of global warming. The industrial north, lagging at home on its Kyoto commitments, will rely too heavily on such projects, they say.
‘‘Now carbon trading is Kyoto,’’ said Wysham. ‘‘You’re putting all your eggs in one basket, and problems already are emerging.’’
AT A GLANCE
Elements of the Kyoto Protocol on global warming:
* GASES: Seeks to control emissions of six heat-trapping gases: carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons and sulphur hexafluoride.
* TARGETS: Assigns numerical targets for reducing or limiting emissions, compared with 1990 benchmark, for 36 industrialized countries among 140 nations that ratified pact. The United States hasn’t ratified.
* TRADING: Allows emissions trading among the 36 countries. Industrial plants that emit less than allotted can sell resulting ‘‘credits’’ to those that exceed their allowances.
* JOINT IMPLEMENTATION: Allows nation to earn credits for financing emissions-reduction projects in another country subject to Kyoto controls.
* CLEAN DEVELOPMENT MECHANISM: Allows country to earn credits via emission-reduction projects in developing nations, which are not obliged to cut emissions.
- The Associated Press