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More Fraud Within the Clean Development Mechanism

Richard Levangie | Monday June 28th, 2010 | 0 Comments

photo credit: Laz'Andre F. Cawagas

A consortium of North American and European activists have demanded sweeping changes to the Clean Development Mechanism (CDM) after charging that up to one-third of all CERs ever sold may have been illegitimate.

The groups are demanding an investigation to determine whether a number of coolant firms have manipulated the marketplace since 2005 by deliberately increasing their greenhouse gas emissions in order to obtain offsets by reducing them to normal levels. The 19 firms at the center of the storm are headquartered mainly in China and India, with others based in South Korea, Argentina and Mexico. They are alleged to have increased their production of the greenhouse gas HFC-23, a by-product of the coolant HCFC-22, to earn the CERs.

“Sometimes they produce gas just to burn it and get some CDM money, and it’s not at all an honest way of behaving,” said Chaim Nissim, Director of Noe21. “It’s fake.”

It’s not the first time the CDM Executive Board’s feet have been held to the fire. The World Bank has bee a particularly vocal critic, alleging that the certification process is too “expensive and time consuming” due to bloated bureaucracy. In some cases approved projects may have falsified documents to prove additionality. Others critics have questioned project auditors’ objectivity, and accused the program of both underpricing its credits and failing to reduce emissions. The CDM has responded by suspending one of its project auditors (since reinstated), tightening standards and streamlining procedures. But other problems continue.

But while CDM often seems to be carbon market critics’ favorite whipping boy, other trading schemes have had difficulty with fraud, too. In August 2009, the UK dropped the value-added tax from European Trading Scheme (ETS) credits due to fraud in both France and Germany — seven suspects were eventually charged with dodging $63 million in taxes incurred by carbon trading. And in February of this year, $4.1 million in offset credits were stolen from six German companies through an phishing scam. Europol estimates that in 2008-2009, countries involved in ETS lost about $7.4 billion in tax revenue.

CDM officials are responding to this latest investigation request after turning down the consortium when they alleged the same abnormalities in 2007. “A request for revision of the methodology used in these projects is now with the Executive Board’s Methodologies Panel,” says CDM spokesman David Abbass. “The Board is aware of such allegations but has yet to consider them. Certainly, it’s clear that without the CDM there would be no incentive to destroy the by-product HFC-23 gas.”


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