Clean Dev Mechanism Reauthorizes HFC-23 Credits. Is There A Market?

We have reported several times on the UN Clean Development Mechanism (CDM)’s HFC-23 crisis, and now the CDM Executive Board has decided, essentially, that the crisis was a false alarm.

Back in June, CDM Watch, a monitoring group, alleged that up to one-third of all the carbon emission reduction credits issued by the CDM may be fraudulent. According to CDM Watch, the CERs for HFC-23, which is a potent byproduct of coolant manufacturing, were collected by 19 companies in India, China and South Korea that artificially increased their emissions in order to  receive CERs from bringing their HFC-23 emissions back down to normal levels. Under the program, factories can receive credits for up to a decade.

In response to the allegations, the Executive Board placed a number of the suspect projects under review, and recommended revisions to their HFC-23 reduction standards, acknowledging that the suspect projects may have “overestimated” their reductions. The Board claims that without the CDM, factories producing the gas may have been replaced within seven years. “CDM does not provide incentive to close down the plant,” the Board ruled.

And the board has now approved new CER issuances to 17 of those projects.

Given the loud and widespread criticism of the CDM in Copenhagen, it will be interesting to see how the Executive Board’s justification of these new issuances will play this week in Cancun — is it possible that CDM Watch got it that wrong?

But for its part, the European Trading Scheme — the biggest marketplace for CERs worldwide — has announced it plans to ban HFC-23 allowances beginning 2013.

“The acceptance of credits from industrial gas projects has been controversial for some time,” the EU said. “Certain gases have a very high global warming potential and abatement is very cheap. This can create huge financial rewards for project developers.”

By eliminating the largest marketplace for the credits, the EU hopes to push the CDM toward true reform, and push investment in CDM projects away from such rapidly-growing economies as India and China, toward smaller countries.

“Offsetting EU emissions with reduction credits from international climate projects is beneficial when the projects make a real contribution to addressing the climate challenge and to sustainable development in the world’s poorest regions and countries,” said Connie Hedegaard, European commissioner for climate action. “With today’s proposal we want to ensure that Europe’s demand for credits is increasingly focused on such projects.”

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