The idea of carbon credits has always seemed bogus to me. Just a way for
polluters to defray and evade. Political expediency for wealthy
industrialists. And soon the "frackers" will be playing the same game by
spawning companies to clean up their poisons. They do not care until it
is their head behind the gun.
D.
On 08/08/2012 7:42 PM, Ray Harrell wrote:
Ah, self interest and the private sector. Little buggers they will
eat you right out of house and home. They have been around for a
long time. The Aztec businessmen called Pochtecas said that they
were people of no heart or better still people whose heart had been
eaten by the ants.
REH
August 8, 2012
Carbon Credits Gone Awry Raise Output of Harmful Gas
ByELISABETH ROSENTHAL
<http://topics.nytimes.com/top/reference/timestopics/people/r/elisabeth_rosenthal/index.html>andANDREW
W. LEHREN
<http://topics.nytimes.com/top/reference/timestopics/people/l/andrew_w_lehren/index.html>
RANJIT NAGAR, India --- When the United Nations wanted to help
slowclimate change
<http://topics.nytimes.com/top/news/science/topics/globalwarming/index.html?inline=nyt-classifier>,
it established what seemed a sensible system.
Greenhouse gases were rated based on their power to warm the
atmosphere. The more dangerous the gas, the more that manufacturers in
developing nations would be compensated as they reduced their emissions.
But where the United Nations envisioned environmental reform, some
manufacturers of gases used in air-conditioning and refrigeration saw
a lucrative business opportunity.
They quickly figured out that they could earn one carbon credit by
eliminating one ton of carbon dioxide, but could earn more than 11,000
credits by simply destroying a ton of an obscure waste gas normally
released in the manufacturing of a widely used coolant gas. That is
because that byproduct has a huge global warming effect. The credits
could be sold on international markets, earning tens of millions of
dollars a year.
That incentive has driven plants in the developing world not only to
increase production of the coolant gas but also to keep it high --- a
huge problem because the coolant itself contributes to global warming
and depletes the ozone layer. That coolant gas is being phased out
under a global treaty, but the effort has been a struggle.
So since 2005 the 19 plants receiving the waste gas payments have
profited handsomely from an unlikely business: churning out more
harmful coolant gas so they can be paid to destroy its waste
byproduct. The high output keeps the prices of the coolant gas
irresistibly low, discouraging air-conditioning companies from
switching to less-damaging alternative gases. That means, critics say,
that United Nations subsidies intended to improve the environment are
instead creating their own damage.
The United Nations and the European Union, through new rules and an
outright ban, are trying to undo this unintended bonanza. But the
lucrative incentive has become so entrenched that efforts to roll it
back are proving tricky, even risky.
China and India, where most of the 19 factories are, have been
resisting mightily. The manufacturers have grown accustomed to an
income stream that in some years accounted for half their profits. The
windfall has enhanced their power and influence. As a result, many
environmental experts fear that if manufacturers are not paid to
destroy the waste gas, they will simply resume releasing it into the
atmosphere.
A battle is brewing.
Disgusted with the payments, the European Union has announced that as
of next yearit will no longer accept the
<http://europa.eu/rapid/pressReleasesAction.do?reference=IP/11/56>so-called
waste gas credits from companies in its carbon trading system --- by
far the largest in the world --- essentially declaring them
counterfeit currency. That is expected to erode their value, but no
one is sure by how much.
"Consumers in Europe want to know that if they're paying for carbon
credits, they will have good environmental effects --- and these
don't," Connie Hedegaard, the European commissioner for climate
action, said in an interview.
Likewise, the United Nations isreducing the number of credits
<http://cdm.unfccc.int/Panels/meth/meeting/11/049/mp49_an13.pdf>the
coolant companies can collect in future contracts. But critics say the
revised payment schedule is still excessive and will have little
immediate effect, since the subsidy is governed by long-term
contracts, many of which do not expire for years.
Even raising the possibility of trimming future payments "was
politically hard," said Martin Hession, the immediate past chairman of
the United NationsClean Development Mechanism's
<http://cdm.unfccc.int/>executive board, which awards the credits.
China and India both have representatives on the panel, and the new
chairman, Maosheng Duan, is Chinese.
Carbon trading has become so essential to companies likeGujarat
Fluorochemicals Limited <http://www.gfl.co.in/>, which owns a coolant
plant in this remote corner of Gujarat State in northwest India, that
carbon credits are listed as a business on the company Web site. Each
plant has probably earned, on average, $20 million to $40 million a
year from simply destroying waste gas, says David Hanrahan, the
technical director ofIDEAcarbon
<http://www.ideacarbon.com/ideas-and-resources/recent-features.htm/>,
a leading carbon market consulting firm. He says the income is
"largely pure profit."
And each plant expects to be paid. Some Chinese producers have said
that if the payments were to end, they would vent gas skyward. Such
releases are illegal in most developed countries, but still
permissible in China and India.
As the United Nations became involved in efforts to curb climate
change in the last 20 years, it relied on a scientific formula: Carbon
dioxide, the most prevalent warming gas, released by smokestacks and
vehicles, is given a value of 1. Other industrial gases are assigned
values relative to that, based on their warming effect and how long
they linger. Methane is valued at 21, nitrous oxide at 310. HFC-23,
the waste gas produced making the world's most common coolant ---
which is known as HFC-22 --- is near the top of the list, at 11,700.
The United Nations used the values to calibrate exchange rates when it
began issuing carbon credits in 2005 under the Clean Development
Mechanism. That system grants companies that reduce emissions in the
developing world carbon credits, which they are then free to sell on
global trading markets. Buyers of the credits include power plants
that need to offset emissions that exceed European limits, countries
buying offsets to comply with the Kyoto Protocol --- an international
environmental treaty --- and some environmentally conscious companies
that voluntarily offset their carbon footprint.
Since the United Nations program began,46 percent of all credits
<http://www.cdmpipeline.org/cdm-projects-type.htm>have been awarded to
the 19 coolant factories, in Argentina, China, India, Mexico and South
Korea. Two Russian plants receive carbon credits for destroying HFC-23
under a related United Nations program.
"I was a climate negotiator, and no one had this in mind," said David
Doniger of the Natural Resources Defense Council. "It turns out you
get nearly 100 times more from credits than it costs to do it. It
turned the economics of the business on its head."
Destroying the waste gas is cheap and simple, but it is hard to know
exactly how much any one company has earned from doing so, since the
market price for carbon credits has varied considerably with demand
--- from about $9 to nearly $40 per credit --- and they can be sold at
a discount through futures contracts.
The production of coolants was so driven by the lure of carbon credits
for waste gas that in the first few years more than half of the plants
operated only until they had produced the maximum amount of gas
eligible for the carbon credit subsidy, then shut down until the next
year, United Nations reports said. The plants also used inefficient
manufacturing processes to generate as much waste gas as possible,
said Samuel LaBudde of theEnvironmental Investigation Agency
<http://www.eia-international.org/china-threat-to-vent-super-greenhouse-gases-in-bid-to-extort-billions>,
an organization based in Washington that has long spearheaded a
campaign against what he called "an incredibly perverse subsidy."
Michael Wara, a law professor at Stanford University, has calculated
that in years when carbon credits were trading at high prices and
coolant was dirt-cheap because of the oversupply,companies were
earning nearly twice
<http://www.law.stanford.edu/sites/default/files/child-page/138945/doc/slspublic/wara.pdf>as
much from the credits as from producing the coolant itself.
The United Nations, recognizing the temptation for companies to jump
into the lucrative business, has refused since 2007 to award carbon
credits to any new factories destroying the waste gas. And last
November, it announced that in contract renewals, factories could
claim credits for waste gas equivalent only to 1 percent of their
coolant production, down from 3 percent. The United Nations believes
that eliminates the incentive to overproduce, said Mr. Hession, the
former Clean Development Mechanism board chairman.
Even with these adjustments, credits for destroying waste gas this
yearremain the most common
<http://www.cdmpipeline.org/cdm-projects-type.htm>type in the United
Nations system, which rewards companies for reducing all types of
warming emissions. Eighteen percent of credits in 2012 will go to the
19 coolant plants, compared with 12 percent to 2,372 wind power plants
and 0.2 percent for 312 solar projects for the carbon dioxide
emissions avoided by the clean energy they produce.
In India, coolant plants received about half of the United Nations
carbon credits awarded to companies in that country, for destroying
their waste gas, during the system's first five years. They accrued
the power and money to fight efforts to roll back the subsidy.
Compared with Indian representatives, Chinese diplomats have shown
greater willingness at international meetings to consider altering the
subsidy for waste gas credits, said Stephen O. Andersen, a former
United States Environmental Protection Agency official who is now with
theInstitute for Governance and Sustainable Development
<http://www.igsd.org/>in Washington. That is because China has a more
centrally controlled economy and because it is developing an industry
based on newer coolants. "It's easier for them to put the national
interest before the interest of one manufacturing sector," he said.
A bigger question is just how much the European Union's decision to
disallow, as of next year, the waste gas credits in its immense carbon
trading system will decrease their value.
Banks and companies holding such credits have been rushing to cash
them in or sell them. And the potential devaluation of the carbon
credits has an impact in other industrialized nations, since the
carbon credit projects involve foreign sponsors and investors, who
sometimes received carbon credits in exchange for services or financing.
The Gujarat project was financed by Rabobank of the Netherlands and
the Sumitomo Corporation of Japan.
A coolant factory in Monterrey, Mexico, that receives carbon credits
is 49 percent owned by Honeywell. Goldman Sachs bought many of its
carbon credits.
Such credits are likely to have some continued value, because they can
be used in other environmental programs that allow their use, like
voluntary ones through which companies offset the emissions generated
by having a conference or travelers opt to pay a fee to offset the
emissions from an airplane flight.
Mr. LaBudde, of the Environmental Investigation Agency, who has long
campaigned against the subsidy, said he hoped that no one would buy
these "toxic" credits that "have no place in carbon markets" and that
they would quickly disappear. In its latest annual report, Gujarat
Fluorochemicals acknowledged that its carbon credits "may not have a
significant market" starting next year because European companies have
previously been their primary buyers.
Mr. Hanrahan, of IDEAcarbon, said that the credits could, at the very
least, be sold at a low price to traders who see the possibility for
marginal profit in a way similar to the market for junk bonds. Even if
all the proposals to make the carbon trade far less valuable
succeeded, the 19 factories certified to generate carbon credits by
destroying the waste gas could earn $1 billion from that business over
the next eight years, according to projections by IDEAcarbon.
And even as the economics shift, one big environmental question
remains: Without some form of inducement, will companies like Gujarat
Fluorochemicals continue to destroy the waste gas HFC-23? Already, a
small number of coolant factories in China that did not qualify for
the United Nations carbon credits freely vent this dangerous chemical.
And atmospheric levels are rapidly rising.
/Elisabeth Rosenthal reported from Gujarat State, India, and Andrew W.
Lehren from New York./
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