Are Chemical Companies Gaming the Carbon Credit System?

Are Chemical Companies Gaming the Carbon Credit System?

A controversy is brewing over whether some chemical companies are abusing a program that gives them carbon credit revenues for destroying a potent greenhouse gas created as a by-product in their operations.

At issue is whether some companies are intentionally overproducing trifluoromethane (HFC-23) in order to destroy it and generate certified emissions reduction (CER) units under the Clean Development Mechanism (CDM). HFC-23 projects account for more than half of all CDM carbon credits sold to date.

The CDM Executive Board said last week it would postpone re-issuing more CERs to five HFC-23 projects until an investigation is completed. The Board asked the chemical companies for production data from the last 10 years. The World Bank, which invested in two of the projects, has released a Q&A document (PDF) defending the projects, saying charges of overproduction lack merit.

HFC-23 is a by-product of HCFC-22, a chemical commonly used in air-conditioning and refrigeration that is more ozone-friendly than previous alternatives. A well-run HCFC-22 plant should have a HFC-23 by-product ratio of around 1 percent, according to Mark Roberts, senior counsel and policy advisor at the Environmental Investigation Agency, an NGO with offices in Washington, D.C. and London.

Chemical companies approved under the CDM can earn credits from destroying HFC-23 if their plants run at a HFC-23 by-product ratio of up to 3 percent. Environmental groups claim at least two plants allowed their HFC-23 by-product ratio, also called the w-factor, to fall significantly when their annual crediting periods ended, yet they continued producing HCFC-22.

Twelve of the 19 companies operated until the end of crediting period then stopped production of HCFC-22 until the next crediting period began, Roberts said in a phone interview Monday, "indicating if they weren't getting credit, it wasn't worth producing HCFC-22."  

HFC-23 is far more potent than carbon dioxide. Destroying it is lucrative because the cost to destroy it is just a fraction of the revenue they earn from selling the carbon credits through the CDM. Most of the facilities are based in China and India, with the remaining located Argentina, Mexico and South Korea.

Under the Kyoto Protocol, the CDM allows countries with a carbon reduction commitment to buy carbon credits from projects in developing countries in order to contain compliance costs and support sustainable development. It has come under fire in recent years over whether some projects would have moved forward without the carbon credit revenues. Some critics have called for the CDM to be scrapped post-Kyoto, while others are advocating it instead be refined. 

"People have been really critical of the CDM, which is why I think the Executive Board is taking this as seriously as they are," Roberts said. "How they respond is going to (impact) how much people are going to invest in it going forward."