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World Bank Caught in Controversy Over Suspect Carbon Credits

Reformers say dangerous refrigerants could be eliminated for $70 million a year, instead of $1 billion.

By Stacy Feldman

Sep 7, 2010

A storm has been brewing for months in an obscure corner of the carbon-trading world, and it's now raging into full public view.

At issue is whether the UN should modify the way it gives valuable carbon credits for climate-destroying refrigerant chemicals, and the stakes are high. The decision could reshape the $2.7 billion carbon crediting scheme known as the Clean Development Mechanism (CDM).

The biggest controversy now: whether the is working to block reforms to the allegedly corrupt system, a charge the bank strongly rejects.

Under Kyoto's , 19 chemical plants in developing nations earn large sums of carbon offset credits as incentive for destroying hydrofluorocarbon-23, a "super greenhouse gas" that is 11,700 times more potent than CO2.

The World Bank has bought credits from two HFC-23 destruction facilities located in China worth about a billion dollars.

Environmental groups accuse these plants — among others — of "gaming" the marketplace by overproducing the heat-trapping waste gas just to destroy it in order to secure the maximum number of carbon credits. 

"HFC-23 projects are rotten to the core," Sam LaBudde, senior atmospheric campaigner for the (EIA), told SolveClimate News.

According to EIA, a research and advocacy group, the 19 plants have made around $2.8 billion in often excessive profits.

A spokesman for the (UNFCCC), regulator of CDM projects, said there has been no "gaming" of the system.

"The amount of [credits] that a project can earn is capped," David Abbass told SolveClimate News by phone. "They're tied to historical production levels. They couldn't all the sudden turn around and increase their volume of production just to earn credits."

The anti-corruption safeguard was built into the methodology from the beginning, Abbass stated.

"The potential for perverse incentives leading to increased production of HFC was recognized early on, and rules were adopted [in 2005] to avoid it happening," he said.

For LaBudde, the safeguard is "so deeply flawed that it threatens the viability of the entire CDM process."

CDM Board Investigates

The $2.7 billion CDM, the world's second-biggest carbon market, allows rich nations or companies to buy emissions credits, or CERs, to meet greenhouse gas pollution targets or sell them for money.

Around 2,000 projects have been registered, but the 19 HFC-23 projects alone account for just over half of the 430 million CERs issued to date.

While insisting the program is good for climate protection, the CDM executive board recently declared it will investigate to determine if HFC-23 projects are earning excessive credits.

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