A coalition of environmental NGOs today said that the UN Executive Board has to
follow up on the CDM Panel’s recommendation for a thorough investigation to adequately address
fundamental flaws in Clean Development Mechanism (CDM) rules that incentivize production and issuance of phony carbon credits. The coalition is demanding strong and immediate action to halt the documented abuses in the UNFCCC carbon trading scheme.

Certified Emissions Reduction Units (CERs) for the destruction of HFC-23 represent over half of the more than 420 million CDM credits issued to date. The CDM's HFC-23 projects pay an estimated 65-75 times more for HFC-23 destruction than the actual cost to manufacturers. A revision request submitted earlier this year by CDM Watch to the CDM Executive Board provides overwhelming evidence that manufacturers are gaming the CDM system and undermining carbon markets by producing more potent greenhouse gases (GHGs) just so they can get paid to destroy them. The revision request called for an immediate overhaul in the rules governing the number of credits being issued and removal of the perverse financial incentives that currently exist.

The Methodologies Panel under the CDM Executive Board discussed the issues raised by the coalition for the first time in a meeting last week and released a report yesterday. The Panel agreed that many of the claims in the revision request could cause perverse incentives, i.e. that plants are producing
dramatically more HFC-23 per tonne of HCFC-22 than technically feasible, that some factories are only producing HCFC-22 if they are receiving CDM credits, and that the existence of the CDM credits may be causing an increased production of HCFC-22. The Panel said that further investigation is required to
“identify situations” resulting in excessive issuance of carbon credits and how “to improve the methodology”.

“If the UN CDM Executive Board wants to reinstall the integrity of the mechanism it has no other choice than to put the current crediting methodology on hold with immediate effect and cease issuance of all credits for the destruction of HFC-23 until the Panel has fully investigated the issue and revised the rediting methodology” Said Eva Filzmoser Director of CDM Watch.

Last week Clifford Mahlung, Chair of the CDM Executive Board stated the methodology should be adjusted if the issues were confirmed by the UN Methodological Panel.

“The CDM has certified millions of credits that do not present real emission reductions and is continuing to finance production of super GHGs at industrial plants in China, India, South Korea, Argentina and Mexico. The Board should now request the Methodologies Panel to prepare a revised methodology which
closes the current loopholes” said Chaim Nissim from Noe21.

Suggested changes to CDM rules governing HFC-23 credits are also gaining industry support. “Reducing the flow of HFC-23 credits into carbon markets will direct investment to where it is needed and allow renewable energy projects to flourish. Beyond a revision, a Montreal-Protocol-type ban for HFC use would be a much more efficient way of dealing with this type of GHG-emissions.” said Rémi Gruet, Climate Change Advisor at the European Wind Energy Association.

The World Bank’s Umbrella Carbon Facility is reported to have purchased over 130 million CER credits from two Chinese HFC-23 destruction projects at a cost of about US $1 billion. For both HCFC-22 manufacturing facilities the evidence shows that the plants are maximising their HFC-23/HCFC-22 production to reap profits from selling CDM emission offsets.