[enviro-vlc] News: Global Clean Development Mechanism Projects Being Questioned
vern at coombs.anu.edu.au
Mon Apr 14 22:53:37 EST 2008
Subject: News: Global Clean Development Mechanism Projects Being Questioned
Date: Mon, 14 Apr 2008 02:03:59 -0700
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To: Environmental Ecology News <envecolnews at yahoogroups.com>
U.N. Effort To Curtail Emissions In Turmoil
By JEFFREY BALL
April 12, 2008; Page A1
A multibillion-dollar experiment designed to curb global warming is
stumbling as regulators question whether the program is doing enough
The United Nations is the main global policeman in an effort by wealthy
nations to reduce the impact of their own pollution by paying for
cleanups in the developing world. The program, known as the Clean
Development Mechanism, is one of the most important coordinated efforts
to attack global warming.
In recent months, however, U.N. regulators who administer the program
have objected to dozens of these developing-world projects, ranging from
hydroelectric plants to wind farms, questioning whether the projects
would produce a real environmental payoff.
U.N. regulators are also concerned that some independent auditors of
these projects, who are responsible for vetting their environmental
legitimacy, have been letting project developers push through ventures
of questionable environmental value.
The crackdown challenges a plank of the world's campaign against climate
change: that polluters can pay someone else to clean up the mess. If the
approach were to be discredited, curbing emissions could cost companies
and consumers significantly more.
At issue, says Kai-Uwe Barani Schmidt, the U.N. panel's top
administrator, is a conflict between "private-sector ambitions and the
environmental integrity of the system."
As companies world-wide face government pressure to pollute less, the
U.N. program gives them a cheaper alternative to cutting their own
emissions. Instead, they can pay for the right to pollute by buying
"carbon credits," essentially permission slips to spew carbon dioxide.
Sale of the credits is supposed to help fund clean-air projects in China
and other developing countries that would otherwise be too costly to build.
Last month, the panel declined to authorize the sale of carbon credits
from two wind farms in the Indian state of Tamil Nadu. Backers of the
projects, which have a combined 22 turbines, said their economic success
depended on revenue from the sale of carbon credits. The U.N. panel said
it wasn't persuaded.
The U.N. has rejected numerous other proposals on similar grounds since
last summer. Among them: A Brazilian corn-processing factory, two Indian
sugar mills and two Malaysian palm-oil plants. All were designed to
install equipment to generate energy from renewable materials like wood
scraps, fruit bunches and other waste. That would reduce the need for
Developing-world projects like these are part of the burgeoning global
carbon trade. In total, the global carbon market last year was worth
40.4 billion euros , according to Point Carbon, a Norway-based industry
consultant. Of that total, Western companies and governments invested
six billion euros last year in credits from projects in the developing
world, nearly double the prior year, Point Carbon says.
In 2004 and 2005, as projects began to trickle in, the lightly staffed
office of the U.N. Clean Development Mechanism's executive board
approved virtually all of them. But as the number of proposed projects
soared, the panel hired more staff and late last year tightened
standards. In 2007, it rejected 9% of proposed projects, and held up
another 21% for further review, according to U.N. figures -- many of
which required changes before getting the go-ahead. The U.N. demanded
more financial data to prove many projects needed carbon-credit revenue
to be feasible.
The U.N. says it isn't suggesting that most of the developing-word
projects are illegitimate. Evaluating whether a project would have been
built without carbon-credit revenue is a complex judgment call, says the
U.N.'s Mr. Schmidt. It represents "one of the biggest challenges" of the
The average developing-world carbon credit -- which grants permission to
the buyer to emit a ton of carbon dioxide -- sells on the market for $16
to $24. The U.N. issued credits last year worth roughly $1.2 billion to
The carbon market was created by the Kyoto Protocol, a 1997 global
treaty underlying environmental rules already in effect for much of the
world and now being considered by the U.S. Congress. Most buyers of
developing-world credits are in Japan and Europe. U.S. companies aren't
buying them in significant numbers, market analysts say.
The U.N. regulators are questioning the actions of two main players in
the carbon market: Project developers, who put together projects in
order to sell the credits to Western industrial buyers; and the auditing
firms that inspect and certify to the U.N. that the projects are
A dozen or so project developers, most based in Europe, dominate the
business. Among the largest is EcoSecurities Ltd. of Oxford, England.
The U.N. has rejected several of its projects, often contending they
would have been financially viable without the revenue from credits.
Bruce Usher, the New York-based chief executive of EcoSecurities, says
the company's projects are environmentally legitimate. Last November,
largely in response to the U.N. crackdown, EcoSecurities said it was
writing off a chunk of the carbon credits it had promised the market it
would deliver. Since then, the company's shares, traded on the London
Stock Exchange's AIM index, have fallen 67%.
Three auditors dominate the business. All three -- Det Norske Veritas,
based in Norway; Tüv Süd AG, based in Germany; and SGS Group, based in
Switzerland -- are major European consulting firms for whom the carbon
market is a small but growing franchise.
The auditors argue that they're not to blame for the questionable
quality of some proposed projects. In a presentation to U.N. officials
last fall, the head of Tüv Süd's carbon business told U.N. officials
that the quality of projects the auditors are receiving from carbon
brokers is "going down," according to the U.N. panel's Mr. Schmidt, who
was at the meeting.
In an interview, the Tüv Süd executive, Werner Betzenbichler, declined
to discuss his comments in the U.N. meeting. But he confirmed the
substance of his presentation.
"There is a high incentive" for companies to put together
environmentally questionable carbon-credit projects, "because there is a
lot of money that can be earned," he said. "People are getting more
inventive, so it's getting harder to detect the black sheep."
Luc Larmuseau, global director of climate-change services for DNV,
echoed those thoughts. "We've seen some examples where we've got serious
doubt," he says. DNV and the other auditors have prepared a dossier of
their rejections and have sent it to U.N. regulators as part of their
The issue came to a head in December, at a meeting between U.N.
officials and auditors during a U.N. conference on climate-change policy
in Bali, Indonesia. A member of the U.N. board, Christiana Figueres,
expressed concern that the system may be open to what she called
"collusion" between auditors and project developers to push through
environmentally dubious projects.
Ms. Figueres confirms that she used the term in the December meeting,
but says she didn't intend to suggest that auditors are purposely
recommending that the U.N. approve projects whose legitimacy the
auditors doubt. Rather, she says, she was suggesting "a systemic
collusion in which the [U.N.] board is being put in a position of having
to do an in-depth review of these projects because [the auditors] are
not doing it."
Ms. Figueres, a consultant living in Washington, D.C., left the U.N.
board in January, when her term representing her native Costa Rica was up.
The U.N.'s Mr. Schmidt confirms that members of the U.N. panel "are
aware of the clear and perceived risk of collusion" between auditors and
companies putting together carbon-credit projects. One safeguard, he
says, is the threat that the U.N. can revoke an auditor's accreditation
if the U.N. finds that the auditor has done substandard work.
The auditors strongly deny they're acting improperly. In their defense,
the major auditors, among them DNV, Tüv Süd and SGS, have produced
statistics showing that they are rejecting significant numbers of
projects before they're proposed to the U.N. Between the start of the
market and the end of 2006, the auditors rejected 7.7% of the
developing-world projects proposed to them, according to Robert Dornau,
director of the climate-change program at SGS.
Deciding whether a proposed project needs carbon-credit money to to be
viable "is not black and white," Mr. Dornau says. Auditors are intent on
showing they're fastidious because, he says, "we don't want to lose
people's trust" in the carbon trade.
Write to Jeffrey Ball at_ jeffrey.ball at wsj.com
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