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Carbon credit scam slur on Indian firms

Members of a United Nations (UN) panel have asked for a thorough review of several projects that come under a scheme that compensates companies in the developing world for adopting clean technology, following studies that show the scheme might be corrupt. Anika Gupta reports. Pollution pays

delhi Updated: Sep 14, 2010 18:56 IST
Anika Gupta

Members of a United Nations (UN) panel have asked for a thorough review of several projects that come under a scheme that compensates companies in the developing world for adopting clean technology, following studies that show the scheme might be corrupt. The demand for review comes from several members of the panel, despite protests from the Indian side.

The controversy surrounds projects that remove HFC 23, one of the most potent greenhouse gases in existence, from the atmosphere. These projects make up less than 1 per cent of scheme projects but are responsible for more half the carbon credits awarded by the UN so far, mostly to chemical plants in India and China that emit HFC 23 as a byproduct.

There is “overwhelming evidence that manufacturers are gaming the system and undermining carbon markets by producing more potent greenhouse gases just so they can get paid to destroy them,” climate researcher Eva Filzmoser wrote in a recent report placed before a UN committee.

Several members of the UN’s Executive Board in charge of the scheme, called the Clean Development Mechanism (CDM), called for a review of the projects, five of which are based in India, despite objections from the Indian member of the Board.

“The suspension or ‘putting on hold’ of this Methodology would have not served any purpose as no new project is likely to come,” Indian board member Rajesh Sethi told HT in a note. “All methodologies are reviewed in a time sequence and this methodology would also be reviewed in its turn.”

But the nonprofit groups Environmental Investigation Agency (EIA) and CDM Watch say their data are compelling.

“Our analysis showed that three [Indian] projects all produced each year exactly the amount of [gas] eligible for crediting,” Clare Perry, a senior campaigner with EIA, told HT.

The Indian companies are authorized to receive more than 10 million carbon credits every year, worth about Rs. 1135 crore, for burning the chemical byproduct HFC 23 instead of emitting it into the atmosphere. The UN’s review is likely to delay the award of these credits, many of which are already contracted to buyers in the United States, Europe and Japan.

When contacted by HT, company spokesmen declined to speak individually but referred to the Refrigerant Gas Manufacturers Association, an industry conglomerate.

According to a statement by the group, the NGOs’ reports are “unsubstantiated,” and “it is unfair to tarnish the reputation of an entire industry, many of whose members are listed entities with high standards of corporate governance and ethics, of having manipulated the CDM.”

The contracts are some of the most lucrative climate finance projects in the world. A company pays less than Re. 100 to dispose of a tonne of HFC 23, a chemical byproduct, but earns as much as Rs. 1.8 crore from the UN for doing so.

In the 2009-2010 financial year, Gujarat Fluorochemicals Ltd, which runs India’s oldest CDM project for removal of HFC 23, made Rs. 47,295 lakhs from the sale of carbon credits, nearly half of the company’s revenue for that year, according to public documents. The youngest project, by Hindustan Fluorocarbons Ltd, has yet to make money from CDM but is counting on that income to cover loans, according to public documents.

If there are extensive delays in the system, the market might have grounds to legally challenge the UN, said Alessandro Vitelli, director of strategy and information at the carbon consultancy firm IDEAcarbon.“It’s a very difficult situation all round.”

A scientific study recently found that world emissions of HFC 23 had come down by about 40 per cent between 2006 and 2009.