Major UNFCCC carbon trading scheme hit by serious corruption allegations involving organised crime in Russia and Ukraine
Arthur Neslen The Guardian 24 Aug 15;
A key carbon offsetting scheme was so open to abuse that three quarters of its allowances lacked environmental integrity, a new report says.
UN officials confirm the findings by the Stockholm Environment Institute that around 600m tonnes of carbon were wrongly emitted as a result, under the UNFCCC’s Joint Implementation (JI) scheme.
An estimated 80% of JI projects were of low environmental quality, according to the paper which was published today in Nature Climate Change.
“Many of them didn’t observe the requirements of JI on ‘additionality’ as they would probably have happened anyway, and I would even doubt the physical existence of some of these projects,” said Vladyslav Zhezherin, one of the report’s authors. “I would say that many of them were fake.”
A senior UN official speaking on condition of anonymity told the Guardian that the new report was “thoroughly researched and probably correct.”
JI had been beset by “significant criminal energy” in Russia and Ukraine, after the EU banned the trading of credits from an industrial gas scam on the Emissions Trading System (ETS) from April 2013, he explained. This led to a flood of what he called “almost completely bogus” credits in 2012.
“It was an outstretched middle finger to the EU saying ‘You’re shutting out our credits, we’re flooding your markets,’ a mix of retaliation and crime,” he said.
Another source with regulatory experience in Ukraine’s JI market told the Guardian that, as the 2000s dragged on, JI increasingly came to be seen by market participants there as “a corruption mechanism.”
“The approval of projects stopped depending on their quality but rather on connections and side payments,” he said. To gain official approval for registration under the JI scheme, Ukrainian market participants often had to transfer ERUs to a limited number of intermediary companies in Switzerland, the source alleged.
Russia and Ukraine were the two biggest beneficiaries of the JI system, which allowed them to trade emissions reductions units (ERUs) ‘proving’ that carbon cuts had been made, for assigned amount units (AAUs) from rich world polluters, in the exotic lexicon of carbon trading.
But under the scheme’s ‘Track 1’ – which covered around 97% of projects – states only needed to verify reductions between themselves, without any UNFCCC oversight.
The eastern countries had been over-supplied with credits after the fall of the Soviet Union – but before its subsequent industrial collapse. They were also smarting at the withdrawal from the Kyoto protocol of their presumed main buyer, the USA.
A decision to flood the EU’s carbon market with dud credits “was partly because of hurt feelings from having had no proper compensation,” the UN source said.
He added: “This is what happens if you give free resources, or install a subsidy-like mechanism without proper oversight in failing states, or countries with significant corrupt structures.”
The issue may well be discussed at climate talks in Paris, where the EU is pushing for oversight of future market-based mechanisms to be take out of the UNFCCC’s hands.
The UN body is believed to prefer a reformed version of the scheme’s ‘Track 2’, for which it has oversight.
Anja Kollmuss, another of the study’s authors, said the implications of the story for the EU emissions trading system (ETS) would be profound. “Almost two-thirds of JI credits were used in the ETS, so the poor overall quality of JI projects may have undermined the EU’s emission reduction target by some 400 million tonnes of CO2, about a third of the reductions required by the ETS from 2013 to 2020,” she said.
More than a quarter of JI carbon credits went to projects to staunch the spontaneous ignition of coal piles, mostly in Ukraine. The country’s estimate that such waste piles produced roughly 30% of its coal was “highly unrealistic” and probably led to substantial over-crediting, the report says.
The report found that only one of the six major project types in the JI system reduced emissions by more than would have happened anyway. This covered N20 abatement from nitric acid production, and was also the only project-type correctly supplied with ERUs.
JI is one of the three carbon offsetting schemes accredited by the Kyoto protocol – along with emissions trading and the clean development mechanism. It allowed some 872m ERUs to be issued by ex-Soviet Union and Warsaw Pact countries, accounting for around a third of UN-accredited emissions allowances.
Carbon credits undercut climate change actions says report
Matt McGrath BBC News 25 Aug 15;
The vast majority of carbon credits generated by Russia and Ukraine did not represent cuts in emissions, according to a new study.
The authors say that offsets created under a UN scheme "significantly undermined" efforts to tackle climate change.
The credits may have increased emissions by 600 million tonnes.
In some projects, chemicals known to warm the climate were created and then destroyed to claim cash.
As a result of political horse trading at UN negotiations on climate change, countries like Russia and the Ukraine were allowed to create carbon credits from activities like curbing coal waste fires, or restricting gas emissions from petroleum production.
Under the UN scheme, called Joint Implementation, they then were able to see those credits to the European Union's carbon market. Companies bought the offsets rather than making their own more expensive, emissions cuts.
But this study, from the Stockholm Environment Institute, says the vast majority of Russian and Ukrainian credits were in fact, "hot air" - no actual emissions were reduced.
They looked at a random sample of 60 projects and found that 73% of the offsets generated didn't meet the key criteria of "additionality". This means that these projects would have happened anyway without any carbon credit finance.
"Some early projects were of good quality, but in 2011-2012, numerous projects were registered in Ukraine and Russia which had started long before and were clearly not motivated by carbon credits," said Vladyslav Zhezherin, a co-author of the study.
"This was like printing money."
According to the review, the vast majority of the offset credits went into the European Union's flagship Emissions Trading Scheme. The authors estimate these may have undermined EU emissions reduction targets by 400 million tonnes of CO2, worth over $2bn at current market prices.
Unlike the Russian and Ukrainian projects, similar offsetting plans in Poland and Germany were said to meet very strict criteria.
"We were surprised ourselves by the extent, we didn't expect such a large number," co-author Anja Kollmuss told BBC News.
"What went on was that these countries could approve these projects by themselves there was no international oversight, in particular Russia and the Ukraine didn't have any incentive to guarantee the quality of these credits."
Because Germany and Poland had tougher emissions targets to meet, they were very careful with their certificates. This wasn't the case in Russia and the Ukraine.
One part of the larger review has been published in the journal Nature Climate Change.
It concerns the activities of projects that made money from the removal of chemicals HFC-23 and sulphur hexafluoride, which add significantly to global warming.
They found that, in 2011, all three projects in the study significantly and simultaneously ramped up the amount of the chemicals they were destroying.
"As researchers we can not prove the fraud, we can just point to the facts so in the HFC case at the moment when they could gain credits they immediately increased production of this greenhouse gas in order to destroy them, and that lead to them getting many more credits than if they had produced it like they did before," said Anja Kollmuss.
Experts familiar with the Russian carbon projects said that there had been longstanding and well acknowledged issues with the destruction of chemicals for carbon credits.
This had been seen in China for several years.
Michael Yulkin, from Russia's Environmental Investment Centre rejected the idea that many of these Eastern projects broke the rules.
"That's just not true," he told BBC News.
"All the projects have been validated and the additionality has been proved - it was all following the rules and if the rules allowed them to be in, so you have them in."
Mr Yulkin pointed out that the projects were no longer an issue. The EU emissions trading scheme no longer accepted the credits - and Russia was not taking part in the next commitment period of the Kyoto Protocol.
The authors of the study argue that lessons must be learned for any future market mechanisms that are incorporated into a new global agreement on climate change, expected to be signed later this year at a conference in Paris.
"In future, we need to do better and we can do better, but the devil will be in the detail and tighter controls will be needed," said James Wilde from the Carbon Trust.
"If firms are to invest at scale driven by a price for carbon, they need to know that the schemes setting this price in future will be robust and survive for the lifetime of investments."
