Instead of closing down corrupt CDM deals UN makes access to corruption easier for African despots

The UN CDM scheme is well documented to be a massive fraud to begin with, funneling taxpayer money to despots and redecorating homes of UN personnel. "Carbon credit fraud makes its way to Liberia." It would take one US congressman with credibility to stop this.

4/25/12, "UN launches interest-free loan scheme to expand CDM carbon trading mechanism," CarbonPositive

"The UNFCCC has launched a pioneering interest-free loan scheme to support Clean Development Mechanism (CDM) projects in some of the world's least developed countries.

Under the new scheme, launched at the African Carbon Forum last week in Ethiopia, underdeveloped countries and those with fewer than 10 projects registered under the CDM will be eligible for interest-free loans supported by the UN Framework Convention on Climate Change (UNFCCC), the UN Environment Programme (UNEP) Risoe Centre, and the UN Office for Project Services (UNOPS).

Christiana Figueres, UNFCCC executive secretary, said that the loans would help expand the carbon trading mechanism, adding that the new financing would be offered at an opportune time given that from next year the EU is expected to limit the number of CERs it buys from industrial gas projects in China.

"The CDM Loan Scheme is a chance to improve the access to and spread of the CDM, particularly in Africa," Figueres said at the African Carbon Forum, last week.

The loans will support the design, validation and registration of projects under the UN-approved CDM carbon offset scheme. After the project is validated and registered as a CDM project, it can then generate certified emission reduction credits that can be traded in carbon markets.

To access loans, projects will have to meet a number of criteria, including a high probability of registration and a reasonable expectation of generating at least 7,500 certified emission reduction (CER) credits per year for projects in least developed countries (LDCs) and 15,000 CERs per year for projects in non-LDCs.

Applications are now being accepted for the first round of reviews, which will end in June.

The UN's CDM allows countries to meet their emissions reduction commitments under the Kyoto Protocol via third party investment in independently approved emissions reduction projects with the return of carbon credits for sale on the carbon market. Over 4,000 projects in around 70 countries are approved under the scheme, which aims to funnel green investment into developing economies."

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The corruption- and fraud-prone carbon market. The World Bank runs $2.5 billion in carbon trading funds. "Nobody in that world is critical of the process because they are all making their living off it.”

10/12/10, "A carbon trading system draws environmental skeptics," New York Times, Patricia Brett

"Carbon credit trading has long been decried by some climate change experts as an ineffective way to combat global warming, compared with imposing regulatory limits on polluting greenhouse gas emissions. But after more than a decade of negotiations, the Kyoto Protocol established a carbon emission credit system, in 2006, overseen by the United Nations.

Known as the Clean Development Mechanism, or C.D.M., it allows companies in industrialized countries to sponsor a greenhouse gas emissions-reducing project in a developing country.

The sponsor picks up carbon credits while the host country obtains cash from the sale of carbon rights and access to pollution-free, innovative technology.

C.D.M. projects represent billions of dollars. The World Bank started preparing for the program 10 years ago by setting up a prototype fund worth $160 million and today it runs a whole family of funds worth $2.5 billion, the bank said in a report this year.

In 2008 alone, carbon credit transactions amounted to close to $7 billion, it said.

Yet five years after its introduction, and despite several changes, the mechanism remains open to abuse, according to many involved in climate change issues.

“The problem is that the whole mechanism is conceptually fundamentally flawed,” said Patrick McCully, executive director of International Rivers, an environmental organization in Berkeley, California, and a consultant for the U.N. Environment Program.

A condition for access to the C.D.M. program is the notion that a qualifying project would not be able to attract investment without the added support provided by carbon credits — a criterion known as additionality in U.N.-speak.

This can be difficult to prove, particularly in a new project, where the intangible savings in greenhouse gases depend on defining a theoretical baseline. Determining whether carbon credits are critical for financing means “being asked to read the developer’s mind,” Mr. McCully said.

All claims must be documented and supported and must be screened by independent auditors who validate the projects. The final decision to accept or reject a proposal lies with the U.N.’s C.D.M. Executive Board. Once credits are awarded, they can be traded. One metric ton of carbon dioxide is worth one credit.

Since it began operating in 2006, the board has validated 2,918 projects, 40 percent of them in China, according to the U.N. Environment Program’s database at the Risoe Center, in Denmark, which tracks every project in the C.D.M. pipeline. The center’s data show that 1,668 projects are in hydroelectric power and 1,060 of those are in China.

“China is the most sophisticated player, and they have figured out how to manipulate the baseline to generate as many credits as possible with the least amount of effort,” said Professor David G. Victor, director of the Laboratory on International Law and Regulation at the University of California, San Diego.

China’s surging energy needs and its chronic pollution problems are not new. Shattering the country’s coal-dependence has been a problem for two decades, Mr. Victor said.

Axel Michaelowa, a climate change expert who helped start the C.D.M. program, said that major Chinese energy policy changes in 2002 put an emphasis on diversification and developing renewable energy. Measures to spur investment in renewables included a requirement for utility companies to buy production at a set rate; preferential loans; tax cuts; and the establishment of a renewable energy fund.

As a result, wind, solar and hydro projects have flourished across China. Rural electrification, too, has been a major priority under government policies to encourage development, alleviate poverty and strengthen central authority in the country’s far western provinces. Many of these projects have been financed in part through the C.D.M. program....

The most blatant misuse of the program has been to support large hydropower dam projects, said Mr. McCully of International Rivers.

While C.D.M. credits might have been crucial for small Chinese hydroelectric plants generating less than 20 megawatts of power, medium or large projects mostly have been so-called free riders, topping up the profitability of dams which would have been built “with or without the C.D.M.,” Mr. Schneider and Mr. Boger found.

This calls into question the efficiency of the system in tackling climate change, their study points out. If a project does not depend on carbon credits for its existence, then the notional carbon savings are bogus. Yet the credits will nonetheless be sold to a polluting industry which will then pollute more — probably in Europe. The European Union is the only area with mandatory greenhouse gas reduction rules and is the most concerned by the C.D.M. process.

The Achilles’ heel of the system lies with the auditing firms that validate the carbon trading projects.

At first, the Executive Board assumed that auditors would be objective and fully investigate the claims presented by project managers. The committee did not check applications, it just moved them through to full accreditation, Mr. Michaelowa said. But it quickly became clear that auditors were faced with a conflict of interest:

although they were required to be impartial, their reputation — as well as their market share — would be determined by the number of proposals that they approved for accreditation. Auditors had an incentive to accept the claims of the project manager without too much inspection.

In a study carried out in May 2009 for the conservation group WWF,

• the five most active auditing firms all rated poorly —

• the best was graded D on a descending scale from A to F.

The system is “not without deficiencies,” said Simone Ruiz, European policy director for an industry group to which the auditors belong. But, she said, the desire to curb excesses must be “balanced with the desire to see continued auditor and investor interest.”

In a process described by the World Bank as “learning by doing,”

the executive board has since decided it needs to establish its own regulations and verification system. It recently raised staff levels and now takes a closer look at applications, requiring better documentation of claims. Auditors are inspected by U.N. teams and if found lacking are suspended until their methods improve. Most are reinstated within six months, minutes of board meetings show.

These changes are an improvement, but they have added to both the cost and the validation time for applications, the World Bank has found. And this added burden weighs most heavily on lesser developed countries.

Both these outcomes are contrary to the original goals and expectations of the Clean Development Mechanism. It was meant to aid the least developed countries —

• yet Africa receives only 2 percent of C.D.M. credits;

and it was intended that C.D.M. administrative costs would decline, not rise.

The bank is now calling for more streamlining of the “complicated rules and the onerous documents required,” Mr. Michaelowa said.

No one has quite figured out how to administer offset credits because the “proof” required is ultimately a matter of judgement, not fact,

said Mr. Victor of the Laboratory on International Law and Regulation. “The executive board has been trying to fix things but there are still some problems,” he said.

One suggestion, backed by International Rivers among others, is to set a fixed rate for audits and to allow the Board to appoint the auditor in a transparent basis. Or better yet, said Mr. McCully, since the mechanism is based on proving a negative, and can only work “in alternative universes that don’t exist,” it would be best to scrap the whole system and apply strict greenhouse gas reduction regulations in each country.

That view is shared by the authors of the case study on China, who say that estimates of carbon credit misuse globally “range from 20 percent to 66 percent.”

Yet, radical change is unlikely to happen, Mr. McCully said, because there are “lots of revolving doors in the carbon trading industry where people go from different parts of the private sector, from auditors to developers, to brokers,

• to funds like the World Bank,
  

• to government, and
  

• then to the U.N. Executive Board.

“It’s quite a small world and people circulate a lot within that world; and there is nobody in that world that is critical of the process because they are all making their living off it.”

Furthermore, the system is fed by demand from the European Union and Japan, which must comply with strict emission regulations, Mr. Victor said.

“They are getting as many as credits as they can now because they can save them up and use them in the future when the regulations will be stricter,” he said. “So they have every incentive to sponsor projects.”"

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At Cancun 'climate summit,' Communist China threatened to spew extra poisonous gas into the atmosphere if anyone messed with the hundreds of millions in profits it's making via UN CDM deals. (near end of post)

12/13/10, "‘Perverse’ CO2 Payments Send Flood of Money to China," by Mark Schapiro, Yale Environment 360

"To offset their own carbon emissions, European companies have been wildly overpaying China to incinerate a powerful greenhouse gas known as hfc 23. And in a bizarre twist, those payments have spurred the manufacture of a harmful refrigerant that is being smuggled into the U.S. and used illegally. European legislators in Brussels have discovered that the strategy they devised to combat climate change is helping subsidize the economy of their, and America’s, major global competitor — China.

European companies have been overpaying Chinese companies more than 70 times the cost to eliminate a potent greenhouse gas — triflouromethane, or hfc 23, a byproduct of manufacturing a refrigerant that has been banned in developed countries and is being phased out in developing ones.

In order to offset their own greenhouse gases, companies and utilities in Europe that are subject to the emission limits of the Kyoto Protocol have been paying vastly inflated prices to Chinese companies to destroy hfc 23, and in the process have been providing the Chinese government with hundreds of millions of dollars in tax revenue to compete against Europe’s own “green” industries.

European concern about this practice was a major source of contention during last week’s climate negotiations in Cancun, as the UN attempted to defend the integrity of the multi-billion dollar global carbon offset market. And in an odd twist, the incentives offered through the UN’s Clean Development Mechanism (CDM) also appear to be stimulating production of an ozone-depleting refrigerant gas that has been landing in the U.S. black market.

Investigations by the U.S. Environmental Protection Agency (EPA) and US Customs and Border Protection have led to the conviction of several smugglers who have illegally imported the ozone-depleting refrigerant, hcfc 22, into the U.S. for sale to trucking companies, supermarkets, automotive supply shops, and other large-scale users of refrigerant gases. The illegal refrigerant is significantly cheaper than non-ozone-depleting refrigerants permitted in the U.S., a price discrepancy triggered partially by the large overpayments to Chinese firms that have led to an ample supply of hcfc 22 on the international black market.

That black market completes a global circuit unique to the era of climate change: From China’s industrial zones, the credits for the greenhouse gases — bought and sold as commodities on the global carbon markets — flow to European companies that need them to continue polluting at home, while the underlying ozone-depleting gas responsible for creating those credits flows to American companies seeking discounted refrigerants.

“It’s perverse,” says Gerben-Jan Gerbrandy, a Dutch member of the European Parliament. “You have companies which make a lot of money by making more of this gas, and then getting paid to destroy it.”

Two European nonprofits, the Germany-based CDM Watch and the London-based Environmental Investigations Agency, kicked off the controversy when they asserted last summer that European companies were paying dramatically inflated prices for the emissions credits. Companies purchase the credits for about

• $15 a ton,

while the actual cost for incinerating the gas in China or India is around

• 20 cents a ton.

More than a billion dollars, the nonprofit groups concluded, have thus far been spent on the credits. Two members of the European Parliament have demanded an inquiry by the European Commission into the “gross misuse of European consumers’ money” in the UN-administered offset system.“European consumers are paying a billion euros to buy something worth less than 100 million euros,” says Theodoros Skylakakis, a Greek member of the European Parliament, who, along with Gerbrandy, demanded that the commission begin tightening the rules governing the hfc 23 offsets in the European Trading System. “Some people are getting extremely rich because of a loophole in our Clean Development Mechanism,” says Gerbrandy.

Hfc 23 is, per pound, 11,000 times more potent than CO2 as a contributor to global warming. The European Union has adopted a carbon emissions trading scheme, and more than half of the 474 million tons of emission credits now utilized to offset companies’ emissions are involved in paying firms in China and elsewhere to destroy hfc 23. Major utilities in Germany, the UK, the Netherlands, Italy, and Japan rely heavily on these emissions offsets, as do a number of U.S. companies operating in Europe, including Chevron and Conoco Philips. Major U.S. financial houses, such as

• Goldman Sachs,
  
• Citibank, and
  
• JP Morgan Chase
  

have significant holdings in the credits linked to the gas.

The greenhouse gas is a byproduct of the manufacture of the refrigerant gas. And the offset credits paid to Chinese and Indian companies to eliminate the former, according to CDM Watch, have actually stimulated increased production of the latter — the ozone-depleting refrigerant hcfc 22, which is itself a potent greenhouse gas. CDM Watch has compiled records showing that companies in China and India have significantly increased production of hcfc 22 in order to receive funds to incinerate the byproduct gas, hfc 23. Some basic math suggests why: According to the Environmental Investigations Agency, the price for a ton of hcfc 22 fluctuates from $1,000 to $2,000, while that same ton can generate about $5,000 to $6,000 in hfc 23 Clean Development Mechanism credits. The United Nations Environment Programme reports that from 2004 to 2009, production of the ozone-depleting hcfc 22 refrigerant gas grew from 15 million to 28 million tons, paralleling the evolution of the offset program intended to eliminate its byproduct, hfc 23. But Hcfc 22 itself is actually the replacement gas for the ozone-destroying chlorofluorocarbons that have largely been eliminated under the 1989 Montreal Protocol, a treaty signed by 196 countries to reduce depletion of atmospheric ozone. Hcfc 22 is already illegal in Europe, and is sold in the U.S. only in small quantities strictly licensed by the EPA. Developing countries have until 2030 to phase out hcfc 22 completely.

Some of the rapidly increasing production of hcfc 22 is being used in developing countries, where a growing middle class can afford for the first time to purchase products using refrigerants, such as air conditioners. But the illegal refrigerant is increasingly showing up in the U.S. black market. Over the past year, in an effort dubbed Operation Catch-22, federal investigations have led to several convictions of people smuggling hcfc 22 into the U.S. In one instance, Alex Garrido, president of an import-export firm called Kroy Corporation, was arrested after an Operation Catch-22 team caught him on surveillance tape receiving, storing, and preparing to sell illegal shipments of hcfc 22 from China. Garrido pled guilty and was sentenced in February to two-and-a-half years in prison. In another instance, the St. Louis-based Marcone Company, a wholesale supplier for hardware stores and large construction projects, was accused of violating the Clean Air Act for attempting to sell more than 220,000 pounds of the illegal refrigerant.

Thomas Land, who works in the EPA’s Office of International Negotiations — and who is involved in coordinating diplomatic and enforcement efforts for the Montreal Protocol — says that the UN-administered subsidies to eliminate hfc 23 have led to an oversupply of hcfc 22. And the increasing supply has led to a decreasing price. “Because production is subsidized, the prices are artificially low,” Land says.

This has made the illicit gas far more financially attractive to large-scale users of refrigerants in the United States than the more expensive, non-ozone-depleting refrigerants. In this way, the European offset payments are setting the Kyoto and Montreal Protocols — the two seminal environmental treaties of our time — on a collision course.

• China, the world’s largest emitter of greenhouse gases, is at the center of the brewing controversy.

China is host to two-thirds of the 474 million tons of emission reductions that the UN says have resulted from the sale of offsets, according to a team of researchers at Dartmouth College’s Climate Justice Research Project, who have been studying the global offset markets.

• Overall, 60 cents of every dollar spent on the global carbon markets goes to China;

and 50 of that 60 cents goes to eliminating hfc’s. Of the 19 refrigerant factories receiving credits through the Clean Development Mechanism, 11 are in China, which accounts for 80 percent of the hfc credits. (Another five hfc projects are in India, and one each is in South Korea, Mexico, and Argentina.)

European companies and countries have channeled more than a billion dollars into Chinese projects aimed at eliminating hfc’s. In response to the huge windfall of profits under the scheme, the Chinese government has imposed a

• 65-percent tax on all corporate profits from emissions reductions schemes.

Over the last five years, the tax revenues have amounted to at least

• $650 million.

The money is channeled into an arm of the Chinese Ministry of Finance called the CDM Fund.

Though the funds are generated via the Clean Development Mechanism,

• the government has no obligation to report how they are being used.

As of October, according to the fund’s website, it appears that none of the money had yet been spent. When, and if, those hundreds of millions of dollars are spent, a significant portion is earmarked for the further development of China’s renewable energy industries, including wind and solar power — technologies in which China is already beginning to dominate world markets.

“We are providing unacceptable subsidies to Chinese industries that are already close to dominating the global market in renewable energy technologies,” says the European Parliament’s Gerbrandy. In other words, to Europe’s — and America’s — competitors. In the last week of November, CDM Watch and the Environmental Investigations Agency presented their critique to the executive board of the UN's Framework Convention on Climate Change. The central question, according to Eva Filzmoser, program director of CDM Watch, is

• whether the hfc credits, vital to the functioning of the cap-and-trade system borne of the Kyoto Protocol,

• actually deliver the emission reductions being paid for.

“The gap between the price for the credits and the actual costs for incinerating the gas,” she says, “means we have a huge amount of money not being spent on actually reducing emissions.” The claim puts the UN in a quandary. It has no power to rescind past credits, even those whose integrity is called seriously into question.

Reassessing the validity of credits that account for at least half of the capital now churning into the offsets could set off a chain reaction, challenging the structure and integrity of the global carbon markets. The International Emissions Trading Agency, representing the world’s carbon traders, has expressed opposition to the changes, stating that the decision be based on “sound environmental and economic analyses of the consequences.”

On Nov. 25, the European Commission proposed that the European Trading System (ETS) no longer accept hfc credits starting in 2013.

That proposal awaits approval by the European Parliament and the EU’s Council of Ministers. If approved, it would put the UN in another quandary: How to assess the real value of the bulk of certified emission reductions already on the market, and how to move forward when the ETS —the world’s biggest market by far for emission credits — will be refusing to accept them in three years? UN officials declared that they would study the matter, while also issuing another 20 million tons worth of credits for an hfc project, to be used by a consortium of European utilities.

The controversy over hfc’s came to a head at the climate negotiations in Cancun last week. Last Tuesday, Chen Huan, deputy director of China’s CDM Fund, the recipient of the hfc tax revenues, denounced the attempts to reduce the use of hfc credits as “irresponsible,” and attacked the calculations on which they are based as “implausible” and lacking in documentation. He threatened that Chinese industries

• would vent hfc gases without government controls if the

subsidy program was discontinued, telling Point Carbon News — a market monitoring and news service —that efforts to stop the credits are “not acceptable for China because it deviates from the principle of common but differentiated responsibilities.”

The Environmental Investigations Agency and CDM Watch responded by

• accusing the Chinese of holding the climate “hostage” and saying

that the funds already generated through the hfc tax revenues “would be enough to fund the actual cost of HFC-23 destruction in China for at least 50 years, well beyond the date when HCFCs will be phased out by the Montreal Protocol.”

Meanwhile, money continues to pour into the Chinese CDM Fund, and Operation Catch-22 enforcement agents continue to lay traps for the new generation of ozone gas smugglers."
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More on this topic from Probe, Int.:

• Carbon credit fraud makes its way to Liberia
• Scamming the carbon markets in ten easy steps
• It’s official: global warming solutions will destroy the environment
• Carbon Credit fraud discovered in Ukraine ($280 million to a pension fund)
  

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4/16/09, "Report: U.N. spent U.S. funds on shoddy projects," USA Today, Ken Dilanian

(parag. 7), "That witness said the Afghanistan country director for the U.N. Office for Project Services (UNOPS), which served as the contractor on the project for the U.N. Development Program (UNDP), spent about $200,000 in U.S. money to renovate his guesthouse. Witness names were withheld by USAID."...

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UN kleptocrats meet in Ethiopia and launch new CDM deals. There is almost zero chance any of the 'help' will get to the 'climate' or poor people.

11/26/2008, "Minority rule and corruption in Ethiopia," Seid Hassan

"Many observers, including those members of the Diaspora community who visit their homeland, Ethiopia, have observed that the level of corruption in Ethiopia is so unprecedented that it defies common sense. The outright theft that is going on in the country has many dimensions."...

via Tom Nelson