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June 14, 2010Kyoto Protocol’s Clean Development Mechanism (CDM) which allows trading of Carbon Credits between GHG emitting organizations in developed countries and carbon cutting projects in developing countries is an imperfect mechanism.It is set up in such a manner that organizations have a huge incentive to game the system to maximize revenues from Carbon Credits rather than cut GHG emissions.With USA debating on implementing a Carbon “Cap and Trade” Scheme there is a huge need to examine the CDM system.The CDM mechanism has come under fire for a lot of valid reasons in the recent past some of which are enumerated below.
1. There have been a number of cases of outright fraud that have been proved in courts of law . Recently a Multi Nation Europe-wide Scam involving top banks came to light.Over 50 companies and 150 individuals were involved in this tax evasion scam linked to Carbon Credit Trading.Interpol has warned of more such frauds in the future.
CARBON fraud is the white-collar crime of the future – and it could cost taxpayers millions – Adelaide Now
As Australian companies prepare to trade in what is effectively thin air, climate criminals are cashing in on similar schemes overseas. Interpol has warned companies to beware of bogus “carbon credits” that fail to lower emissions.And there are real questions over the ability of regulators to check if companies have met their emissions caps.
2. Some European firms have reaped a huge windfall from Carbon Credits as the Economic slowdown (following the Global Financial Crisis ) had companies running at much lower utilization rates. Steel Giant Arcelor Mittal has been a massive beneficiary of this imperfect Clean Development Mechanism (CDM) scheme with a reported Billion Pound gain.Under the European “Cap and Trade” scheme industries and companies are allowed a certain amount of GHG emissions which is subject to political and lobbying abuse.
£1 bn green windfall for Arcelor Mittal – Hindustan Times
Steel tycoon Lakshmi Mittal’s Arcelor Mittal steel company will get a £1 billion ($1.7 billion, Rs 7,660 crore) windfall from a European scheme to curb global warming under the “carbon credits” given to it.
The carbon credits under the European emissions trading scheme (ETS) grants companies permits to emit CO2 up to a specified “cap”. Beyond that they must buy extra permits.
ArcelorMittal has been given far more carbon permits than it needs, and has the largest allocation of any organisation in Europe. The company will have gained assets worth around £1 billion by 2012, The Sunday Times reported on Sunday.
3. There have been cases where Companies in Developing Countries are producing More Greenhouse Gases to maximize earnings from CERs (Certified Emission Reductions) certificates.This goes directly against the CDM’s mission to reduce GHG emissions.
Firms abusing Kyoto carbon trading scheme: watchdog – Reuters
Findings released by CDM Watch, an initiative of non-governmental organizations, showed the most lucrative projects in the CDM, chemical plants that destroy a potent gas called hydrofluorocarbon-23 (HFC-23), may have inflated their emissions in order to destroy them and sell more offsets.
It also found that plants produced less HFC-23 during periods when they were unable to request CDM offsets, called Certified Emissions Reductions (CERs).”Analysis of monitoring data from all registered HFC-23 destruction projects revealed that plants are intentionally operated in a manner to maximize the production of CERs,” CDM Watch said in a statement. “Because of the extra revenue … far more HFC-23 is generated than would occur without the CDM.”
Due to inaction by the CDM’s executive, CDM Watch said it made an official submission calling for new CERs handed to HFC projects to be discounted by over 90 percent, and for projects up for renewal to be reviewed at a panel meeting from June 21-25 and by the executive when it meets in late July.
4. Another major criticism which I readily identify it is that the CDM mechanism benefits well place organizations and trading/consulting firms.The complex procedures and paperwork involved in getting a project CDM certified ensures that some “connected” firms benefit from this trend.Big Investment Banks seeing a huge profit potential have got into this game by buying “Carbon Consulting and Trading” companies. JP Morgan bought Carbon Trading and Aggregating firm Ecosecurities for $204 million and Barclays recently bought Swedish Carbon Firm Tricorna for $143 million.
Barclays to buy Swedish carbon trader Tricorona – Reuters
Barclays Plc agreed a 98 million pound ($142.4 million) cash offer for Swedish carbon credits trader Tricorona AB, giving a vote of confidence in the carbon market ahead of the expiry of the Kyoto climate pact.Barclays said on Wednesday it was offering 8 Swedish crowns ($1.01) a share for Stockholm-based Tricorona, which specializes in sourcing, developing and trading offsets from greenhouse gas reduction projects in developing countries.Barclays Capital, the bank’s investment arm, is already the most active trader in the $144 billion global carbon emissions market and the acquisition will extend its position. The bank said the deal would be accretive to earnings within a year of completion.
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[…] to an economic downturn leading to a large quota of unused carbon credits.This has led to a massive billion dollar windfall for steelmaker Arcelor Mittal highlighting the serious deficiencies in the cap and trade scheme.Note USA is not a […]
[…] a majority of these projects.Note the CDM mechanism allows the trading of CERs which recently saw a huge fraud by investment banks in Europe.This had led to calls of this expensive and wasteful scheme to be shut down.The CDM panel […]
[…] allow trading of Carbon Emission Credits has been shut down by its owner ICE.While I am no fan of Carbon Emissions Cap and Trade Policy as it gives rise to Frauds and Misplaced Incentives,the mechanism is one of the popular subsidy tools in combating Global […]