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Tough times for project-offsets

In the past two weeks there have been two major assaults on the integrity of the Clean Development Mechanism (CDM), the UN-approved standard for carbon offsetting and the source of credits for both national governments and privately owned companies.

The first issue to hit the headlines was the ‘recycling’ of CDM credits by the Hungarian government.

Within the rules of the European emissions trading scheme, large emitters are allowed to offset a small proportion of their emissions. They do this by buying CDM credits and handing these ‘used’ credits over to their national government, which will then record these credits in their national registry so that they can’t be reused.
 
Not so in Hungary, where the government sold used CDM credits to a Japanese buyer. Some of these credits then found their way back onto the European market and were unwittingly bought by European companies.  As used credits make no difference at all to the level of emissions, companies who inadvertently bought these credits are now considering their legal position and right to claim compensation.

A few days later, TUV SUD, a company that verifies CDM credits, was suspended by the CDM for approving projects that could have gone ahead without the offsetting investment.  A spot-check by the CDM Executive Board revealed that some projects verified by the company were non-additional, meaning that the offset money went towards extra profit for the project developers rather than any additional environmental benefit.

On the face of it, this could be reassuring – at least the watchdog is identifying and suspending companies not complying with the rules. But this is the third large company of its type to be suspended in 15 months, leading to serious questions over the extent to which these problems are systemic.

Taken in the light of other criticisms of the CDM system, including Stanford University’s discovery that up to two thirds of CDM offsets do not represent actual emissions cuts, and our discovery about the inefficiency of the scheme, it is clear that it needs wholesale reform. 

Companies are increasingly affected by issues like those that have arisen this week, and the message from companies buying offsets and market traders this week was that these sorts of issues will not be tolerated. Governments are unlikely to push for fundamental change in the system without pressure: pressure which has historically been applied by NGOs but could increasingly come from the market.

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