update. here is a quote that didn't make the story (the powers that be dont like sporting references) Demonstrating that HFC projects in developing nations were worthy of credits
was a ``slam dunk'' five years ago because there were no laws forbidding their
release into the atmosphere, Forrister said. ``Right now it appears that we are
in a time out. The regulator wants to go back and look at replays.''
+------------------------------------------------------------------------------+
UN Risks 'Huge Mistake' in Carbon-Trading Probe: Energy Markets
2010-09-10 11:19:43.633 GMT
By Mathew Carr and Catherine Airlie
Sept. 10 (Bloomberg) -- A United Nations investigation into
alleged improper claims for hydrofluorocarbon-pollution credits
threatens to choke off investment in projects to curb emissions,
according to Bill Clinton's former adviser on global warming.
UN regulators froze new credits as they began a probe on
July 30 into allegations by CDM Watch, an environmental lobby
group, that some plants emitting hydrofluorocarbons were
unfairly exploiting the system. Should the inquiry lead to new
limits on expected credits, investors would abandon the UN
market, the world's second-largest greenhouse-gas program, said
Dirk Forrister, head of Clinton's 1997 task force on climate.
"There is a possibility of a retroactive change, and that
would be a huge mistake," said Forrister, now a managing
director at Natsource LLC, a New York investment manager that
has profited from HFC-destruction projects. "It might make it
impossible to raise new money" for climate-protection projects.
The concern centers around credits awarded to curb
emissions of an industrial gas known as HFC-23, produced in
nations including China and India to make refrigerants for air
conditioners. Half of all UN credits issued since 2005 involve
HFC, which can trap about 11,700 times more heat per molecule
than carbon dioxide.
UN emission credits for delivery this year have climbed to
a record relative to later-dated contracts, driven by concerns
about short-term supply shortages stemming from the nvestigation
and longer-term doubts about the program. Credits for 2010
traded at an all-time high of 92 euro cents ($1.17) a metric ton
over those for 2012 on Sept. 7, according to the spread contract
on London's European Climate Exchange. They gap closed yesterday
at 83 euro cents. As recently as June 23, credits for 2010 were
cheaper than those for 2012.
Brasilia Meeting
The executive board for the UN's Clean Development
Mechanism, known as the CDM and set up by the 1997 Kyoto
Protocol, is reviewing projects on a case-by-case basis, David
Abbass, a Bonn-based spokesman for the program, said yesterday.
"What, if anything, the board might choose to do regarding
HFC-23 project-related requests going forward would depend on
what it learns from its methodologies panel," which is handling
investigations, Abbass said. The board, comprised of 10 members
from developed and developing nations, may consider HFC projects
at its meeting next week in Brasilia.
Some U.S. lawmakers have proposed an outright ban on HFC
credits, saying they undermine the market. European Union
officials said this year they may discount or disqualify HFC-
derived credits when they are submitted for compliance in the
region's carbon market, the world's biggest.
'Dangerous Place'
The UN market is "an increasingly dangerous place to do
business," Trevor Sikorski, an analyst at Barclays Capital in
London, said in a Sept. 6 report. The possibility of changes in
the UN's rules for awarding credits is a "massive risk" for
investors, he said in an interview.
Sikorski also criticized a proposal that may require audit
firms that approve UN projects to purchase improperly issued
greenhouse gas offsets. The plan may "wipe out" those firms
with excessive costs, he said this week. The proposal for audit
firms is unrelated to the debate on HFCs, the CDM's Abbass said.
Under the UN system, companies receive credits as a reward
for financing projects designed to cut emissions by polluters in
poorer countries. Known as offset credits, they can be sold to
utilities and factories that use them to comply with emissions
limits. Enel SpA, Morgan Stanley and RWE AG are among investors
in the credits, according to data compiled by Bloomberg.
'Bogus Credits'
Bonn-based CDM Watch said in a June 14 report that some
companies won "bogus credits" by artificially boosting
greenhouse-gas emissions. It's a claim rejected by polluters and
project investors including Forrister, based on evidence he has
seen so far.
CDM Watch "based its conclusions on what it considered
suspicious activity based on only one or two monitoring reports,
out of a total of more than 150 studied," the Refrigerant Gas
Manufacturers Association of India, an industry lobby group,
said on July 12.
The UN and EU are still obligated to honor credits already
in the pipeline, according to Mark Lewis, the Paris-based
managing director of global carbon research at Deutsche Bank AG.
"You don't want investors to think they are having the
rules changed at the same time as trying to gear up private-
sector investment into clean technologies," Lewis said by e-
mail yesterday. "It is vital that the regulatory framework of
the market has integrity."
CO2 Developers
Trading Emissions Plc, a London-based developer of CO2
projects, fell to 89.25 pence in London trading on Sept. 8, the
lowest level since April 1. It was expecting 5.5 million tons of
offsets from HFC projects through 2012, it said in March. They
would be valued at 76.2 million euros at today's prices. UN
credits for December have risen 26 percent this year to 13.72
euros a ton.
About half of the 408.8 million credits issued since
October 2005 by the CDM stem from plans to cut HFCs. Investors
can get credits valued at hundreds of millions of euros provided
they have spent about $12 million to construct facilities that
burn away HFCs, according to World Bank estimates. It costs $2
million a year to operate the units.
Destroying HFC-23 can cost as little as 17 euro cents a
ton of carbon dioxide equivalent, said Clare Perry, senior
campaigner at the Environmental Investigation Agency, a lobby
group based in London and Washington. The annual bill to destroy
global HFC-23 production could be as little as $60 million, the
agency calculated. That's less than the carbon-credit revenue
earned from one HFC-23 reduction plant in India, it said.
'Hung Jury'
The International Emissions Trading Association, a Geneva-
based lobby group, said last month that the CDM board needs to
fix the "significant governance problem" that has prevented
resolution of the HFC debate. "It's like a hung jury," said
Kim Carnahan, a CDM policy specialist at the association.
"It's always sad when there is controversy on the CDM,
eating up public perception of the carbon market," said Tuomas
Rautanen, a senior analyst at First Climate, an emissions
investor. "The more uncertainty there is in what credits will
be accepted, the more hesitation there is in what to invest."
For Related News and Information:
Top Power Stories: PTOP <GO>
Emissions-trading stories: NI ENVMARKET BN <GO>
Today's top energy news: ETOP <GO>
European power-markets home page: EPWR <GO>
--Editors: Mike Anderson, Steve Voss.
To contact the reporters on this story:
Mathew Carr in London at +44-20-7073-3531 or
m.carr@bloomberg.net
Catherine Airlie at +44-20-7073-3308 or
cairlie@bloomberg.net
To contact the editor responsible for this story:
Stephen Voss on +44-20-7073-3520 or
sev@bloomberg.net
