BRUSSELS - Major publicly traded U.S. corporations, including Dow Chemical, ConocoPhillips, Chevron and Cabot Corporation, have secured multi-million-dollar dubious carbon credits to compensate for their greenhouse gas emissions in Europe, as revealed in this investigative report.
Dow scored the largest purchase volumes. The Michigan-headquartered giant owns dozens of CO2-venting plants producing plastics and chemicals in Germany, the Netherlands, Belgium, Spain and Poland. Altogether, those plants ranked 21st among the top 100 European buyers of certified emissions reduction certificates (CERs) that originated from questionable projects.
Power and processing plants operating in the European Union (EU), including subsidiaries of U.S. companies, are required to reduce their greenhouse gas emissions – which cause global warming – by switching to cleaner technologies or offsetting their emissions through the purchase of CERs.
For companies it is cheaper to offset their emissions than to actually reduce them. And due to weaknesses in European rules, they are able to do so.
CERs are issued by the Clean Development Mechanism (CDM) of the Kyoto Protocol, the only internationally binding agreement that obliges industrialized signatory countries to reduce their greenhouse gas emissions.
Each CER is equivalent to a ton of carbon dioxide that has not been released into the atmosphere. They are issued for projects that have been approved and certified once it is determined that emissions have genuinely been reduced. They can then be converted to tradable instruments, subject to the laws of supply and demand.
The CDM was originally designed by the United Nations for industrialized countries to subsidize climate change mitigation in developing countries. But it ended up creating a perverse incentive to maximize profits for a few industrial gas manufacturers, mostly based in China and India, which obtained 19 of these projects.
Jiangsu Meilan Chemical in China and Navin Fluorine International in India, among others, committed to capture and destroy HFC-23, an unwanted byproduct of the production of HFCF-22 (hydrochlorofluorocarbon), a refrigerant banned in the European Union and United States because it depletes the ozone layer.
HCFC-22 is also a "super greenhouse gas" that is 1,810 times more potent than carbon dioxide, while its byproduct HFC-23 is 11,700 times more harmful.
But the Chinese and Indian companies produced far more gas - and thus received far more CERs to sell - than was necessary, according to an investigation report by the CDM methodology experts panel in 2010.
In June 2010, two environmental NGOs - CDM Watch, based in Bonn, and the Environmental Investigation Agency (EIA), based in London - discovered this gross misuse of the CDM and supplied proof of it.
"HFC-23 credits don’t represent real greenhouse gas reductions," explained Diego Martinez-Schuett of CDM Watch via email. "Buyers then used those false reductions as permits to pollute further in Europe."
The 19 industrial gas destruction projects approved by the CDM Board have racked up almost 500 million credits worth 3.3 billion dollars. Nearly 90 percent of the bogus credits flooded the EU, where they accounted for more than half of total emissions offsets. Between 2009 and 2010, U.S. corporations purchased almost one million HFC-23 credits at an average market price of 16 dollars per CER. They subsequently "wasted" at least 16 million dollars to support unclear emissions reductions.
They were followed on this path by their EU-based competitors, such as British Shell and BP, German RWE, Norwegian Statoil, Italian-Spanish holding Enel and French group EDF.
The 10 best-known transatlantic companies listed on NYSE-Euronext banked 254 million dollars in what NGOs heralded as "fake credits", not counting data for 2011, which has still not been made publicly available.
Last June, European regulators decided to forbid climate-unfriendly CERs, but this measure will not take effect until May 2013. "The EU was put under huge pressure by investors to delay the ban beyond the January 1, 2013 date set out in the initial proposal," stated Natasha Hurley of the EIA via email.
The delayed enforcement will open the door to an additional 53 million inflated CERs that will be available to Dow, Shell and other polluting companies.
Carbon shoppers claim they were unaware of the illegitimate nature of HFC-23 credits before the EU ruled them out.
"The important question for CER buyers is what they are going to do now to legitimize their offsetting practices," pointed out Rob Elsworth, policy officer at Sandbag, a London-based research center that monitors the integrity of the carbon trade and aggregated the figures we used to expose companies’ involvement.
The question was posed to a number of these companies.
"We have used such CERs for compliance in past years," responded Drea Berghorst, public affairs officer at Dow Benelux. "We will remain fully compliant with the regulations, which means we will cease using the industrial gas CERs as of April 2013," she added.
Chevron and Cabot responded in a similar way, without officially excluding the option to buy further HFC-23 credits as long as the EU ban is not in force.
"Chevron complied with all required aspects of the EU ETS (Emissions Trading System) regulations at all points in the past and intends to continue to do so in the future," said Sean Comey, media advisor at Chevron headquarters in California. The company used HFC-23 credits to offset the emissions from its offshore oil-producing fields in the United Kingdom
"We worked with a reputable financial broker, JP Morgan, to purchase CERs. We did, however, mandate that all credits purchased be certified and valid," said Vanessa Apicerno, media relations specialist at Cabot Corporation headquarters in Boston.
Cabot used HFC-23 credits for is black carbon and thermoplastics manufacturing sites in France and Italy. ConocoPhillips, which used HFC-23 credits for its refineries in the United Kingdom and Norway, refused to comment.
Now more than ever, companies have good reasons for pooling shareholders’ money into global warming-boosting investments.
Indeed, intermediaries are rushing to sell the outlawed CERs before they turn junk in 2013, pushing prices to a record low. Quotations sank from their peak of 33 dollars to less than six dollars per ton as of February.
"Companies will look to comply with EU emissions regulations in the most cost-efficient way. Although market participants are free to hold a view on the ethics of action on climate change, the EU ETS is driven by economics," commented Richard Chatterton, a carbon market analyst at Bloomberg New Energy Finance.
Statistics prove that price difference is of greater importance to investors than the quality of certificates.
"Standard (suc as HFC-23) CRs futures still make up over 95 percent of the traded volumes," said Sara Ståhl, London-based managing director of global marketing at Green Exchange International. "Yet, they are just 0.46 dollars cheaper than our (non HFC-23) CER-plus futures."
We can estimate that, given the additional amount of unsafe credits admitted in the EU until next year, the business world will ultimately save less than a total of 24 million dollars. Whether this corporate pocket money is worth more than saving the real world from global warming is a matter for debate.
*The writer is an IPS correspondent. This story was originally published by Latin American newspapers that are part of the Tierramérica network. Tierramérica is a specialized news service produced by IPS with the backing of the United Nations Development Program, United Nations Environment Program and the World Bank.
** This story is published under an agreement with Freereporter and was developed with support from the Fund for Investigative Journalism and the Society of Environmental Journalists.