International carbon offsets are never short of critics, from both the environmental movement and those who oppose emissions curbs altogether. One of the main barbs is that the credits don’t always represent actual emissions reductions — and two recent events have highlighted this can happen.
Firstly, Hungary’s decision to sell 2m UN-certified emissions reductions, or CERs, that had already been counted in the EU’s emittions trading scheme has sparked fears of double-counting and distortions in the carbon markets.
Hungary’s Environment Ministry, which sold the CERs to Japan, said it made clear the credits could not be returned; and that anyone covered by the EU ETS would be able to see that they had already been submitted under the scheme and were therefore ineligible for further credit there. Nevertheless, Reuters reports that the EU is concerned enough to warn that they cannot be used again for compliance under its scheme.
However the real problem could be that the Hungarian government swapped the CERs for ‘assigned amount units’, or AAUs, which are the offset units assigned to former Soviet Union countries under the Kyoto protocol. As the emissions requirements for these countries were based on 1990 emissions levels, the effects of the fall of communism left them with millions of surplus AAUs, which can be sold internationally – without representing any actual reduction in emissions.
As Miles Austin of the Carbon Markets and Investors Association told Reuters:
“There is the risk that other countries might go to market and buy the AAUs and pocket the price difference,” he told Reuters.
“This is the first instance of this happening,” he said. “If this becomes a widespread practice it could double the volume of CERs available to the market which would have an effect on the CER price and therefore the (ETS trading unit) EUA price.”
Fears of AAUs depressing the price of other offsets – and thereby lowering incentives to actually reduce emissions – are not new, but Hungary’s move, and a report last month by Point Carbon of Russia claiming that Spain and Italy may begin buying AAUs, are again highlighting flaws in both carbon markets and international emissions targets.
Chinese wind farms
Meanwhile, Stanford University academics have pointed out vulnerabilities in verifying Chinese projects that are also eligible for government feed-in tariffs, such as wind farms. As Bloomberg reports:
Questions in China and India, where governments set prices and data can’t be independently verified, threaten investments in sustainable energy, Morse said.
“This can become a real cancer on the integrity of the market if not addressed properly,” Morse said in a March 10 interview. “Uncertainty will undermine sustainable investment and undermine the carbon market.”
Like the AAU fears, concerns over Chinese tariffs are not new. In December a Chinese official claimed that the UN was halting registration of all wind farm projects there. But although it did reject six such projects in February, it continues to approve many more – along with Chinese hydropower plans which make up the biggest group of CDM projects.
However, as a China-based consultant told Bloomberg at the time:
“The UN’s CDM executive board previously rejected applications of some wind-power projects in China on concerns that the government cut subsidies to make them qualify for certification,” Yang Zhiliang, general manager of Accord Global Environment Technology Co., a private CDM consultant based in Beijing, said by phone today. “The CDM board lacks Chinese members and understanding of China is inadequate.”
Few would defend the current CDM process as flawless; guarding against the inherent risks of additionality mean strict safeguards are vital to prevent funding going towards projects that would go ahead anyway.
The UN’s CDM programme realises this, too – its executive board is meeting on March 22 and will be considering various proposals around determining eligibility and monitoring projects.