Same carbon credits sold twice (as CDM and on voluntary market)

Double counting does not legally qualify as fraud

Posted by Gar Lipow (Guest Contributor) at 3:50 PM on 27 Jul 2007

Read more about: climate | climate change mitigation | business | carbon offsets

The ENDS Report -- July 2007, issue 390 ($ub. rqd):

ENDS has learned that chemical corporation Rhodia is using carbon credits from the Clean Development Mechanism (CDM) to meet voluntary corporate targets -- only to sell them at a profit to be counted again elsewhere. Cement company Lafarge has not ruled out the same practice.

Companies like Rhodia can use CDM credits to comply with mandatory targets under the EU Emissions Trading Scheme. But they can also use them to meet voluntary carbon reduction commitments or to make "carbon neutral" claims, or sell them on the market.

Rhodia and other companies are counting the credits they generate towards their own voluntary emissions reductions and then selling them, thereby enabling other organizations to claim the reductions as well.

This is not a problem of a "few bad apples," or a flaw in the offset market that can be fixed. The fundamental problem with offset trading is that compliance is less transparent than a tax or auctioned permit system or even old-fashioned, non-market regulation. There is more room for deliberate gaming, and more room for honest error. At the same time, a working offset market depends on fewer errors and more precision than other means. An offset that is a formal permit to pollute (like CDM) actually increases emissions if it is implemented less than perfectly. Offsets such as CDM don't make allowances for human imperfection to the same extent other means of controlling carbon emissions do.

[Update] Stephan Singer Head of European Climate and Energy Policy Unit of the World Wildlife Fund claims that if LaFarge in fact does sell their voluntary credits on the CDM market they will be violating their agreement with WWF.

For story: Same carbon credits sold twice (as CDM and on voluntary market)
6 Comments | Post a Comment

Actually, there's another problem too

Gar;

You say that,

The fundamental problem with offset trading is that compliance is less transparent than a tax or auctioned permit system or even old-fashioned, non-market regulation.

To which I have a few immediate replies:

First, it's good to hear this kind of focus in the anti-trading debate. Often, the critiques of trading cite lots of problem, all at the same time, and all overlapping to boot. This makes it very difficult to separate out the key issues.

I actually think that there are two fundamental problems. The one you note is one of them, or part if it, because it leads to the capture of the mechanism by the Cap and Grandfather crowd, i.e, the corps. Though in truth there is more to this capture than a lack of transparency.

The other fundamental problem, I think, is even more fundamental. And it's not just a problem with trading either. It's the "buying their way out" problem. I'm not talking about "indulgences" either. I'm talking about the rich (people or countries) BUYING environmental space from the poor (people or countries) in order to avoid making reductions.

That's the most fundamental danger, here. And it would remain the most fundamental danger even if there was no emissions trading at all.

Tom Athanasiou toma@ecoequity.org

by Tom Athanasiou at 1:11 PM on 29 Jul 2007

Absolutely

Tom I don't disagree. I should have said "a fundamental problem" rather than "the fundamental problem". And I agree that there is a danger of the rich nations buying the poor nations environmental space. Or to be exact, we have already taken it. There is a danger that we won't pay for it, that we won't recognize in a meaningful way how much of the path to development we took is closed off to poor nations, that the rich nations have virtually all the emissions space that existed. And greenhouse gases are not the only space we've used up; we've consumed much of the biodiversity, much of the mineral wealth. We have been mining water tables not only in our nations but in poor nations.

There are at least two reasons rich nations can't buy poor nations environmental spaces as solutions. One is that there is not that much environmental space on the globe. Rich nations need to reduce their environmental footprint as fast as possible. Poor nations need to develop while (in most cases) reducing their environmental footprint - certainly without increasing it. So rich nations buying poor nations environmental space does not even solve the environmental problem. You cannot using solving problems in the poor nations as an excuse for not solving them in the rich ones.

Secondly rich nations are the ones who have consumed most of the environmental space. So they have to pay for the poor nations to develop both as a matter of justice and as a matter of practical politics. The justice of course is that the poor nations should not be expect to pay for the part of the mess the rich ones made. And the practical politics is that they will never agree to do so. Even a comparatively rich poor nation like China is not going to stop burning coal so that rich nations can keep burning oil. Any deal must include the rich nations showing enough seriousness to reduce their own emissions, and enough seriousness to pay enough to compensate for the difference between developing cleanly and developing dirtily. Yes, some of the poor nations have a share of the responsibility (and you and Baer and others you work with have developed a nice example of how to ascertain that ) - but the overwhelming majority of it belongs to the rich nations.

by Gar Lipow at 2:49 PM on 29 Jul 2007

hmm

It's a problem, yes. But a fundamental problem? No. Sometimes you're so off the mark it's painful.

Lack of transparency isn't some "natural law" of offsets. This is a case of an infant market, with unclear rules on liability.

So the problem, right now, is incorporating offsets into a regulatory framework, because we don't have clear liability rules. What is the fundamental problem that can't be fixed here? I'd really like to know.

I know you don't like the voluntary market either, but I hope you aren't insinuating that this is some fatal flaw in the voluntary carbon market.

You talk a lot, but I've yet to be convinced that the flow of money from developed countries to developing countries, in order to protect ecosystems and fund clean development is a bad thing.

by naturescene at 7:01 PM on 29 Jul 2007

transparency

...Lack of transparency isn't some "natural law" of offsets. This is a case of an infant market, with unclear rules on liability.

No. Offsets are fundamentally less transparent, less transparent by nature.

For an offset to work, the credit has to be generated downstream - in a particular workplace or home. Since measurement at this level is difficult you have to do all sorts of accounting tricks and estimates and guessing, which leaves more room for both honest error and game playing. For CDM style offsets - offsets in nations without caps -- it is worse, because then the you have determine the baseline emissions, what would have happened without the offset activity. In contrast with a carbon tax or auctioned permit you can require the permission upstream - when the fossil fuel is extracted,imported or refined. You are granting fewer larger permissions - less opportunity for game playing. You can reasonably (though IMO wrongly) claim that offsets provide benefits that exceed the problems from their lack of transparency. I don't think you can reasonably claim that lack of transparency is not a problem.

I've yet to be convinced that the flow of money from developed countries to developing countries, in order to protect ecosystems and fund clean development is a bad thing.

So CDM is the only way to do this? You mean the way phone solicitors are the only way to collect money for charity?

by Gar Lipow at 2:00 PM on 30 Jul 2007

Is this post totally wrong?

I can't access the original report, so I'm conjecturing a bit here...but has anyone else noticed that the premise of this post seems to be totally false?

There's this thing called "double counting" of offsets, which is what happens if one offset is counted twice against a mandatory cap. Double counting is bad, although it also seems to be mostly or entirely theoretical.

Double counting, however, is not the same thing as a single offset being sold more than once. Person A can buy an offset and then sell it to person B. Person B can sell it to person C. And so on. The offset can be traded as many times as people want. The important thing is that the offset can only be counted once against a mandatory cap -- once person A sells it, he can no longer claim the reduction -- but there's nothing fishy about selling an offset again and again.

What appears to be happening in this case is that an offset is only being counted once against a mandatory cap. So this is above board. At the same time, some companies who are trading the offsets are making bogus claims about their own voluntary corporate greenhouse gas reduction programs.

Is this sleazy marketing? It sure sounds that way. Does it say anything about the integrity of the carbon markets? No. Companies make inflated or just plain false claims about their environmental initiatives all the time. Usually we take these falsehoods to reflect poorly on the companies, not on the environmental initiatives.

If I'm reading this correctly, the entire premise of this post is false. I'm not holding my breath for a retraction.

www.terrapass.com/blog

by Adam Stein at 9:55 PM on 12 Aug 2007

Double counting

Missed this post (and way to go challenging someone as dishonest if they don't answer a comment in post that had been up for weeks when the comment was posted). In this case what was boasted of was that the carbon credit would be sold at the same time in two different markets. That has nothing to do with your straw man of reselling a permit. This is not just being sold twice: it is being counted twice. If your industry standard don't consider this "double counting" more shame to you industry.

by Gar Lipow at 10:25 AM on 14 Jul 2008

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