“What was shocking for us was the extent of the problem – we didn’t expect that it would be so big,” said Anja Kollmuss, an associate at SEI who led the study.
UN officials confirmed the findings by the institute that around 600 million tones were wrongly emitted as a result, under the UNFCCC’s Joint Implementation Scheme. In 1997, countries signed a UN agreement called the Kyoto Protocol, committing developed nations to reduce their emissions. This included provisions for a new carbon market scheme which is known as ‘Joint Implementation’, under which countries are allowed to generate a carbon credit for every ton of additional greenhouse gas they remove from the atmosphere. Instead of counting these reductions towards their own target, a country can sell it to another industrialized nation. Developing countries do not have binding targets under the Kyoto Protocol, but are still committed under the treaty to reduce their emissions.
Under the scheme, Russia and Ukraine then were able to sell those credits from curbing coal waste fires or restricting gas emissions from petroleum production, to the European Union’s carbon market. Companies bought the offsets rather than making their own more expensive, emission cuts. Russia and Ukraine were the two biggest beneficiaries of the JI scheme, which allowed them to trade emissions reductions units (ERUs) proving that carbon cuts had been made.
The idea was to prompt climate change mitigation by making it more cost-effective. But the study by SEI of 60 random projects found that 73 percent of the offsets generated didn’t meet the key criteria of “additionality”, which means that these projects would have gone ahead anyway without any carbon credit finance. It also found that almost 80 percent of the credits were issued to projects of questionable environmental integrity. As of March 2015, almost 872 million ERUs have been issued.
“Some early projects were of good quality, but in 2011-2012, numerous projects were registered in Ukraine and Russia which had started long before and were clearly not motivated by carbon credits,” said Vladyslav Zhezherin, an independent consultant in Ukraine and co-author of the study. “This was like printing money.”
According to the authors, these findings are bad news for the EU’s climate targets and pose serious problems for the EU’s emissions trading scheme, which has used more than 560 million of these credits to reduce emissions, may have undermined its target by 400 million tones of CO2, worth over $2bn at current market prices. That accounts for about a third of the EU’s ETS reductions required from 2013 to 2020.
“This is a considerable amount,” Kollmuss said, adding “If the EU was taking its climate targets seriously, then at least 400 million ETS certificates would have to be deleted to counter that.”
The issue may well be discussed at the Paris global climate summit in December, where the EU is pushing for oversight of future market-based mechanisms to be taken out of the UNFCCC’s hands. Although, this is not the first time carbon credit suppliers have been accused of manipulating the system. In any case, the major winners were Russian and Ukrainian companies, which issued 90 percent of the credits. However, the ones who are most affected from the carbon fraud, are investors who tried to follow the rules, to produce genuine carbon credits, and activists who naively expected the carbon market to deliver emission reductions.