Rhodia profits from double counting of carbon credits

Chemical company Rhodia is using carbon reduction credits earned through the Clean Development Mechanism to meet voluntary corporate targets - only to sell them to be counted again elsewhere. Cement company Lafarge has not ruled out similar action.

ENDS has uncovered evidence of ‘double counting’ of certified emission reduction credits under the Kyoto Protocol’s Clean Development Mechanism (CDM). The dubious practice, while not illegal, could undermine confidence in the CDM market - and in corporate commitments to tackle climate change.

The CDM allows developed countries to invest in cost-effective emission-reduction projects in developing countries (ENDS Report 344, pp 29-34 ). Companies are also beginning to use the CDM to fund ‘in-house’ emission reductions at their own overseas operations.

CDM credits can be used to comply with mandatory targets under the EU emissions trading scheme (EUETS), or sold to organisations wanting to offset their emissions - for example to meet voluntary carbon reduction commitments or to make ‘carbon neutral’ claims. They are seen as a credible means of offsetting because the projects they come from are subject to strict verification procedures and are approved by the United Nations.

But there is a loophole. Credits used within the EUETS - both for compliance or sale - can be tracked and accounted for by the CDM registry. But credits used to meet voluntary corporate targets fall outside the official system.

In theory, companies should ‘retire’ the credits used to meet their own voluntary targets so that they cannot be used elsewhere. But some companies are counting the credits they generate towards their own voluntary emissions reductions and then selling them, thereby enabling other organisations to claim the reductions.

Rhodia’s 2006 sustainable development report says two CDM projects that cut emissions of the greenhouse gas nitrous oxide at its chemical plants at Paulina, Brazil, and Onsan, South Korea, "will enable Rhodia to... place 11-13 million tonnes of carbon dioxide emission credits on the quotas market". The report adds "the initial reductions were audited and 1.6 million tonnes of CO2 emission credits were received and sold". With CDM credits trading at around €10 each, the sale may have earned Rhodia about €16 million. But the cuts have also contributed significantly to the emissions reductions Rhodia declares in its report.

A spokeswoman for Rhodia claimed there is "absolutely no double counting" because the company was not using the credits from the two projects towards EUETS compliance. She appeared unaware that counting credits, which it later sells, towards its own corporate performance is double counting.

There is also cause for concern over cement company Lafarge’s approach to managing its emission reductions.

Lafarge’s 2006 sustainability report says its latest CDM project at its Rwang and Kathan cement plants in Malaysia are saving over 60,000 tonnes of CO2 per year. The kilns use palm kernel shells - biomass from the palm oil industry - as a partial replacement for coal. It is Lafarge’s second CDM project and more are under way in four other developing countries.

Vincent Mages, Lafarge’s climate change vice president, confirmed these reductions contribute to meeting its voluntary target of a 20% cut in net CO2 emissions by 2010 from 1990 levels.

But he went on to say: "If and when we sell the credits received for this investment in Malaysia, it just means a revenue for Lafarge as for any company doing the same type of CO2 reducing investment in a [developing] country and getting approval from the CDM Executive Board."

Mr Mages claimed that "the buyers of such credits are buying a tradable financial product, a commodity, but certainly not a CO2 reduction recognition".

The comments may come as a further embarrassment for environmental group WWF, which has a seven-year-old partnership with Lafarge aimed at reducing its climate change impacts. No one from WWF was available to comment.

In June, ENDS revealed that Lafarge and WWF have no effective strategy for curbing the cement giant’s rapidly growing CO2 emissions from operations in developing countries like China (ENDS Report 389, p 10 ).

Daniele Violetti, UN CDM registry and issuance team leader, said the UN was "not aware" of the problem. The use of credits to meet voluntary corporate targets is "outside the purview" of the CDM Executive Board. "Officially the companies are not doing anything wrong," he said.

Mark Kenber, policy director at The Climate Group, which has support from business, government and NGOs, said: "Companies that use CDM credits to meet voluntary corporate targets must retire them, not sell them, otherwise they are guilty of making a false claim." Certification of CDM projects to a credible standard such as the Gold Standard should ensure credits are accounted for properly, he added.

Compliance Search

Discover all ENDS content in one place, including legislation summaries to keep up to date with compliance deadlines

Compliance Deadlines

Plan ahead with our Calendar feature highlighting upcoming compliance deadlines

News from ENDS Europe

News from ENDS Waste & Bioenergy