Russian industry paid to increase emissions under UN carbon credits scheme

A loophole in the UN’s carbon market may have led to an increase in emissions from some Russian factories, according to a new study published in Nature Climate Change.

It suggests that weak environmental oversight of the UN’s 1997 carbon credit scheme led to “perverse incentives” for some industrial plants to increase emissions, so they could then be paid to reduce them.

This scheme was created to provide countries with a cheaper and efficient means to reduce emissions, but could instead have caused emissions to rise by 600 million tonnes of CO2, claims a parallel study by the same authors.

The study focuses on four factories in Russia, which stood to benefit in particular due to the country’s unique circumstances.

Carbon Brief looks at what has happened, and why these industries have been able to slip through the net when it comes to cutting emissions.

UN jargon explained

In 1997, countries signed a UN agreement called the Kyoto Protocol, committing so-called “Annex 1” developed nations to reduce their emissions.

This included provisions for a new carbon market scheme. Under this, countries are allowed to generate a carbon credit for every tonne of additional greenhouse gas that they cut or remove from the atmosphere. Instead of counting this reduction towards their own target, a country can sell it on to another industrialised nation.

This scheme is known as “joint implementation”. The idea behind it is that emissions are reduced cost effectively, with the potential for foreign investment enabling host countries to make cuts that may have otherwise been too expensive.

While carbon dioxide is the main driver of climate change, this scheme can also be used to trade reductions in other greenhouse gases.

Today’s study looks at two greenhouse gases that emerge as waste gases from industrial processes: hydrofluorocarbon-23 (HFC-23) and sulphur hexafluoride (SF6).

These gases have a high global warming potential, which means that a small volume of them causes the same temperature rise as a large amount of CO2. HFC-23 is 12,000 times more potent than CO2 and SF6 is 16,300 times more potent than CO2 over a 20-year time frame.

“Perverse incentives”

This means that factories earn more credits for cutting emissions of these two gases than they would for cutting the same volume of CO2.

Furthermore, these gases can be reduced cheaply, and for less than the price of a carbon credit. This means that cutting HFC-23 and SF6 and selling the credit can be a quick way for industries to turn a profit.

This creates a “perverse incentive” for factories to increase their production of these waste gases – to produce more, reduce more, and, therefore, earn more. And this is exactly what has been taking place in Russia, argues the study.

Russia

Factories that incinerate waste gases, in particular, stand to gain from the UN’s carbon market scheme. There are five such factories that earn credits – four in Russia, and one in France.

Unless there are specific regulations, incentives or voluntary commitments in place, industry will simply vent waste gases into the atmosphere. Instead, these factories are able to capture and incinerate them.

The study focuses on four plants in Russia (the French one has aimed to address the issue, although data is not available to assess whether this has been successful, the study adds). Together, they have generated 54m of the 863m credits issued so far to the 604 projects registered under the scheme.

However, instead of reducing their emissions, these factories have started generating more waste gases since they started using the UN’s credit scheme in 2008 and 2010, the study says.

At one plant, for instance, the generation rate of SF6 increased to 16.9% – significantly above the historical rate of 2% observed at the plant – after it started claiming credits. Data submitted to the UN’s climate body shows that Russia’s generation of waste gases increased significantly with the advent of the joint implementation mechanism.

This is a problem for the climate – though not because of the increase in the production of waste gases at the factory itself, which are destroyed in return for a carbon credit.

The difficulty is that other countries can then buy this carbon credit instead of reducing their own emissions domestically, upon the assumption that the emission reduction has taken place elsewhere.

Except in this case, Russia has taken no additional action to reduce its emissions below what they would have otherwise have been. The country that buys the carbon credit also will not have to reduce its emissions.

This leads to profit for Russian industries, but to a negative impact on the climate.

Why has this happened?

The reasons for this paradox are twofold.

Firstly, oversight of the joint implementation mechanism is weak, the study says. Unlike the Clean Development Mechanism (CDM), the parallel scheme for developing countries, responsibility for approving projects and issuing credits falls on the host country. Ninety-seven percent of credits have been issued in this way, without international oversight.

In Russia, this meant that safeguards to ensure the environmental integrity of the projects were removed for three out of the four factories examined in the study; in the fourth, they were never even applied.

The second problem is that Russia has no incentive to reduce its own emissions, since the collapse of its industry following the fall of the Soviet Union meant its targets under the Kyoto Protocol are already easy to meet.

Anja Kollmuss, who worked on both studies, told Carbon Brief:

“If the projects would have been implemented anyway, were over-credited and they come from countries that had a large surplus of Kyoto allowances, then you undermine global climate goals. In other words, you end up with more emissions than if those offsets had not been used.”

The scale of the problem

The problem is not unique to Russia, says a separate study by the same authors, published today by the Stockholm Environment Institute.

It points to Ukraine, which has a similarly weak Kyoto target, as another country with weak regulatory standards. Over 80% of the credits issued by Ukraine and Russia raise significant concerns about environmental integrity, says the study.

This is a problem, because, together, these countries were responsible for 90% of credits given out under the joint implementation mechanism.

Altogether, this may have allowed global emissions to be around 600 million tonnes of CO2e higher than they would have been had the scheme not been in place.

This has particularly serious implications for the EU’s emissions trading scheme, which has used more than 560 million of these credits to reduce emissions, and may have undermined its target by 400 million tonnes of CO2, says the study.

Does this mean that the joint implementation mechanism has been a failure? Kollmuss told Carbon Brief:

“If you just look at what the atmosphere sees, then it doesn’t look very good. But there are of course countries that did a good job and there are good projects out there, it’s just that they were completely overwhelmed by the number of credits issued that were not really representing emissions reductions.”

For instance, environmental integrity was as rated as high as 70% for credits issued in Poland, and 97% in Germany.

While the problem is unlikely to be dealt with in any detail at the UN’s climate conference in Paris, Kollmuss tells Carbon Brief that it should be a priority for discussions in the following years, as diplomats work out how to implement their agreed emissions reductions into the future.

Image: Saint Basil cathedral in Moscow. Credit: © Sailorr/Shutterstock.com.