Joining the little REDD dots: Stories from the world of carbon trading

Three unrelated pieces of information. A couple of weeks ago, Interpol held an environmental crime conference. Last week, at a conference on carbon trading in Chicago, an attorney mentioned that several large energy companies are setting up a new US$1 billion REDD fund. Meanwhile, DNV, a carbon project validator, is accused of falsifying the date on a report in China.

The Interpol conference took place from 13-17 September inside Interpol’s high security compound in Lyon, France. About 200 officials from law enforcement agencies, NGOs and intergovernmental bodies took part.

Mark Schapiro, a journalist with the Center for Investigative Journalism was there. In his report on the conference, “Crime in the carbon markets,” Schapiro quotes Bakary Kante, head of the UN Environment Programme environmental law division, as saying that “Governments should start preparing for an onslaught of environmental court cases.”

Schapiro writes,

Now Emile Lindemulder and others at the agency want to expand Interpol’s mandate into an entirely new terrain: criminality in the global carbon markets. Those markets, operating in countries subject to the emission restrictions of the Kyoto Protocol, have grown exponentially over the past five years, churning through more than $300 billion worth of transactions over the past five years. “When there’s this amount of money involved,” Lindemulder commented, “criminals get interested.” … Lindemulder explained that police from traditional realms of environmental enforcement are now compelled to understand the complexities of global finance. “The carbon markets involve so many parties, so many new instruments and forms of vulnerability that we haven’t been aware of before.”

Schapiro also quotes Peter Younger of Interpol. “Alarm bells are ringing. It is simply too big to monitor,” Younger said of the carbon market a year ago. This year, he specifically refers to forest offsets:

The carbon commodities being traded, he said, are unlike any others. “You’re obtaining not a physical entity or asset but a piece of paper.” He cited as an example the rapid growth of interest in tropical forests serving as ‘offsets’ to companies’ carbon emissions. In countries where matters of land ownership are often disputed and unclear, the possibility for fraud is considerable, he said. “In effect, you could be falsifying ownership in something you can see in order to sell something that you can’t. And then inserting that into the carbon markets and selling it to people.”

At a carbon trading conference in Chicago, Carbon TradeEx America, earlier this week, Tom Houston, an attorney with Brownstein, Hyatt, Farber and Schreck, spoke to a journalist from Point Carbon. He explained that several large energy companies are setting up a new US$1 billion REDD fund. Houston told Point Carbon that

“Four to five major utility companies and two oil companies are involved… Basically this is a group of financial advisers that have come together, and they are in communications with major utilities and oil companies in the US… The investors hope they will jumpstart some of these projects around the world and show that they can be done and be done correctly… So when the carbon credits are produced by these projects, they are verifiable and can be used ultimately as offsets under any US cap-and-trade or other compliance regimes… This fund is being set up in such a way that the utilities that invest can either let their investment ride … or they have a right to take out as many offsets that have been created by the fund and use it for their own offsetting purposes. It gives them the best of both worlds.”

Houston explained that the companies are interested in projects that can generate carbon credits for between US$5 and US$10 per tonne and that the projects will be certified and approved according to Voluntary Carbon Standard criteria.

On the same day, Point Carbon reported that DNV, a VCS validator, stood accused of backdating a validation report in order to appear to meet a deadline. The project is the Huaguangtan 85 MW Hydropower Project. The project developer Shanghai Tepia aims to generate 150,000 voluntary carbon credits per year.

19 November 2009 was the deadline set by VCS for projects started in 2007 or earlier. The Huaguangtan project started in 2005. Shanghai Tepia received the report from DNV on 30 November 2009 – the date on the report is 19 November 2009. Point Carbon writes that

Shanghai Tepia remains convinced that the date had been falsified so that DNV would not miss the deadline – and its fee… The DNV report concluded that the hydropower project in question did not meet with VCS standards and that it should not be deemed eligible to be issued carbon credits. Shanghai Tepia disagreed with the conclusion and was offered to appeal according to DNV’s internal routines, but eventually declined… The company demands that DNV corrects the date on the report, returns the validation fee of RMB242,319 ($36,000) and issues a public apology… The UN suspended DNV from its CDM role in December 2008 for a period of time due to irregularities in its practices.