SINGAPORE (Reuters) - The most profitable projects under a U.N. carbon offset scheme may have claimed excessive emissions cuts and the amount issued to them could be adjusted, the head of a panel that governs the scheme said on Tuesday.
The $2.7 billion scheme under the Kyoto Protocol allows developing countries to claim carbon offsets for emissions cuts, and sell these to polluting companies in the developed world.
The most lucrative projects are those that destroy a very powerful greenhouse gas called hydrofluorocarbon-23 (HFC-23), earning them a large number of offsets in return.
But such projects may have allowed their factories to generate more of the greenhouse gas, a waste by-product from manufacturing refrigerants, than necessary.
"I think what happened is the maximum production that is allowable, I think the number we have maybe is too high and that has to be adjusted," Clifford Mahlung, chair of the Clean Development Mechanism's Executive Board, told Reuters on the sidelines of a carbon conference in Singapore.
"But if something is happening that is not the best solution for the environment, then obviously it is a concern for the board and we will have to take some type of an action, even if it's drastic, to make sure credibility is maintained," he said.
He said a CDM methodology panel will investigate if there is a loophole in rules governing HFC-23 projects that claim internationally tradeable U.N. offsets called Certified Emissions Reductions (CERs) that currently sell on the secondary and spot markets for around 13.40 euros ($18.00) each .
He said it was not conclusive there was a loophole being exploited by project owners, although some NGOs and governments suspect some HFC projects had abused the CDM and should be banned or the number of CERs issued to them drastically cut.
"If it's happening, then it is a new thing that has been happening," Mahlung said.
"We have to get the methodology panel to look again at the methodology to see if the accusations that are being made are true ... and (if so) then adjust it," Mahlung added.
The CDM methodology panel meets this week and is expected to make a recommendation ahead of a late-July meeting of the rule-making executive board.
CDM Watch, an initiative of non-governmental organisations, said earlier this month that HFC-23 projects may have inflated their emissions in order to destroy them and sell more offsets.
It also found that plants produced less HFC-23 during periods when they were unable to request CERs.
CDM Watch and Germany's Forum Umwelt & Entwicklung (FUE) made an official submission to the board calling for new CERs handed to HFC projects to be discounted by over 90 percent and for projects up for renewal to be reviewed.
HFC CERs make up more than half of the over 420 million issued to date by the UN's climate change secretariat. Analysts expect less than 1 billion CERs to be issued before 2013.
Slashing the flow of HFC CERs starting from a project's second 7-year crediting period would trim the total expected CER supply by 5.5 million tonnes by 2013, and by 445 million between 2013-2020, Barclays Capital said on Monday.
If wider restrictions were implemented earlier, starting in 2011, pre-2013 CERs would be cut by 147 million tonnes, and post-2012 by 515 million, it added.
(Additional reporting by Gerard Wynn and Michael Szabo in London; editing by James Jukwey)
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