W.Bank defends controversial HFC carbon-cut plants

* Says newer plants less efficient than older ones under CDM

* Warns against suspending CDM methodology before int'l pact

* CDM Watch says World Bank protecting its investments

(Recasts with comment from CDM Watch)

By Michael Szabo

LONDON, Aug 23 (Reuters) - The World Bank has defended its investment in chemical plants accused by green groups of raising production of greenhouse gas HFC-23 with the aim of incinerating it to get extra carbon offsets worth millions of dollars. Approved under the Kyoto Protocol's $2.7 billion Clean Development Mechanism (CDM) scheme, 19 plants mainly in China and India are issued offsets by the UN for incinerating the refrigerant waste gas called hydrofluorocarbon-23.

But environmental groups including Germany's CDM Watch have accused some of the plants, in which the World Bank is an investor, of intentionally boosting refrigerant gas production just collect more offsets by destroying it.

The CDM's executive board last week halted issuance of offsets to five projects, including two with World Bank funding, pending an investigation. [ID:nLDE67J0T3]

"The analysis conducted by CDM Watch is based on a narrow and simplistic approach ... Key parameters have been discarded, such as operating conditions and technical capacity," the World Bank said in an undated report on its website, adding there was not enough evidence to support the allegations.

But environmental activists were not convinced.

"The World Bank is one of the largest investors in HFC-23 projects and clearly has vested interests in protecting its investments and ensuring a continuous flow of credits," said CDM Watch programme director Eva Filzmoser by email.

"CDM Watch ... considered all parameters available and is confident that our analysis that some plant operators are gaming the system to extract huge profits from the CDM is correct."

A molecule of HFC-23 traps 11,700 times more heat than a molecule of CO2, making the 19 projects lucrative for their long list of investors, which UN data said include Goldman Sachs


, Barclays


and Deutsche Bank



The World Bank said on its website its Umbrella Carbon fund had contracted to buy from two contested Chinese HFC-23 projects some 130 million tonnes in offsets through 2013, which at current market rates are worth about 1.76 billion euros ($2.2 billion).

The 19 HFC-23 projects account for over half of the 430 million offsets doled out to the 2,326 projects approved under the CDM to date.


"It is astonishing that the World Bank concludes now that there is not sufficient evidence to support our allegations while the investigation is still ongoing," Filzmoser said.

CDM Watch accused the projects of overproducing a gas called HCFC-22, adding that the level of waste gas HFC-23 emissions per tonne of HCFC-22 was larger for plants covered by the CDM than for newer facilities that were not.

The World Bank said, however, "Scientific research reports that plants not covered by the CDM are less efficient in both developed and developing countries ... this includes newer facilities in developing countries."

It added that revenues from selling offsets do not exceed those from producing and selling HCFC-22.

"If we look at China alone, where the majority of HFC-23 projects are located, the overall national production of HCFC-22 very significantly exceeds that of the CDM project unit," the bank's report said.

"Clearly the CDM is not driving the demand for production." The World Bank cited rapid economic development as a reason for the swift growth in HCFC-22 production in emerging nations, which it put at 25 percent per year.

The report also noted that there was a current lack of any international agreement or regulations to mandate the destruction of HFC-23.

"CDM revenues are the only financial resource available to developing countries to cover the incremental costs for the destruction of HFC-23 from HCFC-22 production in facilities."

For this reason, the bank advised against suspending the CDM's HFC-23 methodology, which would effectively curb the carbon finance available to these projects.

"Because of the significant impact of (these) projects on the global effort to reduce greenhouse gases, it is not advisable to put this methodology on hold before an international agreement is reached and a financial mechanism is available for developing countries to cover the additional costs for the destruction of HFC-23." <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

Take a Look on HFC-23 project probe [ID:nLDE67G1GZ]

Full report:

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