UN climate change body suffers mammoth European carbon fraud

The United Nations body that oversees greenhouse gas reductions is reeling from another cap-and-trade scandal that may have put 600 million tons of carbon emissions into the atmosphere -- roughly speaking, the annual CO2 output of Canada or Britain -- while the emissions were ostensibly suppressed, according to an independent study.

In the process, the fraudsters, largely in Russia and Ukraine, were likely able to transfer credits for more than 400 million tons of their apparently bogus greenhouse savings by April 2015 into Europe’s commercial carbon trading system -- the largest in the world --thereby undermining that continent’s ambitious carbon reduction achievements.

Perhaps significantly, the vast bulk of the assumed fraud took place in countries that are -- or were, in the case of Ukraine -- notorious for their kleptocratic leadership under the regimes of Vladimir Putin and ousted Ukraine President Viktor Yanukovych, who fled his country in 2014. In Russia, much of the contract work for carbon project approval was carried out by state-owned Sberbank, which has been sanctioned by the U.S. and the European Union as part of the Western response to the Ukraine crisis.

The bulk of the fraud occurred under the battered Kyoto Protocol for greenhouse gas emissions, but researchers who detailed the scandal warned that without tough international policing and clear definitions of what every country involved in the climate deal aims to achieve, something similar could happen in the global climate change deal that world leaders are expected to endorse in Paris in December and that is intended to start up in 2020.

It remains to be seen whether those safeguards will be in place. Among other things, the emerging deal is based on what the U.N. calls “intended nationally determined contributions,”  or INDCs, that leave individual countries wide latitude for “estimating and accounting for anthropogenic greenhouse gas emissions and, as appropriate, removals,” as well as how the countries themselves consider their INDCs to be “fair and ambitious.”

The vast bulk of the assumed fraud took place in countries that are notorious for their kleptocratic leadership.

The Obama administration has vocally proclaimed its support for the impending new climate agreement, and has announced its intention to impose dramatic cuts in U.S. carbon emissions of  26 to 28 percent below 2005 levels by 2025, and make “best efforts” to make the steeper cuts.

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The most recent scandal -- there have been others -- involves the United Nations Convention for Combating Climate Change (UNFCCC), the body that oversees the Kyoto Protocol, as detailed in a 128-page analysis  issued by the Stockholm Environment Institute, a widely-respected, Swedish-financed independent think tank whose authors staunchly support the need for a new climate deal.

The authors claim that their study represents a “subjective judgment” of the evidence “based on the limited information publicly available,” but also say that it is “based on a careful analysis applied in a consistent manner across projects.”

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Among other things, the document says that:

• Under a complex self-policing scheme known as Joint Implementation Track 1, Russia and Ukraine in particular were able to exploit slack greenhouse gas emission reduction targets to generate huge surpluses of de facto credits, known as emission reduction units, or ERUs, for supposedly “additional” greenhouse gas reductions.

• The supply of ERUs “accelerated strongly” toward the end of 2012, as the first phase of the Kyoto Protocol was slated to expire. In many cases, the ERUs came from projects that had been started up years before any claims were made for the credits -- a strong indicator that something fishy could be going on.

• Some 80 percent of the ERUs came from projects that the researchers delicately said had “questionable or low environmental integrity” -- and where the host countries had the option of, among other things, developing their own methodology for “baseline setting and monitoring” the results. 

One huge favorite: projects that claimed to extract coal from mining waste piles, said to prevent additional mining and save energy to boot. The researchers tallied the claims in Ukraine and estimated they came to about one-third of the entire country’s coal production, a highly implausible figure.

• The greenhouse reductions were supposed to be verified by so-called Accredited Independent Entities, or AIEs, who in many cases “did not perform their auditing functions appropriately,” and who may have been in an “inherent conflict of interest” as the project participants selected and paid the AIEs themselves.  

• The report notes that “AIEs often failed to identify obvious mistakes, inconsistencies, questionable assumptions or claims, or changes to the project activity or monitoring plan.” The document also noted that verification under Track 1 schemes did not get oversight from UNFCCC’s Joint Implementation Inspection Committee, an important missing ingredient.

• The researchers singled out one AIE in particular, Bureau Veritas Certification Holding SAS, a French-based firm, as vetting 56 percent of all Joint Implementation projects, which generated 78 percent of ERUs. In a random sample of 60 of the JI Track 1 projects, “77 percent of the projects determined by Bureau Veritas made additionality claims that were not plausible, and 17 percent had questionable claims.”

Asked by Fox News about the report, a Bureau Veritas spokesperson said only that “Bureau Veritas' management has made the decision not to comment on this research.”

The Stockholm researchers, who did not respond to questions from Fox News about their effort, claim that their post-mortem could have “important implications” for any future cap-and-trade market mechanism under a new climate treaty -- starting with the fact that countries should not be allowed to set fuzzy targets for their climate efforts that could give them carbon credit windfalls.

(The authors do not say so, but one such fuzzy set of targets has been set by China, which says its aim is “to achieve the peaking of carbon dioxide emissions around 2030 and make best efforts to peak early” and to “lower carbon dioxide emissions per unit of GDP” -- as opposed to cutting emissions in absolute terms -- “by 60 percent to 65 percent from the 2005 level.” In 2013, China’s CO2-GDP ratio was nearly double that of the U.S., according to a European government study.)

Another reform that the Stockholm authors consider essential is that sole oversight of any such system by countries hosting carbon reduction projects “is insufficient to ensure environmental integrity.”

But even international oversight, the report warned, “may not eliminate the potential for excess issuance of [carbon] credits,” and there is still the risk that countries could “hamper the strengthening of a crediting mechanism’s integrity.”

On top of all that, the report warns, U.N. deliberations on how to register carbon suppression projects under a new climate agreement still “resemble current Track 1 rules” insofar as countries that host the projects can still conduct the registration.

The UNFCCC can “request a review” of the decision within 30 days, or it is automatically recorded. But draft changes to UNFCCC rule-making, the report observes, do not “specify any followup” if the U.N. body “does not conform to international rules.”

Overall, the authors warn, efforts to reform carbon credit schemes under the UNFCCC “have shown that often no consensus can be reached to address and rectify environmental integrity shortcomings” -- an unsurprising conclusion given the fact that, among other things, the Putin regime is still ascendant in Russia.

All of which, the report concludes, may mean that such “crediting mechanisms” will have a “rather limited” role when any new climate deal goes into effect -- in other words, not an end to fraud on the value of carbon reduction projects, but hopefully less paying for it.

Or, perhaps, just a new incentive to fraudsters to come up with other schemes. In December 2011, a report to the European Commission described another branch of the UNFCCC’s carbon-reduction schemes, known as the Clean Development Mechanism,” as “costly, unpredictable, unreliable, prone to gaming,” and “counterproductive due to perverse incentives.”

Soon thereafter, Europe dropped the worse of the schemes from its trading system, effective at the beginning of 2013 -- or about the time that the latest rush to cash in on Track 1 projects began.

George Russell is editor-at-large of Fox News and can be found on Twitter:  @GeorgeRussell or on Facebook.com/GeorgeRussell