Countries have proposed a tax on U.N.-backed carbon credits from projects that destroy the potent greenhouse gas hydrofluorocarbon-23 (HFC-23) to prevent the developers from racking up excessive profits, a U.N. paper said.
Under the U.N.’s Clean Development Mechanism (CDM), companies are rewarded with carbon offsets, called certified emissions reductions (CERs), for investing in clean energy projects in developing countries.
Last summer, the U.N. panel that oversees the CDM stopped issuing CERs to HFC-23 projects while it investigated claims that some developers were intentionally boosting production of the gas in order to destroy it and earn more carbon offsets.
HFC-23 destruction projects account for the largest share of CERs issued since the CDM began in 2005.
Some nations and observer organisations have suggested a number of options to prevent HFC-23 destruction projects from providing excessive profits, a technical paper on the United Nations Framework Convention on Climate Change website showed.
One option includes introducing a tax on the CERs issued to a HFC-23 destruction project to limit project developers’ revenues, the paper said.
Revenues from the tax could be used to fund other greenhouse gas emissions reduction projects, it said.
“One party proposed that the tax should be at least 50 percent of the revenues from CERs,” it added.
Other options include making the destruction of HFC-23 from new facilities ineligible under the CDM or issuing CERs only after new facilities have been operational for three years.
Another option would be to issue fewer CERs than the emissions reductions made by plants, so that their revenues from destroying HFC-23 are reduced.
Also, CERs could be issued to a third party rather than the operator of a new facility. The third party could then compensate the plant operator for the costs of installing and operating the HFC-23 destruction facility.
“The third party entity may be the host country government, an institution within the host country or an international institution,” the paper said.
By April 1, 2011, 19 HFC-23 destruction projects had 277 million CERs, which represents 48 percent of the total CERs issued by that time, the paper said.
