Cap-and-trade corruption

A government-mandated market in imaginary goods can have pernicious effects? Who ever could have predicted such a thing?

ONE of the curiosities of carbon markets is that they do not just trade in carbon. Other greenhouse gases can be given a value, too—sometimes a very high one. Claims that these prices promote scammery are now prompting some searching questions.

The gas at the centre of the controversy is HFC-23, a greenhouse gas which, on a weight-for-weight basis, is 14,800 times better at trapping heat than carbon dioxide. HFC-23 is produced as a by-product of the manufacture of HCFC-22, an ozone-destroying refrigerant. . .

Under the Clean Development Mechanism (CDM) of the United Nations HCFC-22 producers in developing countries that destroy, rather than release, their HFC-23 can be eligible for Certified Emission Reduction (CER) credits, which can then be traded in the European Union’s emissions-trading scheme. . .

Because destroying a tonne of HFC-23 is a lot cheaper than avoiding the emission of more than 10,000 tonnes of carbon dioxide, HFC-23 destruction has become the CDM’s principal source of emissions credits. . .

You cannot simply set up an HCFC-22 plant and demand cash; eligibility is limited to companies which were already producing the gases in 2000-04, and companies are capped in the amount they can receive. But there is little incentive for approved incineration schemes to reduce the amount of HFC-23 that they produce. Quite the reverse, argues CDMwatch, a group that monitors the offset market. It says it has shown the CDM executive board that some plants have reduced their HFC-23 production during periods in which they were ineligible for CERs and upped it when they became eligible again, gaming the system.

I can’t fathom how anyone can be surprised. The governments, in their wisdom, decided to create a market for trading these imaginary goods. How can they be shocked when businesses work to manufacture a “product” for which they are being paid?

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