Beijing warns against changing Kyoto carbon dioxide offset rule

A Chinese government fund has told a United Nations panel that it supports project developers which earn carbon offsets under a lucrative Kyoto Protocol scheme, and which rejects the idea that they are over-compensated.

Chinese project developers rejected key grounds for a review of Kyoto's clean development mechanism (CDM), and the China CDM Fund supported them, confidential papers showed a week before a UN panel decides whether to launch a formal review of the scheme.

The projects are the most lucrative under the CDM, which allow rich countries to buy offsets from carbon-cutting projects in the developing world as a way to ease the cost of reducing emissions.

The projects are rewarded if they destroy the potent greenhouse gas HFC 23, which they produce as a waste product in the process of manufacturing refrigerants.

An environmental group, CDM Watch, said earlier this year that the projects were producing more of the waste gas than necessary to destroy it and claim the resulting offsets.

The CDM executive board (EB) will judge next week whether to conduct a formal review.

"We consider that some of the key issues raised are contrary to the actual facts and lack scientific proof," said an undated letter signed by 10 Chinese project developers.

One issue is whether projects are resisting modernising their factories, which may then produce fewer greenhouse gases.

"All of our plants were built and had been running for at least three years before 2004, and adopted appropriate production technologies," the project developers said.

Their view was supported by the government fund, a Chinese agency which collects a levy from the developers. "We believe [the] EB could pay high attention to their comments and appeals fairly and objectively," said Xie Fei, director of the fund, in an accompanying letter.

He referred to the developers' ‘high concern’. The letter was not addressed to a particular body, but its submission to the executive board was confirmed in the published UN documents.

HFC projects account for more than half of all carbon offsets generated under the Kyoto Protocol, but represent just 22 out of a total of more than 5,300 CDM projects, UN data show.

The projects, mostly in China and India, have so far generated carbon offsets, called certified emissions reductions (CERs), worth €2.6 billion ($3.32 billion) at Friday's prices, at comparatively little cost.

A blocking minority of three people at next week's meeting of 10 executive board members would be enough to prevent a formal review, sources close to the process said.