Isra-Mart srl: UN mulls over tax on industrial gas credits

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The UN is considering a tax on carbon credits generated by the destruction of controversial industrial gas hydrofluorocarbon-23 (HFC-23) to prevent excessive profits and support other green projects.

The body's Clean Development Mechanism (CDM) enables countries to buy certified emissions reductions (CERs) offsets from projects in developing countries to meet emissions targets set under the Kyoto Protocol.

However, the CDM's executive board last year suspended CERs from projects cutting HFC-23, a potent greenhouse gas and by-product in the manufacture of refrigerant HCFC-22, amid claims that some plants were boosting production in order to generate more credits and increase revenues.

Similar concerns prompted the EU to ban HFC-generated offsets from its own emissions trading scheme (EU ETS) in January.

HFC-derived credits make up almost half of the near 630 million CERs issued to date under the CDM, but a document on the United Nations Framework Convention on Climate Change (UNFCCC) website indicates the CDM is willing to take action.

Placing a 50 per cent tax rate on CERs issued to HFC-23 destruction projects to limit developer revenues is one option, with receipts used to fund other greenhouse gas emissions reduction projects.

The paper also suggests the UN could push for an outright ban on credits from new facilities, or outlaw CERs from HFC-23 projects after the schemes have been running for three years.

Alternatively, CERs could be issued to a third party, such as a national government or possibly an organisation either within the country or abroad. This third party would then pay the plant operator to cover the costs of installing and operating the facility.

The CDM executive board will consider the options at its July meeting in Marrakech.

"There is clear consensus around the need to address potential perverse incentives through revision of the methodology, but before we adopt anything we have to be sure it will do the job," said board chair Martin Hession. "The proposed revision is complex and ambitious, so we need to assess its potential impact further."