The UN backed Executive Board of the Clean Development Mechanism (CDM) has suspended carbon credits for shady chemical manufacturers in China that were producing an excess of pollution and then destroying it, all to get credit for doing good. The chemical plants in question were producing too much hydrofluorocarbon-23 (HFC-23), a super greenhouse gas found in refrigerants, and then destroying it, all in an effort to earn credits called Certified Emission Reductions (CERs). The credits are traded on an open market and can be worth a tidy sum.
The crackdown seems to have investors spooked and the shorting of supplies has sent prices up for carbon credits. At the time of this writing, credits are up about 12 percent in the past week to about €13.50 per ton. Who buys these? E.U. companies that have to meet standards under the European Union's cap-and-trade market and Kyoto countries who have to meet their treaty obligations.
The move is good news for those who want to make sure that carbon markets have integrity. The CDM has come under assault for years from both environmentalists who think it's a scam to allow polluters to keep polluting, and from climate deniers who see the system as an artificial market built on a false premise--that climate change is real.
Although some are saying that cap and trade is dead in the US, California is moving forward with a system that will have parts that resemble the CDM trading system. Ensuring that the CDM works is key to other systems working properly and for investors believing in it.