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The Sunday Times: Indians make cool £300m in carbon farce

April 22, 2007
The Insight team

BRITISH companies are handing over millions of pounds to an Indian chemical plant so that western firms can continue to pump out thousands of tons of greenhouse gases.

In a deal that has angered environmentalists, the Indian company SRF, which produces refrigeration gases at a sprawling chemical plant in Rajasthan, stands to make a profit of more than £300m from the bizarre arrangement that is supposed to combat climate change.

The deal is part of the new so-called carbon market where companies in developed countries pay those in developing nations to reduce their production of greenhouse gases. By doing so, western companies can increase their own output of carbon dioxide in a trade-off.

In the rush to join the “green revolution” companies are investing millions of pounds in a select handful of United Nations-approved schemes around the world. Among the investors in the Indian plant are Shell and Barclays.

The Indian company has spent just £1.4m in equipment to reduce its emissions, but it will reap a profit of more than 200 times that amount from British investors and others.

It is now using the money it has made to expand production of another greenhouse gas, which is a thousand times more damaging than CO2. Other manufacturers in India and China producing similar products are expected to earn an estimated £3.3 billion over the next six years by cutting emissions at a cost of just £67m.

Yesterday environmental campaigners and politicians said they were “shocked” by the absurdity of the carbon economics. Mary Taylor, climate campaigner for Friends of the Earth, said: “It really is perverse. It allows western companies to continue polluting while handing over large amounts of money to a company in India, which itself produces large amounts of greenhouse gases.”

Colin Challen, the Labour MP who chairs the all-party group on climate change, said: “It has created a whole new industry which is providing very little value to anybody . . . A lot of money is going to these schemes, which are in my view quite artificial.”

The Indian company’s windfall is the biggest so far under the Kyoto Protocol’s Clean Development Mechanism, which came into force in 2005.

Signs around the SRF plant say the company is leading the way to make India “clean and green”. But when The Sunday Times visited the area last week, locals complained about chemical leaks which they claim had affected crops and water.

Suresh Yadav, a local landowner, said: “Fifty per cent of my crops are damaged by the chemicals. Our eyes are pouring, we can’t breathe, and when the gas comes, the effects last for several days.”

The plant produces a chemical called HCFC-22, which is used for refrigerators and air-condi-tioning systems. A byproduct of its manufacture is a gas called HFC-23 (trifluoromethane) – one of the world’s worst greenhouse emissions as it traps large amounts of the sun’s heat.

It is relatively cheap to install equipment to destroy the gas and most western producers have voluntarily done so. It is now illegal to let the gas escape into the atmosphere in Britain.

This is not so in India. SRF – which is run by Indian rupee billionaire Arun Bharat Ram – vented the gas into the air for 15 years until 2004. It stopped when new measures to save the planet made the gas – or more accurately the absence of it – a licence to print money.

Under the Kyoto Protocol, developed countries must cut all greenhouse gas emissions by an average of 5% below 1990 levels by 2012. This has led to individual firms being given their own targets to restrain emissions.

Firms in the UK or elsewhere can take the expensive option of cutting their own emissions or instead invest in projects in the developing world that also cut pollution.

If they take the latter option, they are given a carbon credit – essentially a permit to pollute – for every ton of carbon dioxide saved. This can be sold by western firms at a profit on the international carbon market. The credit will ultimately be bought by a polluting company which is allowed to use it to meet its Kyoto target instead of reducing its own emissions.

SRF’s byproduct gas HFC-23, however, is a special case under the scheme. One ton of it is considered to have the same climate-warming impact as 11,700 tons of carbon dioxide.

As a result, SRF has been able to sell huge numbers of credits with a relatively inexpensive cut in its own pollution. In 2005 it spent £1.4m installing a process which burnt the gas (creating dilute hydrofluoric acid and carbon dioxide).

It meant that the company could claim a 3.8m-ton cut in carbon emissions every year. Since, controversially, future years are included under the carbon trading scheme, it can keep issuing the same number of carbon credits for 10 years.

It is estimated this will generate profits of more than £300m.

Among the main purchasers of SRF’s carbon credits have been Shell International Trading, Barclays Capital and Icecap, a London-based emissions trading company. They are part of a booming market of speculators who buy credits to make a profit rather than directly help stop global warming.

Sir Nicholas Stern, author of last year’s Treasury report on global warming, predicts that the value of carbon credits in circulation will increase from the current £14 billion to £20 billion by 2010.

Other firms in the developing world are also set to make huge profits from destroying HFC-23. Earlier this month it was reported that two Chinese factories are poised to make £500m this year after agreeing to burn the gas instead of releasing it into the air.

The scale of the gains has led the Chinese government to announce that it will levy a 65% windfall tax on HFC-23 profits.

Last week, Louis Redshaw, director of emissions trading at Barclays Capital, indicated that it sells on credits to utilities in the UK who wish to reduce their emissions. Redshaw said: “In the case of SRF . . . we have basically met the demand of UK utilities, for example. We buy credits from SRF and many, many other sources . . . We look at the market price. We don’t look at any particular technology.”

While British companies use the credits instead of cutting their own pollution, SRF plans to reinvest its windfall in building a new plant producing another refrigerator gas called HFC-134a — 1,300 times more damaging than carbon dioxide.

Last week SRF denied causing pollution or health problems around its Rajasthan factory. It declined to answer questions about whether it could have reduced its emissions without western companies having to pay it millions of pounds.

A spokesman said: “This is a much larger debate which is already happening on the efficacy of the Kyoto Protocol and its mechanism.”

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