German authorities are rejecting 215,000 carbon credits worth approximately EUR18 million ($25.98 million) on the basis of “irregularities” found following an investigation launched earlier this year.
The malpractice identified by the Federal Environment Agency pertains to upstream emissions reductions, or UER, a type of carbon credit companies can use to comply with a cross-European law to cap their fuel emissions. Companies can use the credits to meet a small portion of their cap, according to the rules.
The decision to reject the credits affects eight different projects in China, the German environment agency said. “This means that no new UER certificates from these projects will be released onto the market,” Dirk Messner, the agency’s president, said in a statement released Friday.
A single UER carbon credit is equivalent to a ton of carbon dioxide equivalent prevented from entering the atmosphere. These kinds of avoided-emissions credits have come under scrutiny in recent years after many projects were shown to have exaggerated their green claims.
UERs currently trade at around EUR85 a ton of carbon dioxide equivalent, according to Argus Media. The credits reached peak prices of EUR440 a tonne as recently as 2022.
The eight projects are only a subset of 75 UER projects globally. “The Federal Environment Agency will continue its investigative work at full speed on the basis of the findings now available from China,” said Messner.
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UER credits are generated by projects that reduce emissions from fossil fuels upstream, before they are refined. This is done by implementing practices that avoid greenhouse gas emissions, for example putting an end to gas flaring.
In January, a whistleblower alleged fraud in the UER market. The authorities have since been investigating the allegations with the support from an international law firm on-site in China.
In addition to the eight projects the German authority has disqualified, it’s investigating another 13. The agency said only five of the 21 projects it has scrutinised granted it unlimited access in on-site inspection visits.
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“For us, the refusal to carry out on-site inspections is a very strong indication that the project sponsors are either not prepared to fulfil their obligations or do not have the necessary control over the projects,” Messner said. “We will ensure that only legitimate UER certificates for new projects are placed on the market.”
The probe has identified “serious legal and technical inconsistencies” in seven of the eight projects, which are operated by “large, international companies,” the agency said. The eighth project was disqualified for starting prematurely and not in accordance with the rules.
In parallel, Berlin’s public prosecutor is investigating 17 managing directors or employees of the verification bodies responsible for checking the UER projects on suspicion of “joint commercial fraud”.
