Here's one of the problems with carbon credits -- It is very easy for developing countries to game the system. They can essentially say that they were planning to do something environmentally damaging, then switch to a 'greener option' and collect carbon credit income. Yet if the greener option was their original intent then the credits haven't actually created any additional carbon savings.

The latest evidence comes from China where the U.N. on December 4th refused to approve ten wind farms near Harbin due to the fact that the projects would have happened with or without the sale of carbon credits.

Projects like these get paid for doing absolutely nothing extra. To be fair though, it's not clear whether the real problem here is China, or rather the way carbon credits are calculated. They didn't write the rules after all.

Business Week:The 10 Chinese wind farms were rejected, in part, because U.N. officials fear Beijing is actually reducing its financial support for wind power as a gambit to help the country's clean-energy projects qualify for carbon payments from abroad.

The Chinese government may be doing this by cutting the rates the wind farms will be paid for electricity, according to the U.N. officials.

The Harbin wind farm's developers initially estimated the project would earn an annual profit of 8.76%. That would have made the wind farm ineligible for carbon funds, since the cutoff to benefit from credit sales is 8%.The Chinese government apparently responded to the situation by reducing what it had been expected to pay for Harbin's electricity, pulling the project's profit margin below 8%.

On Dec. 4, the U.N. announced that it would stop what appears to be China's attempt to game the system. Lex de Jonge, chairman of the U.N. committee overseeing carbon credits, said in a statement that his panel "must safeguard the environmental integrity of the [carbon market]." He added: "This means registering only projects that would produce emission reductions that are additional to those that would take place without the project."

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