The European commission is planning to clamp down on a £1.6bn carbon trading scam. The use of carbon permits from industrial gas projects in China could be banned because of their "total lack of environmental integrity", the climate change commissioner, Connie Hedegaard, has told the Guardian.

Billions of euros' worth of the controversial permits were used between 2008-09 in the European Union's emission trading scheme (ETS), in which companies must exchange pollution permits for any emissions produced. The ETS allows some of those permits to be bought in from developing countries.

The most popular of these so-called offsets come from projects that destroy the greenhouse gas HFC-23, a by-product of the manufacturing of the refrigerant gas HCFC-22. In June, the London-based Environmental Investigation Agency said many Chinese chemical companies were manufacturing HCFC-22 primarily to earn the money from destroying HFC-23, which can be five times the value of the refrigerant gas the plants are ostensibly set up to create.

"There are too many examples of projects with industrial gases, primarily HFC-23, where if you dig into it you can find there is a total lack of environmental integrity," Hedegaard said, adding that she was not opposed to offsetting in principle as a way of efficiently cutting carbon and helping development in poorer nations. "But this is a problem that I must say ought to be clear to everybody."

In 2008-9, 134m or 84% of offsets used in the EU ETS were from industrial gas projects in China and India, according to data from the carbon trading thinktank Sandbag. Buying this amount of permits in the ETS would cost €2bn (£1.6bn) at today's prices. UK companies used 7.6m of these offsets in 2008-9, worth €116m, instead of cutting emissions from their own operations.

The industrial gas offsets have attracted criticism, with suggestions that some plants only existed to earn money from the offset scheme, which is administered via the UN's clean development mechanism.

"If you finance an HFC-23 project to reduce the equivalent of a tonne of carbon dioxide, it costs close to nothing," Hedegaard said. "Why should the Chinese put a stop to these projects if they get money for continuing to create HFC-23? Here we have a perverse incentive."

Such projects were not genuinely cutting greenhouse gas emissions, she said, and so were not real offsets. Her office will publish proposals in the next few weeks on how to end the use of industrial gas offsets in the ETS. Crucially, the power to ban their use already exists within the ETS directive, making it far easier to achieve.

Hedegaard suggested the credibility of all carbon markets, which the EU ultimately wants to see cover the entire globe, depended on such reform. "I think it is absolutely crucial for the whole carbon market and the CDM [clean development mechanism, a UN carbon trading scheme] in the years to come that what we do through that mechanism has some real impact."

Bryony Worthington, founder of Sandbag, welcomed the prospect of a ban on industrial gas offsets: "This vast supply of cheap and ineffective offsets means there is no need for investment in cutting emissions within the EU." But she added that even an EU ban would still mean the offsets were eligible for use by nations in meeting their Kyoto protocol targets.

Reform of the CDM carbon credits system, which has also been criticised for granting credits to schemes that had already been built, will be on the agenda of the next major international climate change negotiations in Cancún, Mexico, at the end of November.

Hedegaard, who chaired the last such summit in Copenhagen when she was Denmark's environment minister, said success in Cancún would see "concrete decisions" on tackling deforestation, adaptation measures to climate change and transferring clean technology to developing countries. Also "absolutely key" was for rich countries delivering on the pledges of $30bn (£19bn) of "fast start" climate aid to developing countries between 2010-12.

She admitted it was highly unlikely that the EU's offer of increasing its carbon cuts from 20% to 30% by 2020 if other nations showed similar ambition would be taken up in Cancún.

Hedegaard has been trying to persuade EU member states that a unilateral move to 30% is in the bloc's economic interests and while the UK, Germany and France now back this, the coal-dependent nations in eastern Europe and energy-intensive industry lobby groups have fought the move.

But Hedegaard is attempting to reverse the logic of the reluctant nations, who argue jobs will leak to nations with weaker emissions laws: "In Europe we should not fool ourselves. We have gained a lot of jobs and exports by, together with Japan, being the most energy-efficient region in the world. But we will not be able to keep that position automatically."

"People always talk about carbon leakage if we see too ambitious climate targets. Yes, if we do that in an unintelligent way of course you can lose jobs. But you can also lose jobs by being too complacent when your competitors really start to move."

In recent months China has become both the world's largest energy user and the largest investor on renewable energy. Hedegaard said: "I am in no doubt that many Europeans will be surprised when they see China's next five year [economic] plan."