In the smoggy suburbs of Zibo city in Shandong province, an ordinary-looking factory sits in an ordinary-looking chemical industrial park. But what's going on here is anything but ordinary.
Beside the Dongyue Group's factory line that churns out refrigerants is a plant that destroys a potent gas, which is a by-product of the manufacturing process. Destruction of this gas creates 'credits' that can be traded on a multibillion-dollar global market. Carbon-market watchers say the plant is an example of how a system aimed at reducing greenhouse gases - widely thought to contribute to global warming - has been gamed for profit by overproducing ozone-damaging gas to fake credits.
'The evidence is overwhelming that manufacturers are creating excess [industrial gas] simply to destroy it and earn carbon credits,' says Mark Roberts, senior counsel and policy adviser in Washington at the non-profit Environmental Investigation Agency. 'This is the biggest environmental scandal in history and makes an absolute mockery of international efforts to combat climate change.'
Hong Kong-listed Dongyue is one of 10 companies subject to a probe under the Clean Development Mechanism, a United Nations system that regulates the trading of certain carbon credits. The investigation was quietly launched in August after a German non-governmental organisation called CDM Watch blew the whistle on what it saw as an abuse of the global carbon-trading system. The UN has asked the companies to respond to questions this month. Seven of them are in China, two in South Korea and one in India.
All are suspected of producing excess amounts of HFC-23, a gas also known as fluoroform that is a by-product of a common refrigerant used in cooling systems called HCFC-22. Fluoroform is a super greenhouse gas many more times damaging to the environment than carbon dioxide - and worth many more times its value as a carbon credit on the world market.
'There have been a number of people and companies making inappropriate and huge profits out of the carbon-credit system in general,' says Philippe Delhaise, chief executive of Capital Information Services, which provides due diligence and risk assessment on emission-reduction projects. 'This is particularly true in India, and, to a lesser extent, in China - except in the specific case of the HFC-23 destruction, where China has the biggest volume.'