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December 4, 2008

U.S. REPORT QUESTIONS VALUE OF CARBON-OFFSET DEALS

By Timothy Gardner

New York (Reuters) -- Europe's greenhouse gas market has shown that
investments by rich countries into clean-energy projects in poor
nations are not always the best way to cut emissions blamed for global
warming, the investigative arm of the U.S. Congress reported on
Tuesday.

In the European Union's greenhouse gas market, the world's largest,
many polluters have sought to meet government-imposed emissions limits
by investing in projects through the U.N.'s Clean Development
Mechanism.

The mechanism allows polluters in rich countries to claim credits back
home by investing in projects such as hydropower in Brazil or
destruction of refrigerant gases in China. Such projects are called
carbon offsets by players in the $100 billion carbon market because
they aim to reduce a polluter's carbon footprint by cutting emissions
elsewhere.

The projects have provided flexibility to rich countries and have
involved developing countries in efforts to limit greenhouse gas
emissions, the Government Accountability Office (GAO) report said.
"But the program's effects on emissions are uncertain, and its effects
on sustainable development have been limited," it said.

The GAO report said carbon offsets "involve fundamental trade-offs and
may not be a reliable long-term approach to climate change
mitigation." It did say that proposed reforms may make the U.N.'s
Clean Development Mechanism more effective.

The report comes as the United States, the world's top greenhouse gas
polluter after China, expects to form its own carbon market.
President-elect Barack Obama hopes to form a market by putting limits
on greenhouse gas emissions and tightening those limits over time. The
aim is to cut U.S. emissions to 1990 levels by 2020, then reduce them
80 percent from the same level by 2050.

The GAO report said some carbon offset investments went toward
projects that probably would have happened otherwise. A key tenet of
emissions markets is that such offsets help fight global warming only
if they would not have occurred.

"Some offset credits were awarded for projects that would have
occurred even in the absence of the CDM, despite a rigorous screening
process," the report said.

The GAO report urged Congress to consider that carbon offsets can
undermine the integrity of a cap-and-trade system, "given that it is
not possible to ensure that every credit represents a real, measurable
and long-term reduction in emissions."

The report also recommended that politicians forming a cap-and-trade
market try their best to discover historical levels of pollution from
emitters, which would aids in forming a valid baseline and in the
effective distribution of initial permits to pollute.

In carbon markets companies can get rewards for cutting their own
emissions or meet requirements by buying credits from a company in a
developed country that has cut emissions already.

(Reporting by Timothy Gardner; Editing by David Gregorio)