Global carbon market’s dirty secret

METTUR, India — The hot and humid South Indian community of Mettur in Tamil Nadu is a tangle of industry and nature.

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Palm trees and factory chimneys tower over small farms. A giant dam cuts across a sacred river. The main manufacturer in town, Chemplast Sanmar, has been here for decades, producing refrigerant gases, industrial solvents and polyvinyl chloride for making plastics.

The company also churns out something more intangible: carbon credits.

Carbon credits, which serve as a cornerstone of the world's response to global warming, are a means by which a company can offset its carbon emissions. Under a United Nations program created by the Kyoto Protocol, they are awarded to companies in the developing world that reduce their greenhouse gases. They can then be sold to companies that face emissions restrictions in Europe, with each credit offsetting a metric ton of carbon dioxide.

The international carbon market has proven a financial success, generating hundreds of billions of dollars in transactions. Europe's trading system forecasts an environmental benefit, too: 21 percent lower emissions in 2020 compared to 2005. But some advocacy groups accuse the system of being too friendly to polluters and not doing enough for the environment.

Chemplast receives lucrative carbon credits for halting its release of an especially potent greenhouse gas. Chemplast has earned $10 million a year selling the credits to American and European companies, which in turn can use them to offset their own pollution.

Sounds like good news for Chemplast, but not to many of the villagers that live in Mettur.

They blame Chemplast for a slew of health problems. They say Chemplast's water and air pollution causes their breathing problems, rashes and stillbirths, and leaves their crops stunted and bitter.

They were outraged to learn that the company earns millions from the global effort to fight climate change.

Chemplast, which now claims a clean record, dumped wastewater into the river in Mettur for years and was previously cited for pollution violations.

Chemplast's carbon credit project highlights the conflict between the lofty environmental goals of the global carbon market and the sometimes-dirty reality on the ground. Should companies that have contaminated their local communities benefit from a system designed to reduce pollution?

It's a “tricky question,” said Michael Wara, a climate policy researcher at Stanford University. Wara points out that the U.N. system was created to help developing countries achieve sustainable development.

“You can certainly see that providing a lot of money to a facility that is polluting the neighborhood isn't sustainable development,” he said.

Others argue that the goal is reducing greenhouse gas emissions and that other pollution is beside the point.

But it's hardly irrelevant to 36-year-old Suseela, who like many South Indians uses only one name. Speaking in Tamil through a translator last summer, she took issue with Chemplast's carbon credits.

“I don't think the company deserves it. It's the people who actually need the support,” she said. “They are actually not controlling their pollution because here we have evidence that we are getting affected.”

Like many in Mettur, Suseela attributes all of her family's respiratory and reproductive problems to Chemplast. She said gas leaks from the company have sent her to the hospital and that the well water isn't drinkable. The oil from coconuts grown by her family can't be used for traditional hair treatments; it causes baldness.

Chemplast strongly denies polluting the area or causing any health problems.

“There are some groups who over the years have been continuously making false and motivated allegations against Chemplast,” the company stated in a written response to questions. “We can say with confidence that Chemplast adheres to the highest standards in managing the environment.”

S. Mannadhan, a farmer in Mettur, says his corn crop is no longeredible because of contaminated well water. (Will Evans/GlobalPost)

Chemplast commissioned a health study by a local government medical college that lavished praise on the company and determined that it hadn't caused any health effects. The company also says it provides clean drinking water to the community as a “Corporate Social Responsibility initiative.” And the company points to a series of expensive improvements to decrease pollution, including a sophisticated treatment plant that eliminates all of Chemplast's liquid waste. Not one drop of wastewater, the company stated, has been discharged since September 2009.

Some of Chemplast's main improvements, however, were mandated years ago by the state pollution control board, according to records obtained through India's right-to-information law by activists. Since at least 2004, the state board repeatedly ordered Chemplast to stop pumping waste into the river, according to a GlobalPost review of hundreds of documents. The company finally stopped in Fall 2009, according to board documents.

Among other problems, board investigators had found hazardous chemicals like cancer-causing vinyl chloride in wastewater that Chemplast released into the river as recently as August 2009. The board also had found vinyl chloride in two village wells at levels far above U.S. drinking water standards.

The pollution board cited Chemplast for a chlorine gas leak in 2004 that sent numerous villagers to the hospital, and another leak in 2007. In 2008, the board ordered Chemplast to stop even minor releases, stating, “it is unfair on the part of the unit to discharge such quantity of Chlorine, as chlorine is toxic.”

Chemplast is responsible for “unsafe” levels of mercury, chloroform and vinyl chloride in the area, according to Mark Chernaik, staff scientist at Oregon-based Environmental Law Alliance Worldwide. Chernaik analyzed data from soil and water samples taken by activists in Mettur.

“Vinyl chloride does not occur naturally,” he said. “There’s no other plausible explanation for vinyl chloride in a water quality sample in Mettur other than that it has been released by Chemplast.”

But none of that technically matters for Chemplast's carbon credit project.

Since 2007, it has earned credits for incinerating HFC-23, a byproduct from its production of refrigerant gas. HFC-23 is 11,700 times more potent than carbon dioxide in causing global warming.

Without the incentive of carbon credits, the logic goes, Chemplast would release HFC-23 into the atmosphere. Chemplast says the incinerator cost $2.2 million.

Chemplast now earns twice as much from carbon credits as from selling the refrigerant gas, according to its annual report.

Indeed, HFC-23 carbon credits are controversial because they could provide a financial incentive to produce more of the refrigerant gas, which itself is bad for the atmosphere. Because of the criticisms, Europe recently banned HFC-23 credits from its cap-and-trade system, starting May 2013.

In 2008, Chemplast agreed to sell 3.2 million carbon credits over five years to a commodities trading company now owned by J.P. Morgan. Those credits were then re-sold to Western manufacturers like Boston-based Cabot Corporation.

Cabot is one of the world's biggest producers of the carbon powder that makes printer toner black and strengthens car tires. Goodyear is its top client. Cabot's European factories, which are bound to carbon caps, have used hundreds of thousands of Chemplast's carbon credits.

Chemplast and Cabot operate a joint venture in Mettur, but a Cabot spokesperson said Cabot didn't specifically intend to buy Chemplast credits.

It appears Cabot didn't need the credits to comply with emission caps — instead, the company made a profit by selling its own emission allowances at one price and buying the carbon credits for less.

In the international carbon market, everyone was making money.

But what about the villagers of Mettur?

Back in 2005, Chemplast had to consult “local stakeholders” as part of the U.N. process to certify its carbon credit project. The company convened a community meeting and reported that the invitees unanimously supported the project and expressed “full confidence and faith in the Company’s assurances.”

The international auditor reviewing the project didn't note any community opposition either. Yet earlier that year, a self-styled “people's tribunal” had conducted public hearings and issued a report accusing Chemplast of “irreparable damage to humans and the environment.”

The local farmers' group that has agitated against Chemplast for years took this reporter on a tour of alleged pollution victims last summer.

S. Mannadhan, a farmer wearing a white turban, showed off the smelly water from his well and said his corn and bananas are no longer edible. Bhagyalakshmi, a sari-clad woman whose husband works for Chemplast, says the company's nearby coal yard blows so much dust they all have breathing problems. A. Marimuthu, a village councilman wearing a traditional white sheet around his waist, displayed a rash on his arms. He and another village leader described a meeting last year where they said Chemplast officials offered bribes to silence their criticism.

Chemplast shoots down these allegations as “false and malicious.” The company accused some critics of attempting extortion, offering silence for lucrative contracts. It says groundwater analyses “by and large do not show any issues” — there are one or two “supposedly contaminated” wells but the source of pollution is unclear. The company said it controls its coal dust and that hundreds of families live next to Chemplast without any health problems.

As for the gas leaks, Chemplast said a minor 2004 leak was blown out of proportion and that “disgruntled elements in Mettur continue to make similar unfounded allegations at regular intervals.”

This would all be a local dispute if it weren't for the carbon credits connecting Chemplast to the global emissions trade.

On the market, carbon credits are neatly packaged interchangeable units. But as the case of Chemplast shows, they come from real, sometimes complicated, places.

This story was supported in part by the Dick Goldensohn Fund for International Investigative Reporting at the Center for Investigative Reporting.