Carbon markets are considered a key policy tool to achieve cost-effective climate mitigation1,2. Project-based carbon market mechanisms allow private sector entities to earn tradable emissions reduction credits from mitigation projects. The environmental integrity of project-based mechanisms has been subject to controversial debate and extensive research1,3,4,5,6,7,8,9, in particular for projects abating industrial waste gases with a high global warming potential (GWP). For such projects, revenues from credits can significantly exceed abatement costs, creating perverse incentives to increase production or generation of waste gases as a means to increase credit revenues from waste gas abatement10,11,12,13,14. Here we show that all projects abating HFC-23 and SF6 under the Kyoto Protocol’s Joint Implementation mechanism in Russia increased waste gas generation to unprecedented levels once they could generate credits from producing more waste gas. Our results suggest that perverse incentives can substantially undermine the environmental integrity of project-based mechanisms and that adequate regulatory oversight is crucial. Our findings are critical for mechanisms in both national jurisdictions and under international agreements.
We would like to thank K. Anttonen, O. Baskov, A. Friedrich, H. Laurikka, M. Lazarus, L. Mortier and V. Zhezherin for helpful input and comments. The research was prepared as part of a larger research project evaluating the environmental integrity of Joint Implementation, commissioned by the Austrian Federal Ministry of Agriculture, Forestry, Environment and Water Management, the Ministry of the Environment of Finland, and the Federal Office of the Environment of Switzerland. Any views expressed are those of the authors and do not necessarily reflect the official views of the Austrian, Finnish and Swiss governments. The research team bears sole responsibility for the content.