Major publicly traded U.S. corporations, including Dow Chemical, ConocoPhillips, Chevron and Cabot Corporation, have secured multi-million-dollar dubious carbon credits to compensate for their greenhouse gas emissions in Europe, as revealed in this investigative report.

A Dow Chemical plant on the shore of Lake Michigan. Credit: Public domain

Dow scored the largest purchase volumes. The Michigan-headquartered giant owns dozens of CO2-venting plants producing plastics and chemicals in Germany, the Netherlands, Belgium, Spain and Poland. Altogether, those plants ranked 21st among the top 100 European buyers of certified emissions reduction certificates (CERs) that originated from questionable projects.

Power and processing plants operating in the European Union (EU), including subsidiaries of U.S. companies, are required to reduce their greenhouse gas emissions – which cause global warming – by switching to cleaner technologies or offsetting their emissions through the purchase of CERs.

For companies it is cheaper to offset their emissions than to actually reduce them. And due to weaknesses in European rules, they are able to do so.

CERs are issued by the Clean Development Mechanism (CDM) of the Kyoto Protocol, the only internationally binding agreement that obliges industrialised signatory countries to reduce their greenhouse gas emissions.

Each CER is equivalent to a ton of carbon dioxide that has not been released into the atmosphere. They are issued for projects that have been approved and certified once it is determined that emissions have genuinely been reduced. They can then be converted to tradable instruments, subject to the laws of supply and demand.

The CDM was originally designed by the United Nations for industrialised countries to subsidise climate change mitigation in developing countries. But it ended up creating a perverse incentive to maximise profits for a few industrial gas manufacturers, mostly based in China and India, which obtained 19 of these projects.

Jiangsu Meilan Chemical in China and Navin Fluorine International in India, among others, committed to capture and destroy HFC-23, an unwanted byproduct of the production of HFCF-22 (hydrochlorofluorocarbon), a refrigerant banned in the European Union and United States because it depletes the ozone layer.

HCFC-22 is also a “super greenhouse gas” that is 1,810 times more potent than carbon dioxide, while its byproduct HFC-23 is 11,700 times more harmful.

But the Chinese and Indian companies produced far more gas – and thus received far more CERs to sell – than was necessary, according to an investigation report by the CDM methodology experts panel in 2010.

In June 2010, two environmental NGOs – CDM Watch, based in Bonn, and the Environmental Investigation Agency (EIA), based in London – discovered this gross misuse of the CDM and supplied proof of it.

“HFC-23 credits don’t represent real greenhouse gas reductions,” explained Diego Martinez-Schuett of CDM Watch via email. “Buyers then used those false reductions as permits to pollute further in Europe.”

The 19 industrial gas destruction projects approved by the CDM Board have racked up almost 500 million credits worth 3.3 billion dollars. Nearly 90 percent of the bogus credits flooded the EU, where they accounted for more than half of total emissions offsets. Between 2009 and 2010, U.S. corporations purchased almost one million HFC-23 credits at an average market price of 16 dollars per CER. They subsequently “wasted” at least 16 million dollars to support unclear emissions reductions.

They were followed on this path by their EU-based competitors, such as British Shell and BP, German RWE, Norwegian Statoil, Italian-Spanish holding Enel and French group EDF.

The 10 best-known transatlantic companies listed on NYSE-Euronext banked 254 million dollars in what NGOs heralded as “fake credits”, not counting data for 2011, which has still not been made publicly available.

Last June, European regulators decided to forbid climate-unfriendly CERs, but this measure will not take effect until May 2013. “The EU was put under huge pressure by investors to delay the ban beyond the January 1, 2013 date set out in the initial proposal,” stated Natasha Hurley of the EIA via email.

The delayed enforcement will open the door to an additional 53 million inflated CERs that will be available to Dow, Shell and other polluting companies.

Carbon shoppers claim they were unaware of the illegitimate nature of HFC-23 credits before the EU ruled them out.

“The important question for CER buyers is what they are going to do now to legitimise their offsetting practices,” pointed out Rob Elsworth, policy officer at Sandbag, a London-based research centre that monitors the integrity of the carbon trade and aggregated the figures we used to expose companies’ involvement.

The question was posed to a number of these companies.

“We have used such CERs for compliance in past years,” responded Drea Berghorst, public affairs officer at Dow Benelux. “We will remain fully compliant with the regulations, which means we will cease using the industrial gas CERs as of April 2013,” she added.

Chevron and Cabot responded in a similar way, without officially excluding the option to buy further HFC-23 credits as long as the EU ban is not in force.

“Chevron complied with all required aspects of the EU ETS (Emissions Trading System) regulations at all points in the past and intends to continue to do so in the future,” said Sean Comey, media advisor at Chevron headquarters in California. The company used HFC-23 credits to offset the emissions from its offshore oil-producing fields in the United Kingdom

“We worked with a reputable financial broker, JP Morgan, to purchase CERs. We did, however, mandate that all credits purchased be certified and valid,” said Vanessa Apicerno, media relations specialist at Cabot Corporation headquarters in Boston.

Cabot used HFC-23 credits for is black carbon and thermoplastics manufacturing sites in France and Italy. ConocoPhillips, which used HFC-23 credits for its refineries in the United Kingdom and Norway, refused to comment.

Now more than ever, companies have good reasons for pooling shareholders’ money into global warming-boosting investments.

Indeed, intermediaries are rushing to sell the outlawed CERs before they turn junk in 2013, pushing prices to a record low. Quotations sank from their peak of 33 dollars to less than six dollars per ton as of February.

“Companies will look to comply with EU emissions regulations in the most cost-efficient way. Although market participants are free to hold a view on the ethics of action on climate change, the EU ETS is driven by economics,” commented Richard Chatterton, a carbon market analyst at Bloomberg New Energy Finance.

Statistics prove that price difference is of greater importance to investors than the quality of certificates.

“Standard (suc as HFC-23) CRs futures still make up over 95 percent of the traded volumes,” said Sara Ståhl, London-based managing director of global marketing at Green Exchange International. “Yet, they are just 0.46 dollars cheaper than our (non HFC-23) CER-plus futures.”

We can estimate that, given the additional amount of unsafe credits admitted in the EU until next year, the business world will ultimately save less than a total of 24 million dollars. Whether this corporate pocket money is worth more than saving the real world from global warming is a matter for debate.

*The writer is an IPS correspondent. This story was originally published by Latin American newspapers that are part of the Tierramérica network. Tierramérica is a specialised news service produced by IPS with the backing of the United Nations Development Programme, United Nations Environment Programme and the World Bank.

** This story is published under an agreement with Freereporter and was developed with support from the Fund for Investigative Journalism and the Society of Environmental Journalists.

The Clean Development Mechanism of the Kyoto Protocol on climate change ended up creating a perverse incentive that gave rise to an emissions reduction scam in Europe.

A Dow Chemical plant on the shore of Lake Michigan, United States. - Public domain

Dow scored the largest purchase volumes. The Michigan-headquartered giant owns dozens of CO2-venting plants producing plastics and chemicals in Germany, the Netherlands, Belgium, Spain and Poland. Altogether, those plants ranked 21st among the top 100 European buyers of certified emissions reduction certificates (CERs) that originated from questionable projects.

Power and processing plants operating in the European Union (EU), including subsidiaries of U.S. companies, are required to reduce their greenhouse gas emissions – which cause global warming – by switching to cleaner technologies or offsetting their emissions through the purchase of CERs.

For companies it is cheaper to offset their emissions than to actually reduce them. And due to weaknesses in European rules, they are able to do so.

CERs are issued by the Clean Development Mechanism (CDM) of the Kyoto Protocol, the only internationally binding agreement that obliges industrialized signatory countries to reduce their greenhouse gas emissions.

Each CER is equivalent to a ton of carbon dioxide that has not been released into the atmosphere. They are issued for projects that have been approved and certified once it is determined that emissions have genuinely been reduced. They can then be converted to tradable instruments, subject to the laws of supply and demand.

The CDM was originally designed by the United Nations for industrialized countries to subsidize climate change mitigation in developing countries. But it ended up creating a perverse incentive to maximize profits for a few industrial gas manufacturers, mostly based in China and India, which obtained 19 of these projects.

Jiangsu Meilan Chemical in China and Navin Fluorine International in India, among others, committed to capture and destroy HFC-23, an unwanted byproduct of the production of HFCF-22 (hydrochlorofluorocarbon), a refrigerant banned in the European Union and United States because it depletes the ozone layer.

HCFC-22 is also a “super greenhouse gas” that is 1,810 times more potent than carbon dioxide, while its byproduct HFC-23 is 11,700 times more harmful.

But the Chinese and Indian companies produced far more gas – and thus received far more CERs to sell – than was necessary, according to an investigation report by the CDM methodology experts panel in 2010.

In June 2010, two environmental NGOs – CDM Watch, based in Bonn, and the Environmental Investigation Agency (EIA), based in London – discovered this gross misuse of the CDM and supplied proof of it.

“HFC-23 credits don’t represent real greenhouse gas reductions,” explained Diego Martinez-Schuett of CDM Watch via email. “Buyers then used those false reductions as permits to pollute further in Europe.”

The 19 industrial gas destruction projects approved by the CDM Board have racked up almost 500 million credits worth 3.3 billion dollars. Nearly 90% of the bogus credits flooded the EU, where they accounted for more than half of total emissions offsets.

Between 2009 and 2010, U.S. corporations purchased almost one million HFC-23 credits at an average market price of 16 dollars per CER. They subsequently “wasted” at least 16 million dollars to support unclear emissions reductions.

They were followed on this path by their EU-based competitors, such as British Shell and BP, German RWE, Norwegian Statoil, Italian-Spanish holding Enel and French group EDF.

The 10 best-known transatlantic companies listed on NYSE-Euronext banked 254 million dollars in what NGOs heralded as “fake credits”, not counting data for 2011, which has still not been made publicly available.

Last June, European regulators decided to forbid climate-unfriendly CERs, but this measure will not take effect until May 2013. “The EU was put under huge pressure by investors to delay the ban beyond the January 1, 2013 date set out in the initial proposal,” stated Natasha Hurley of the EIA via email.

The delayed enforcement will open the door to an additional 53 million inflated CERs that will be available to Dow, Shell and other polluting companies.

Carbon shoppers claim they were unaware of the illegitimate nature of HFC-23 credits before the EU ruled them out. “The important question for CER buyers is what they are going to do now to legitimize their offsetting practices,” pointed out Rob Elsworth, policy officer at Sandbag, a London-based research center that monitors the integrity of the carbon trade and aggregated the figures we used to expose companies’ involvement.

The question was posed to a number of these companies.

“We have used such CERs for compliance in past years,” responded Drea Berghorst, public affairs officer at Dow Benelux. “We will remain fully compliant with the regulations, which means we will cease using the industrial gas CERs as of April 2013,” she added.

Chevron and Cabot responded in a similar way, without officially excluding the option to buy further HFC-23 credits as long as the EU ban is not in force.

“Chevron complied with all required aspects of the EU ETS (Emissions Trading System) regulations at all points in the past and intends to continue to do so in the future,” said Sean Comey, media advisor at Chevron headquarters in California. The company used HFC-23 credits to offset the emissions from its offshore oil-producing fields in the United Kingdom

“We worked with a reputable financial broker, JP Morgan, to purchase CERs. We did, however, mandate that all credits purchased be certified and valid,” said Vanessa Apicerno, media relations specialist at Cabot Corporation headquarters in Boston.

Cabot used HFC-23 credits for is black carbon and thermoplastics manufacturing sites in France and Italy. ConocoPhillips, which used HFC-23 credits for its refineries in the United Kingdom and Norway, refused to comment.

Now more than ever, companies have good reasons for pooling shareholders’ money into global warming-boosting investments.

Indeed, intermediaries are rushing to sell the outlawed CERs before they turn junk in 2013, pushing prices to a record low. Quotations sank from their peak of 33 dollars to less than six dollars per ton as of February.

“Companies will look to comply with EU emissions regulations in the most cost-efficient way. Although market participants are free to hold a view on the ethics of action on climate change, the EU ETS is driven by economics,” commented Richard Chatterton, a carbon market analyst at Bloomberg New Energy Finance.

Statistics prove that price difference is of greater importance to investors than the quality of certificates.

“Standard (such as HFC-23) CERs futures still make up over 95 percent of the traded volumes,” said Sara Ståhl, London-based managing director of global marketing at Green Exchange International. “Yet, they are just 0.46 dollars cheaper than our (non HFC-23) CER-plus futures.”

We can estimate that, given the additional amount of unsafe credits admitted in the EU until next year, the business world will ultimately save less than a total of 24 million dollars. Whether this corporate pocket money is worth more than saving the real world from global warming is a matter for debate.

European investigators had a hard time dealing with cases of misuse of European Union funds in Kosovo due to the complex bureaucracy that regulated the relationship between the EU and the United Nations administration, which was the only official international decision-making authority in the former Serbian province.

This investigation found out that the vague legal architecture jointly set up by the EU and the United Nations Mission in Kosovo (UNMIK) resulted in a lack of accountability as to how donor money was spent.

Based on their framework funding agreement, the EU was supposed to provide money, while the U.N. was supposed to manage it. But the borderline between their respective responsibilities was fuzzy.

For example, officials of the Kosovo Trust Agency were paid by the EU, but had an employment contract with what was called UNMIK Pillar IV, namely the Department of Reconstruction and Economic Development.

But “Pillar IV was just the name of a policy operation within UNMIK mandate and not a legal entity, so as a matter of fact it didn’t have any formal employee,” said an UNMIK official.

Since Pillar IV officials couldn’t be considered EU employees, the European Anti-Fraud Office didn’t have competence to investigate and sanction them for mismanagement of public tenders.

Likewise, the EU didn’t have the right to fire them even though it directly paid their salaries.

Pillar IV officials couldn’t even be considered as contracted by the U.N. Yet they could benefit from judicial immunity and diplomatic protection, like the rest of the staff working under the UNMIK mandate.

The ultimate goal, implicitly shared by the EU and the U.N., was to give the Kosovo Trust Agency’s staff full power to take economic decisions while at the same time depriving their undefined status of any formal link to either the EU or the U.N. As a result, neither of the two international institutions could be held accountable for wrongdoing by the officials, and eventually, for the waste of public money that contributed to the failed reconstruction of Kosovo.

When this reporter asked who was responsible for the Kosovo Trust Agency, Lawrence Meredith, current Head of the Kosovo Unit at the European Commission, responded: “Talk to UNMIK, Pillar IV was under their responsibility since it was created within the UNMIK mandate.”

The same question was addressed to Olivier Salgado, current Head of the Division of Public Information in UNMIK, who answered: “Talk to the European Commission, Pillar IV was under their responsibility since they were paying salaries.”

The largest donor grants managed by UNMIK’s Pillar IV were intended to rescue the Kosovo Electric Corporation and Pristina International Airport.

Both public enterprises became the main focus of the Investigation Task Force, a joint team set up by the U.N. Office of Internal Oversight Services, the Financial Investigation Unit (consisting of agents of the Italian Guardia di Finanza) and the European Anti-Fraud Office (OLAF).

Between 2003 and the end of its mandate in 2008, the Investigation Task Force coordinated 50 investigations into UNMIK-managed money flows, most of which came to nothing.

“The Investigation Task Force did not have sufficient personnel and technical know-how to gather the evidence that had allowed for indictments or court convictions,” commented a high-ranking adviser at UNMIK.

“It was difficult to get hold of international officials and interrogate them due to their short-term contracts,” a senior OLAF official said. “Some of them had already left Kosovo and we couldn’t open cross-border investigations based on the Investigation Task Force mandate.”

The European investigators had their hands tied.

In 2005 the European Court of Justice ruled out the possibility for EU-paid Kosovo Trust Agency officials to have the status of EU employees, thus formally excluding them from OLAF’s jurisdiction to enforce sanctions against suspected individuals.

Also, the Investigation Task Force members were obliged to report exclusively to the Head of UNMIK (dependent on the U.N. Secretary General), the only authority entitled to lift diplomatic immunity, remove undisciplined personnel, authorise requests for recovery of funds or defer cases to competent judicial bodies.

OLAF was only successful when it could operate outside the Investigation Task Force, namely in cases where the European Reconstruction Agency directly organised tenders and awarded project contracts rather than transferring budget contributions to UNMIK or leaving to Kosovo Trust Agency managers the choice of sub-contractors.

European Agency for Reconstruction sub-contracted companies are required by EU regulations to keep financial records for five years to enable investigators to carry out audits. OLAF did not have the same power when the management of public enterprises spent mixed funding from different donors without complying with European procurement rules.

All four investigations independently conducted by OLAF between 2005 and 2008 brought reimbursements and disciplinary measures, including the dismissal of European Agency for Reconstruction staff.

One of the probes, initially launched by the Investigation Task Force, also led to legal action: former manager of the Kosovo electric company Joe Trutschler, appointed by UNMIK, was convicted in his country, Germany, in 2003 for stealing 4.5 million euro of the 20 million euro allocated in 2001 by the European Agency for Reconstruction to subsidise urgent electricity imports.

But Trutschler would appear to be just the tip of the iceberg. “He went to jail only because we convinced the German press to make noise,” said Augustin Palokaj, the EU correspondent of Koha Ditore, the largest Kosovo-Albanian newspaper.

The bulk of the financial scandals have not been uncovered. “I can confirm that mismanagement of tenders and procurement fraud occurred frequently within the Kosovo Electric Corporation,” said Derk van der Wijk, former Head of Internal Audit at Kosovo Trust Agency.

The Investigation Task Force’s investigations files are classified U.N. documents and even OLAF is bound to confidentiality.

“We have repeatedly asked UNMIK for Investigation Task Force related information, but were refused,” said Ruud van Enk, an expert on Kosovo issues at the European Commission in Brussels.

In the report on its visit to Kosovo in 2008, the European Parliament’s delegation blamed “U.N. unwillingness to cooperate on questions of transparency and financial control with EU representatives.”

According to the Investigation Task Force’s final report issued in 2008, of which IPS saw a confidential copy, the task force “investigated a total number of 13 cases regarding allegations of fraud and irregularities in the development and management of the Kosovo Electric Corporation contained in the Deloitte and Touche Forensic Review” and “a total number of 37 cases related to Pristina International Airport based on allegations of fraud and irregularities contained in an audit by the firm De Chazal Du Mée.”

Eventually, the Investigation Task Force shortlisted 11 cases containing evidence of criminal conduct and involving over 60 million euro. All of them were submitted to the head of UNMIK for further referral to the Department of Justice of the U.N. mission.

“We expected that the prosecutors would request the Investigation Task Force to pursue the investigations rather than dismissing the cases,” said Roberto Magni, Guardia di Finanza’s agent and former head of the Financial Investigation Unit that collected hundreds of archived files until its staff was resized within the EULEX framework.

Former OLAF investigators in Kosovo backed up Magni’s view. Further investigations on the existing files would have certainly helped in gathering more factual evidence, they added.

Will EULEX do the job that was discontinued by UNMIK judges?

“Based on my recent visit to Kosovo, I can affirm that EULEX organisation has serious short-comings, it seemed to me that the judges cannot keep pace with their own work,” an OLAF agent said.

* This story is published under an agreement between IPS and Freereporter and was developed with support from the European Fund for Investigative Journalism.

This year the European Union plans to spend an additional 70 million euros to help Kosovo work its way towards the goal of becoming a member state. But it has no plan to dig further into the alleged misuse of European taxpayers’ money that has been unresolved for the last 10 years.

Audit reports, criminal findings and judicial cases were hampered and not properly followed-up, this investigation revealed. IPS also found out that the EU Rule of Law Mission in Kosovo (EULEX Kosovo), that has had judicial power in Kosovo since 2008, is not willing to push further with major cases that are archived in the local courts.

The EU injected a record amount of aid – more than two billions euro – in the post-war recovery and state-building operation led, between 1999 and 2008, by the United Nations Mission in Kosovo (UNMIK). This figure is equivalent to two-thirds of the total funding provided by the international community.

And yet, the promised results are far from being achieved. The former Serbian province still has some of the highest poverty and corruption rates in Southeast Europe. This failure is partly due to mismanagement by U.N.-contracted officials tasked to handle donor money on behalf of the provisional self-government of Kosovo, evidence shows.

Ineffective control by the EU over UNMIK’s expenditure and widespread unaccountability frustrated the work of both European auditors and investigators.

In the wake of Kosovo’s declaration of independence in 2008, UNMIK’s Department of Justice closed in a rush, and sensitive cases involving alleged abuses and misappropriations exposing possible collusion between international and local U.N. staff did not come to trial. That happened right before the EU deployed EULEX to take over UNMIK’s judicial and institutional responsibilities during the summer of 2008.

“We transferred all completed cases to local courts and all pending cases to the Kosovo special prosecution office in compliance with the UNMIK-EULEX agreement,” said Annunziata Ciaravolo, former chief prosecutor at UNMIK.

“Technically, if an investigation was not properly carried out and if the (local) prosecutor is unwilling or unable to reopen it, EULEX international prosecutors could do so, provided that a proper assessment of the available evidence is made,” explained Kai Mueller-Berner, justice specialist at the EULEX Public Information Office. Mueller-Berner confirmed that out of the dozens of cases dealt with by UNMIK prosecutors, only two are still pending.

EULEX has one year left to fulfil its mission. “We will ask the member states to extend the EULEX mandate beyond June 2012 and approve new funding for the judges’ and prosecutors’ contracts,” said Bart Staes, head of the delegation of the European Parliament’s Budget Oversight Committee that visited Kosovo in June to look into the efforts made to protect EU financial interests.

“It’s crucial that extra time is allowed to settle discontinued UNMIK cases related to misuse of taxpayers’ money. The Kosovo special prosecution office directed by EULEX needs to clarify how it intends to deal with cases that were not properly tackled by UNMIK’s prosecutors, through improving its coordination with local courts.”

The European Court of Auditors sounded a warning in its early annual reports, starting from 2002, on the financial statements of the European Agency for Reconstruction. The Agency channelled all major EU disbursements until 2008, before being replaced by the European Commission Liaison Office to Kosovo, which is in charge of current support programmes.

But the warning was ignored.

The European Court of Auditors reported that “where UNMIK is directly managing the contracts, the Agency was faced with an absence of sufficient justification for the expenditure”; that “audits on a number of projects confirmed that funds had to be recovered”; and that often “owing to the lack of requisite information on the final use of funds, the Court is unable to express an opinion on the regularity of the underlying payments.”

The Court is about to start an extensive review of all EU-funded activities since 2007.

EU funding was primarily committed to support public utilities. The former Serbian state companies were managed by the international staff of the Kosovo Trust Agency, created in 2002 within UNMIK’s Department for Reconstruction and Economic Development (Pillar IV). Salaries and running costs were paid directly by the European Commission, as part of the framework funding agreement with the U.N. administration.

In 2005 the consultancy firm KPMG concluded that public companies had no proper bookkeeping, thus being largely exposed to fraud. One year later, the Kosovo auditor general couldn’t find any trace of how those companies had used the subsidies regularly received from Kosovo Trust Agency.

Based on documents IPS got from the Kosovo Ministry of Finance, those subsidies included also 366,000 euros provided by the European Reconstruction Agency.

In 2008 the U.N. Office of Internal Oversight Services published an assessment report on the UNMIK mandate, criticising the Kosovo Trust Agency for neglecting the monitoring of public companies’ accounts, in breach of its own regulations and auditors’ recommendations.

* This story is published under an agreement between IPS and Freereporter and was developed with support from the European Fund for Investigative Journalism.

An ambitious project to produce clean energy for the Netherlands and Belgium has degenerated into a controversial abuse of natural resources in Africa.

Jatropha is a favoured biofuel crop. Credit: Busani Bafana/IPS

Bioshape, a clean energy company based in Neer, the Netherlands, is going through bankruptcy proceedings after spending 9.6 million dollars on a failed biofuel project in Tanzania. In 2006, the company agreed to lease 80,000 hectares of coastal woodland in the southern district of Kilwa to grow jatropha, a shrub whose seeds contain an oil that can be processed into green fuel.

Bioshape planned to employ thousands of local farmers and export seeds from Tanzania to the Netherlands, where they would be processed to produce electricity, heat and biodiesel. Jatropha is one of the preferred feedstocks for fuel produced from plant material. Commonly called biofuel – agrofuel to its critics – such fuel is supposed to be less polluting than traditional fossil fuels.

BioShape invested 25 million euros in a facility intended to process 45,000 tonnes of vegetable oil per annum, and generate 25 megawatt hours, enough to power 50,000 households. The plant in Lommel was just one component of an ambitious network of refineries and co-generation plants that Bioshape planned to build across Belgium and the Netherlands.

The project was backed by big investors such as the Dutch merchant bank Kempen & Coand the utility Eneco.

“Bioshape managed to acquire land through the complicity of local authorities which breached the rules on land lease,” explains Stanislaus Nyembea, expert at the organization Lawyer Environmental Action Network.

Nyembea says villagers relied on their plots to grow food, mainly maize and fruit, as well as for firewood. They agreed to give their land away with the expectation of receiving fair financial compensation based on the value of the allocated land.

According to Tanzanian law, only the central government can lease a parcel of land larger than 200 hectares directly to foreign investors. So ownership of the land in Kilwa was first transferred to the central government, then the Tanzanian Investment Centre authorised the lease to Bioshape.

“We have found out that villages were not properly informed about the terms of the law,” Nyembea explains. “They didn’t know that they would definitively lose ownership of the land allocated to Bioshape. They naively thought that they would get it back at the end of the lease period that usually lasts 99 years.”

Worse, only 40 percent of the compensation paid by Bioshape went to farmers, Nyembea continues. “The rest went to the District Office which had persuaded local villages to sign up to the deal. The District Office has the power to approve the transfer of land from the village level to the district level, before it is eventually transferred to the state level, but has no legal right to receive a share [of the money].”

Wilfried Hermans, Bioshape CEO, replies: “Out of the total concession of 81,000 hectares approved by the Tanzanian Investment Centre, we only acquired an initial 34,000 hectares for our kick-off plantation as for which we paid 490,000 euro (676,000 dollars) to the local authorities which was then supposed to be distributed among the villagers. We don’t know what happened afterwards.”

Investors unhappy

Local farmers were not the only ones misled by Bioshape.

The company had announced that the plantation would reach a size of 1,000 hectares by the end of 2007, but high costs slowed progress.

“The [Bioshape] company board feared that its shareholders would pull out from the venture”, says Annick Miya-Verstraelen, former head of the Sustainability and Monitoring Department at Bioshape.

Miya-Verstraelen left the company in February 2008, but in November, she found out that Bioshape’s website claimed the jatropha trial plantation covered 350 hectares; but she knew from field reports regularly sent to the board in the Netherlands that it was not yet even 100 ha.

“I believe that the Board resolved to mention a higher figure to convince the shareholders to keep or even increase their investments,” she said.

Hermans is defensive: “We just made a mistake. After conducting the GPS measurement we realized that we had over-counted the number of hectares and that the exact figure was 285 hectares.”

The miscalculations proved fatal. In February 2010, the company suspended its field operations and salaries to local employees. This followed the withdrawal of its major investor, Eneco, which had lost confidence in both the economics and the environmental sustainability of Bioshape’s plans.

Profit by any means

The 285 hectare trial plot cleared by Bioshape in Kilwa is still there. The jatropha shrubs have been left without water and are slowly drying out. But the trees cut down to make room for them have disappeared.

“We needed to find a way to use the timber,” Hermans says, “So we made a deal with a company based in Arusha, called Artif which bought part of it.”

Artif does have a factory in Arusha, in Northern does have factory in Arusha, in northern Tanzania, whichproduces and exports furniture to the Netherlands; but its listed headquarters share the same Dutch address as Bioshape in Neer. The company is owned by Chris Pilley, whose girlfriend is the daughter of Cor Vaes, one of Bioshape’s Holland-based managers.

According to its confidential business plan, which IPS is in possession of, Bioshape expected to earn up to 6.7 million dollars in profits from logging and to use this money to partly subsidize its biofuel project. Around 225 cubic metres of valuable miombo hardwood timber was harvested from just the first 70 hectares to be cleared. The Bioshape concession includes between 200,000 and 800,000 cubic metres of valuable hardwood, worth 50-150 million dollars.

According to a WWF study published in 2009, the project’s Environmental Impact Assessment failed to mention that the concession falls within the Namateule/Namatimbili Forest, an important reserve of biodiversity. The plantation thus poses a risk to seven threatened vertebrate species, according to the Tanzania Forest Conservation Group.

The report also asserts that the claimed reduction of greenhouse gas emissions reported in the EIA in order to fulfill EU directives is not supported by any scientific evidence.

The EIA, required by both the Tanzanian government and the European Directive on the Promotion of Renewable Energy, was conducted by the Tanzanian consultancy company Environmental Management Consultants.

But the provenance of the document itself is in question: one of its authors is identified as Canisius Kayombo, a botanist based at the National Herbarium in Tanzania. But Kayombo denies taking part in the assessment. He sent an official complaint to the competent authority, the National Environmental Management Council, but the council nevertheless approved the EIA.

In 2009, REM, a British organisation monitoring the use of natural resources worldwide, conducted an investigation and concluded that, Bioshape cut and sold timber without prior permission. REM recommended that Bioshape be held accountable for its illegal activities.

“In order to cover the gaps that emerged in the EIA, we commissioned two complementary studies on biodiversity and carbon in 2007/2008,” says Jan Paul van Soest, former Chair of Bioshape supervisory board.

“Following the Strategic Impact Assessment conducted by Aid Environment, we decided to preserve the native forests which occupied 50 percent of the leased land, while the CO2 cycle analysis conducted by CE Delft estimated that our project would generate a net sequestration which was even beyond the European standards which set a threshold of 35 percent compared to fossil fuels.”

Looking ahead

Five years after its ambitious launch, Bioshape’s plantaion has produced only a scar on the landscape. Jobs promised to villagers have not materialised, and they have seen only a fraction of the promised compensation for the land they were persuaded to give up.

For the moment, they are able to resume farming within the concession, but they have signed away their title to it and remain vulnerable to the project’s resumption.

Despite the long list of doubtful practices in the Bioshape project, a number of new investors from the Netherlands, the UK, the U.S. and Italy have expressed interest in taking over its business.

“Their names cannot be disclosed at this point, because we have not signed an agreement with any of the parties yet,” says Hanneke Lamers, attorney at Boels Zanders, the legal firm which is in charge of Bioshape bankruptcy.

* This story was originally published by Freereporter, and is reproduced under an agreement between IPS and Freereporter and in partnership with the Africa Reporting Project by UC Berkeley School of Journalism.