The CarbonNeutral Protocol Index


As Technical Specification 4.1 sets out, The CarbonNeutral Protocol supports carbon credits that meet the highest quality standards available in the market and excludes carbon credits that may fail to meet these standards. This guidance elaborates on those project types that are excluded.

Destruction of HFC-23 and N2O industrial gases


HFC-23 is an unwanted by-product in the manufacture of HCFC-22, a refrigerant and temporary substitute for CFCs. The destruction of HFC-23 in HCFC-22 plants in developing countries is eligible under the Clean Development Mechanism (CDM) and leads to the issuance of a large amount of credits due to the high Global Warming Potential (GWP) of such gases. As it is relatively cheap to install a destruction facility, HFC-23 destruction CDM projects may in some cases have created a perverse incentive structure to increase the production of HCFC-22 to earn money from destroying the resulting HFC-23. This perverse incentive undermines the Montreal Protocol on Substances that Deplete the Ozone Layer, an international treaty designed to protect the ozone layer by phasing out the production of numerous substances believed to be responsible for ozone depletion.

CDM crediting rules for HFC-23 projects were suspended in 2010 and made more stringent in 2011. The revised rules do not apply until projects have to renew their crediting period. This means that from 2012 until the end of the first crediting periods (seven years after a project started), over 240 million credits are estimated to be issued under the old rules. The European Union (EU) banned HFC-23 credits from use in the EU-ETS starting from April 2013.


N2O is also an unwanted by-product in two different industrial processes; the production of:

  • Adipic acid, usually turned into nylon
  • Nitric acid, usually turned into fertiliser

In 2010, an independent study commissioned by CDM Watch provided evidence that the high profits from CDM N2O destruction projects at adipic acid facilities had led to carbon leakage. It was found that these projects had such high profit margins that a shift in production from non-CDM plants to CDM plants occurred. This carbon leakage caused an estimated increase in emissions of 13 million tonnes of CO2e.

This research has shown that nitric acid CDM projects do not generally cause carbon leakage. However, this project type is problematic for other reasons: N2O is normally an unwanted by-product of nitric acid production. Evidence suggests the existing CDM methodologies (AM0028 and AM0034) cause a perverse incentive not to adopt an already widely available technology that would minimise N2O formation because it is more lucrative for project developers to maximise N2O production so that it can then be destroyed to earn credits. The EU has banned N2O credits from use in the EU-ETS starting from April 2013.

The CarbonNeutral Protocol recognises the concerns associated with HFC-23 and N2O industrial gas destruction projects, and excludes credits from these project types.

Large hydro

Hydropower is the largest source of renewable electricity globally. This has been made possible, in large part, by the cost-competitiveness of large hydro plants, which often represent lucrative well- established investments. Despite their attractive economics, large hydro projects can have severe negative social and environmental impacts such as displacement of local populations, loss of livelihoods and cultural heritage, and degraded ecosystem services.

Concerns over the additionality and potential social and environmental impacts of large hydropower projects under the CDM have led to calls for reform, including restrictions on credits from such projects under the EU ETS and the potential elimination of large hydro from the CDM altogether (alongside industrial gas projects).

The CarbonNeutral Protocol defines large hydro projects as those with generating capacities greater than or equal to 20MW. This is consistent with the requirements imposed under the EU ETS.

The CarbonNeutral Protocol recognises the concerns associated with large hydropower, and excludes credits from this project type, unless a qualified independent third party assures that a specific large hydropower project fulfils the World Commission on Dams (WCD) sustainability criteria or equivalent assessment introduced by the underlying carbon standard (For example, in 2017, VCS (now Verra) consulted on the use of the Hydropower Sustainability Assessment Protocol as
an alternative assessment tool with a view to setting guidance on the issue, link).