Prior to the international climate negotiations in Durban last November, China threatened to release its bank of the hydrofluorocarbon R23, the potent greenhouse chemical that is a by-product of the manufacture of the hydrochlorofluorocarbon R22.
This was seen as a global ransom demand to the negotiating countries deciding whether to continue the funding of the gas’s proper destruction.
China’s threat came after the European Union and other nation groups moved to ban R23 credits from internal carbon trading mechanisms in recognition of the perverse incentives created by these credits.
The vast amounts paid for R23 offsets have led to factories in China and elsewhere manufacturing more R22 than necessary, just to maximise the amounts paid to destroy the R23 by-product through the UN-backed carbon trading scheme.
The warning came from Xie Fei, the revenue management director at the China Clean Development Mechanism Fund. “If there’s no trading of [HFC 23] credits, they’ll stop incinerating the gases,” he said. In an interview with Bloomberg News, given at the Carbon Forum Asia, Xie claimed he spoke for “almost all the big Chinese producers of HFCs” who “can’t bear the cost” and maintain that “they’ll lose competitiveness”.
The problem stems from the perverse incentive mandated within the CDM. Funds are provided to companies according to the tonnes of carbon dioxide equivalent emissions that are stopped from being vented. R23 is a ‘super’ greenhouse gas because of its incredibly high 100-year global warming potential (GWP) of 14,800. It is important, therefore, that companies producing R22 properly dispose of the R23 by-product.
R22 is still produced to service the developing countries that are not as advanced in the phase-out of the gas.
The perverse incentive arises from the fact that since one tonne of R23 is equal to 14,800 tonnes of CO2, companies producing R23 are receiving 14,800 times the amount of funds per tonne for an easily disposed of chemical.
In fact, R23 can be destroyed for just €0.17 per CO2e tonne, yet the CDM has been sold on carbon markets at an average price of €12, or. 70 times the actual cost of destroying R23.
Chinese companies have taken advantage of this by producing vast amounts of R22 purely to receive the CDM funding, leading to a glut in the market of R22 and large amounts of funding dollars being needlessly paid.
Because of these vast profits, China has repeatedly rejected attempts to help developing countries destroy R23 emissions through the Montreal Protocol. At the 2009 and 2010 Meetings of the Parties to the Montreal Protocol, China blocked progress
of a North American proposal to pay the actual costs of destroying R23 emissions at plants not currently covered by the CDM, which account for over half of developing country R23 production.
“Attempting to force countries into squandering billions on fake offsets that actually increase production of greenhouse gases is extortion,” said Samuel LaBudde, senior atmospheric campaigner with the UK-based non-government organisation the Environmental Investigation Agency (EIA), said. “China is not the victim here, and a world order responsive to climate change cannot be predicated on unrepentant greed.”
With a 65 per cent tax on CDM projects, the Chinese government has already received $US1.3 billion, enough to destroy all the R23 it produces for decades to come. Despite this, China still vents at least as much R23 as it destroys, since about half of its R22 production is ineligible for CDM funding. According to the EIA, Xie’s statement makes it clear that preventing emissions is not nearly as important for China as continuing the enormous CDM revenues that benefit its government and industry alike.
“Carbon offsets derived from HFC 23 crediting only serve to subsidise the production of greenhouse gases and have no place in the future of carbon markets,” Mark Roberts, international policy adviser for the EIA, said. “If China is genuinely concerned about climate change rather than profiting from a fatally flawed CDM system, it will stop blocking efforts to control HFC 23 emissions and support a way forward that does not involve holding global climate as a hostage to its unrealistic demands.”