"Introduction
In 1997, the international community agreed the Kyoto Protocol in an effort to reduce carbon dioxide emissions. Those countries that ratified the protocol committed to future reductions in carbon emissions.
Among the measures agreed under the protocol was the Clean Develop- ment Mechanism. This allowed wealthy countries to meet some of their com- mitments on emissions by buying emission reduction credits (known as CERS) from approved projects in developing world. The idea was that the wealthy countries would get a relatively cheap way of meeting their Kyoto commit- ments while the poorer countries would be paid to develop in an environmen- tally friendly way.
Less global warming means more global warming
One of the most important projects approved under the Clean Development Mechanism involved encouraging the destruction of a gas known as HFC23, a by-product of the manufacture of refrigerants. Because HFC23’s potency as a greenhouse gas is 11,000 times that of carbon dioxide, destruction of a sin- gle tonne of the gas could bring a factory in the developing world a payment equivalent to 11,000 CERS.
Because they were being paid for a by-product, factories found that pay- ments under the CDM were extremely lucrative – indeed so lucrative that they came to dominate the economics of the industry. One estimate has suggested that a typical factory would be earning something between $20 and $40 mil- lion per year from destroying HFC23.59
In 1997, the international community agreed the Kyoto Protocol in an effort to reduce carbon dioxide emissions. Those countries that ratified the protocol committed to future reductions in carbon emissions.
Among the measures agreed under the protocol was the Clean Develop- ment Mechanism. This allowed wealthy countries to meet some of their com- mitments on emissions by buying emission reduction credits (known as CERS) from approved projects in developing world. The idea was that the wealthy countries would get a relatively cheap way of meeting their Kyoto commit- ments while the poorer countries would be paid to develop in an environmen- tally friendly way.
Less global warming means more global warming
One of the most important projects approved under the Clean Development Mechanism involved encouraging the destruction of a gas known as HFC23, a by-product of the manufacture of refrigerants. Because HFC23’s potency as a greenhouse gas is 11,000 times that of carbon dioxide, destruction of a sin- gle tonne of the gas could bring a factory in the developing world a payment equivalent to 11,000 CERS.
Because they were being paid for a by-product, factories found that pay- ments under the CDM were extremely lucrative – indeed so lucrative that they came to dominate the economics of the industry. One estimate has suggested that a typical factory would be earning something between $20 and $40 mil- lion per year from destroying HFC23.59
The upshot of this influx of western money was to completely change the
behaviour of the refrigerant manufacturers. Instead of HFC23 being merely a
by-product of their manufacturing process, it came to represent their principal
product, with refrigerants an inconvenient low-margin sideline. The factories
were in effect being incentivised to produce this most powerful of greenhouse
gases and, inevitably, output was ramped up accordingly. Before long HFC23
schemes came to dominate the Clean Development Mechanism, accounting
for around 60% of CERS issued.
The UN had been warned about this problem as far back as 2004,60 but it was only after the problem became an international scandal in 2009–10 that action was taken. By 2011 the scheme had been curtailed. However, the re- frigerant factory owners were unhappy at losing such a reliable source of prof- its and essentially tried to blackmail the EU into reinstituting the payments, threatening to vent HFC23 directly to the atmosphere.61
The initial unintended consequence of the market interference by the UN was therefore to bring about increased emissions of the very greenhouse gas they were attempting to remove from the atmosphere. However, by 2012 the price of CERS had collapsed nearly to zero. This meant that even if the facto- ries’ western funding was forthcoming it would come at a much lower value. Suddenly, the Asian refrigerant factories found they had factories set up to maximise production of HFC23, for which they would now only be paid a frac- tion of what they had received previously. At the time of writing, the factory owners are poised to rid themselves of this problem by venting this powerful greenhouse gas production directly into the atmosphere, a consequence that was surely not intended by the framers of the legislation.62 "
The UN had been warned about this problem as far back as 2004,60 but it was only after the problem became an international scandal in 2009–10 that action was taken. By 2011 the scheme had been curtailed. However, the re- frigerant factory owners were unhappy at losing such a reliable source of prof- its and essentially tried to blackmail the EU into reinstituting the payments, threatening to vent HFC23 directly to the atmosphere.61
The initial unintended consequence of the market interference by the UN was therefore to bring about increased emissions of the very greenhouse gas they were attempting to remove from the atmosphere. However, by 2012 the price of CERS had collapsed nearly to zero. This meant that even if the facto- ries’ western funding was forthcoming it would come at a much lower value. Suddenly, the Asian refrigerant factories found they had factories set up to maximise production of HFC23, for which they would now only be paid a frac- tion of what they had received previously. At the time of writing, the factory owners are poised to rid themselves of this problem by venting this powerful greenhouse gas production directly into the atmosphere, a consequence that was surely not intended by the framers of the legislation.62 "
Unintended Consequences of Climate Change Policy
Andrew Montford
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