how much difference is the ozone regulation likely to make for increased GHG
emissions and climate change?
----- Original Message -----
From: "Downie, David" <[email protected]>
To: <[email protected]>
Sent: Friday, March 19, 2010 10:00 AM
Subject: RE: [gep-ed] HCFCs
In addition to Wil's comments on HCFCs, his perspective is backed up by
discussions within the ozone regime where a number of delegations want to
limit what they see as perverse incentives, created by the interaction of
the ozone regime rules and CDM, related to the adoption of arguably
unnecessary HCFC and HFC capacity.
--------------------------------------------
David Downie
Director, Program on the Environment
Associate Professor of Politics
Fairfield University
217 Donnarumma Hall
1073 North Benson Road, Fairfield, CT 06824
[email protected]; 203-254-4000, ext 3504
-----Original Message-----
From: [email protected] [mailto:[email protected]] On Behalf Of
Wil Burns
Sent: Friday, March 19, 2010 4:28 AM
To: [email protected]
Subject: RE: [gep-ed] HCFCs
A couple of points about Markus's arguments:
1. There is actually plenty of empirical evidence that HCFC production was
being driven by CDM; it's the reason that the EB of the CDM was unusually
aggressive in trying to close the loophole. I've spent time with folks in
the industry who have admitted to me that this was a motive for expansion,
so yes, there was a perverse motive, even if a small one. In many ways, the
broader issue is that the flexible mechanisms facilitate a lot of gaming of
the system, and this is just a case study of that. 20-40% of the approved
projects probably fail the additionality test, and I fear that many of the
forest projects are ignoring critical justice considerations. Would some of
this happen with more of an emphasis on domestic commitments? Assuredly, but
the accountability and monitoring mechanisms are often more stringent in
Annex I countries;
2. There's a couple of problems with picking the low hanging fruit also.
First of all, given the fact that we're very close to passing critical
climatic thresholds, the ability to avoid making structural changes in
domestic economies by opting for these sketchy "flexible" alternatives
contributes to carbon lock-in, ensuring that the next generation of power
production in many Annex I countries will remain extremely carbon dioxide
intensive. A cap with more incentives for domestic cuts would make more
sense from my perspective for this reason. Second, given the limited amount
of funds to invest in CDM projects, we should be seeking to fund projects
that both contribute to sustainable development (per the clear terms of the
CDM) and which don't potentially create ancillary negative impacts. For
example, while Markus extols the benefits of reducing HFCs, the stark
reality is that if this increased HCFC production, it could have helped to
undercut the Montreal Protocol. The issue is probably moot now, but the
point is that we should be looking at these exogenous issues more closely;
I'm sure Professor Wara will have more to say on this issue also!
Dr. Wil Burns, Editor in Chief
Journal of International Wildlife Law & Policy
1702 Arlington Blvd.
El Cerrito, CA 94530 USA
Ph: 650.281.9126
Fax: 510.779.5361
[email protected]
http://www.jiwlp.com
SSRN site (selected publications): http://ssrn.com/author=240348
Skype ID: Wil.Burns
-----Original Message-----
From: [email protected] [mailto:[email protected]] On Behalf Of
Hayes, Graeme
Sent: Thursday, March 18, 2010 3:43 PM
To: [email protected]
Subject: RE: [gep-ed] HCFCs
Hi Markus,
And hi and thanks to everyone for their replies to my query today - I feel
better informed (if not necessarily smarter) than I was before I had my tea.
Mike asked me if I could circulate the replies, so in addition to Markus and
Will's which I think have gone out live to everyone, here are the other
responses I got, below.
It's not really my field, so please take this on its own merits; what
worries me about the logic of your response, Markus, is that whilst I
respect its analytical realism, we are casting choices in a binary mode of
they didn't/now they have, which has the failing of not imagining an
alternative outside market expansion and the commodification and
capitalisation of the atmosphere. Every time we do this, I think, we reduce
a little further our ability to imagine, to conceive of the possibility that
there may be another, different way of doing things. I think it's important
that we hold on to this.
So, here are the other replies - my thanks to Marc, Armin, Mat, and Michael,
as well as to Wil and Markus.
Graeme
- If you think people in the future will be paid a lot of money to cease
some activity, then you have an incentive to begin that activity so that you
become one of the people eligible to get those payments.
- There's two things here - one is the simpler one of the equivalence of
HFCs to CO2 as greenhouse gases. They are indeed converted to CO2 at 11700,
on the basis of the global warming potentials
established by the IPCC. The more complex one is also one I think they
exaggerate to be honest for effect. It is certainly the case that there are
all sorts of scams in the carbon markets (their book has some of the classic
examples - to see them as they unfold, subscribe to the no-carbontrade
list). But this moral hazard one isn't that convincing to my mind. The logic
is easy enough - that because the earnings from the CERs (the credits coming
from the Clean Development Mechanism) can be very high from these projects -
at say 10 euros a tonne of CO2, they can earn 117000 euros per tonne of HFCs
not emitted, there's enough of an incentive to establish the factory,
claiming it would be emitting the HFCs, and then use a CDM project to
install the technology that eliminates the HFC emissions. The income from
the CERs becomes a substantial part of the economic viability of not only
the CDM project but the factory itself. They don't give a concrete example
however, and I've not seen one, and I suspect none exists to be honest,
although I,m
willing to be persuaded.
The bigger problem with the HFC projects was a) that they really skewed the
CDM market in the first few years, when they were accounting for well over
half of the emissions reductions (now that figure is much lower because in
practice there were only so many projects that could be done - it's not a
ubiquitous gas), and b) there were lots of claims that the Chinese factories
didn't need the CDM money to install the technology, they would have done so
anyway and so those projects were not, in the jargon, 'additional'.
- Here's how the problem arises: Consider a refrigerant producer in China.
The factory uses inputs necessary to make 32 tons of refrigerant but as a
result of the chemical reactions that occur, 1
ton of waste and 32 tons of refrigerant are in fact produced. The waste
happens to be a potent GHG that, if captured and destroyed, is in the
carbon market worth 11,700 times the value of CO2 on a mass
basis. The value of the 1 ton of waste is 3 times the value of the 33 tons
of refrigerant product. One way to look at this is that the profits/ROI of
the refrigerant manufacturer are going to triple.
Another way to look at this is to worry that refrigerant manufacturers will
now have an incentive to (1) produce extra waste - whereas before they had
an incentive to minimize it and (2) produce extra refrigerant
even at the same waste to refrigerant ration. This perverse incentive - to
produce extra refrigerant in order to generate more waste in order to
capture and destroy the waste and sell the resultant carbon offsets into the
CDM, has been limited to a large but not total extent by the rules set up
within the CDM.
________________________________________
From: [email protected] [[email protected]] On Behalf Of Markus
Lederer [[email protected]]
Sent: 18 March 2010 21:36
To: [email protected]
Cc: [email protected]
Subject: Re: [gep-ed] HCFCs
Dear Graeme, dear Will,
I think the story of HFCs is a fascinating example of what markets can and
cannot do and I thus would like to take the opportunity to raise a couple of
points:
The facts (all from the UNEP Riso pipeline February 2010):
* As of February 2010 there are 21 registered HFC projects, they thus
make up 0.4% of all registered projects. 11 are in China, 8 in India. There
is one more project in the pipeline, out of 2690.
* The expected CERs will make up about 16,8% of all CERs that will be
issued by 2012.
* 202.096.000 CERs have been issued so far for 17 HFC projects out of
37.2352.000 CERs
* Most projects entered the pipeline in 2005 and 2006. Two entered in
2007, three in 2008 and none since.
I think there is complete consensus on the fact that with rather small
investments (as stated by Will, Wara argues that the installations did not
cost more than 100.000 million US$) in very few projects (21) huge financial
benefits were made (if you take a very modest CER price of 10 US$ per CER,
generated income is about 2 billion US$...) but is this "good" or "bad"?
From a purely financial market perspective one could argue that HFC projects
were great as they allowed the market to mature rather early as lots of
liquidity was provided but I think we all know by now that liquidity per se
is maybe not so good after all, so I am not taking that road any further...
As Graeme pointed out some observers fear that these projects are so
lucrative that it might make sense that you build a factory only to generate
CERs. Although the danger of perverse incentives is given, we simply do not
have any proof that this led to the building of new factories and as Will
stated, the Executive Board issued a grandfathering clause stating that only
existing facilities will get credits. One can thus make the argument that
the EB closed a regulatory loophole... Furthermore, looking at the pipeline
it becomes evident that the issue of HFC is one of the past, as we only have
one more project in the pipeline.
Most importantly, the CDM as a market mechanism that primarily reacts to
prices completely fulfills its job if the "low-hanging" fruits are picked.
Wara's point that you could have done it so much cheaper is completely
irrelevant, because nobody did! There were no HFC GEF projects nor did any
Western government set up a fund of 100.000 million US$ to destroy HFC 22.
Only when there was a demand generated through the CDM mechanism did people
start doing something about it and I think we can all agree that the climate
is after all better off if those HFCs are no longer entering the atmosphere.
Thus, West European taxpayers paid way too much money to smart Chinese
capitalists (and these projects are almost completely Chinese), but
something happened! And the Chinese government taxes these projects very
heavily and has publicly stated that all income generated through taxing
CERs will go into a "green" fund. Potentially, a large junk of the money
could thus have a real SD impact.
This does not imply that the CDM is great for initiating sustainable
development per se nor that the idea of offsets or the CDM itself is beyond
criticism but the CDM as a market mechanism works as it allows smart people
to find very lucrative ways of how GHGs are reduced most efficiently.
Finally, most of the time when the CDM is discussed in China, people only
talk of HFC projects, but there are now more than 400 wind power and more
than 80 Biomass energy projects and most of them entered the pipeline much
later... Let's put our attention to these and let's find out whether they
can provide any small input towards a low-carbon economy in China at all...
Best and looking very much forward to a lively discussion...
Markus
--
Dr. Markus Lederer
Assistant Professor
Chair of International Politics
Faculty of Economics and Social Sciences, University of Potsdam
August-Bebel-Str. 89; 14482 Potsdam, Germany
Tel: + 49 331 977 3531
Fax: + 49 331 977 3429
Skype: markus.lederer1
Email: [email protected]
Web: www.uni-potsdam.de/db/fuhr/
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