The news this week, just prior to the COP-16 UN conference on climate change in Mexico, is that the EU is openly considering a ban on carbon offsets from industrial gasses, including both HFCs and N2O. HFCs are a by-product of refrigerant production, while nitrous oxide comes from adipic acid production – and both are very cheap and very profitable to destroy. Both have been criticized for a) encouraging industrial production for the purpose of creating the byproducts, which are very lucrative to destroy under the UN carbon market system, and b) unduly lowering the price of carbon credits, making the markets less effective at stimulating cleaner investment. Beyond those criticisms, the ban could have a very important impact on equity considerations of a climate deal.
From the NY Times:
Several members of a United Nations panel that oversees the international offsetting scheme agreed that the hydrofluorocarbon 23 scheme should be revised. Europe’s executive commission said the hydrofluorocarbon credits from industrial projects were overvalued in Europe by a factor of 78, discouraging the flow of money to more credible projects in the least developed countries.
“The rates of return of these projects are excessive,” it said in a statement. “The E.U. considers that cheap emission reductions, such as those from industrial gas projects, should not be done through the carbon market, but instead should be the responsibility of developing countries as part of their appropriate own action to keep global warming below 2 degrees Celsius.”
Basically it’s really good news if they’re thinking of how to integrate a ban on HFCs into a way for developing countries to cheaply meet emissions commitments. As with forestry offsets, part of the risk is that developing countries in effect give away all the cheap emissions reductions – the so-called low hanging fruit – to whoever has moved first into the market. While those private investors reap windfall profits, national governments in developing countries are increasingly called upon to commit to future reductions as part of the global agreement, but are finding that the cheap and easy-to-achieve reductions have already been taken. (Reductions can’t count for both purposes.) By banning market-based investment in these industrial gas projects, it could free up private capital for more substantial investments, raise the price of carbon and hence encourage greener technologies in the West, and lastly allow developing countries to reap the benefits of national investment in emissions reduction commitments. All good!
The one risk: what if these projects fall by the wayside and the gasses are not destroyed properly? It would be a travesty if the cheapest emissions reductions on the planet were not made because they fell through the cracks between the global climate institutions. Already the Montreal Protocol on ozone-harming refrigerants has declined to regulate HFCs as an unwarranted extension of its original mandate.