When it comes to climate change, the entire industrialized world is engaged in brinksmanship. Chinese chemical firms, however, have just taken the game to a whole new level by threatening the release of potent greenhouse gases if demands over hydrofluourocarbon-23 offsets are not met, according to a recent Guardian article. The story is a bit complicated, but can be boiled down to the following elements:
- Since 2005, the EU has been paying for carbon offsets under its Clean Development Mechanism and Emission Trading Scheme. If you are a producer of carbon, like an electric utility, your carbon emission limit is capped. Any emissions beyond this limit must be “negated” by purchasing offsets.
- The offset in question here is for HFC-23, a refrigerant and potent greenhouse gas 11,700 times more powerful than CO2 in trapping heat. Given the large GHG potential of this gas, you can imagine that the carbon offsets are extremely lucrative.
- China has been receiving the bulk of the offset money from the EU, $6 billion in total since offsets began, although other developing nations like India are also large producers of the chemical. Offsets are generated by destroying (i.e. incinerating) the chemical, which is a byproduct of the production of HCFC-22, another refrigerant.
- The EU banned industrial gas offsets in August due to concerns that firms were gaming the system through HFC-23 offsets.
- Why the concern over gaming? Turns out that offsets are 75 times more lucrative than selling the chemical itself. Refrigerant manufacturers in China were generating huge profits by simply burning the stuff, and some say that entire facilities were simply built to produce HFC-23, burn it, and collect the offsets. The emissions offset scheme created huge perverse incentives and may be paying for incineration of overproduction rather than incineration of existing stock.
In other words, the EU is paying to offset HFC-23 that wouldn’t exist in the first place if it weren’t for the CDM. The result: manufacturers in China lose a huge revenue stream and threaten to unleash tons of HFC-23 gas on the atmosphere if the EU doesn’t keep paying up. How much, no one knows. I would surely like to find out.
This is the kind of nonsense that critics of cap-and-trade love to point at. And who can blame them? The EU’s been outsmarted by conniving industrialists who have turned HFC-23 offsets into one of the world’s biggest shell games.