New Delhi: Windfall gains to China and India for reducing emission of greenhouse gases may be coming to an end if the upcoming talks on climate change in Bali this December agree to accept a United Nations’ (UN) recommendation.
The two countries have been accumulating carbon credits (or credits given for the reduction of greenhouse gases, those that cause global warming), but the UN recommendation wants to change the way claims for earning such credits are computed. That is because the UN believes the rush for carbon credits is actually counterproductive and encouraging companies in these countries to set up new units that produce greenhouse gases.
“All the work that the Montreal Protocol has done in reducing the production of ozone-depleting gases till now is at the risk of being undone. The carbon credits system is now indirectly encouraging the production of these harmful gases,” says a United Nations Environment Programme (Unep) official, who did not wish to be identified.
The recommendation is that new units producing greenhouse gases will not be accorded the same benefits, in terms of carbon credits, such as the old ones.
The proposed changes will also address the contradiction between two arms of the UN: one that defines the Montreal Protocol and the other that does the Kyoto Protocol. While the Montreal Protocol of 1989, designed to control and eventually phase out production of ozone depleting gases, is defined by Unep, the Kyoto Protocol that seeks to reverse global warming is under the aegis of United Nations Framework Convention on Climate Change (UNFCCC).
“Montreal has done a good job. The phasing out of the gases has been on track and will (continue to) be so,” says Radhey S. Agarwal, co-chair, Technology and Economic Assessment Panel, Montreal Protocol.
The contradiction between the two initiatives has to do with the destruction of a gas (hydro fluoro carbons) HFC-23, which is generated as a by-product in the manufacture of refrigerants. HFC-23 is a potent greenhouse gas, about 11,700 times stronger than carbon dioxide (CO2) in its ability to heat the atmosphere and deplete the ozone layer.
Factories that destroy this by-product are eligible for revenue (through carbon credits) under the Kyoto Protocol. Under the protocol, for every tonne of carbon dioxide (or its equivalent greenhouse gas such as HFC-23) these projects reduce, they earn one carbon credit or certificate.
Developed countries that have ratified the Kyoto Protocol are mandated to reduce their emissions by certain prescribed amounts. As it is more expensive to change over to cleaner technologies in developed countries, these countries do this by buying reduction certificates or carbon credits from developing countries.
On the other hand, under the Montreal Protocol developing countries have to freeze production of ozone depleting gases at the level prevailing in 2015 and phase out their production entirely by 2040.
The desire to earn carbon credits by destroying HFC-23, is leading to more HFC-23 being produced in the first place and is pitting the objective of the Montreal Protocol against that of the Kyoto Protocol. According to Unep, companies destroying HFC-23 are trading in the carbon credits they get for doing so and reinvesting the proceeds in setting up fresh capacity to create HFC-23.
Since HFC-23 is almost 12,000 times more potent that CO2, each tonne of gas destroyed earns 12,000 carbon credits, making it that much more lucrative. Unep estimates that on average companies earn 72% more on sales of carbon credits than through the sale of refrigerant gas.
India has four manufacturing units, all of which have been approved by the Clean Development Mechanism executive board, the UN entity that needs to approve the company’s process before it is eligible for carbon credits. The website of the UNFCCC says that SRF Ltd, one of the approved plants, spent approximately Rs11.5 crore to install the equipment to destroy the gas, but will go on to earn more than 200 times that from the sale of carbon credits.
China’s production of refrigerant gases is much more than India at 500,000 tonnes a year. China earns three times the credits India does.
Unep says that if the production of greenhouse gases is not checked then the cut-off level in 2015 would be substantially higher.
Unep also says that the large number of carbon credits likely to be issued to companies that destroy gases such as HFC-23 could lead to excess supply of credits and hence lower prices, which in turn would affect the feasibility of other types of green projects.
To address this, the Chinese government has levied a 65% tax on revenue earned through credits earned by the destruction of HFC-23. India does not have a similar tax although Unep recommends it as a short-term measure.