HFC-23 CDM projects may not be that bad after all, study suggests

Published 18:52 on January 18, 2016  /  Last updated at 01:25 on January 19, 2016  /  Asia Pacific, China, China's Offset Market, EMEA, EU ETS, International, Kyoto Mechanisms, New Zealand  /  No Comments

Controversial HFC-23 CDM projects might have maintained their environmental integrity on average because regulators under-credited some installations almost as much as they over-credited others, a study found.

Controversial HFC-23 CDM projects might have maintained their environmental integrity on average because regulators under-credited some installations almost as much as they over-credited others, a study found.

The paper, authored by US-based think-tank Resources for the Future (RFF) and published on Friday, may help to salvage the reputation of the much-maligned HFC-23 CDM projects and their issued credits.

These CERs were banned from being used in a number of emissions trading schemes, for example the EU’s and New Zealand’s, due to claims that some factories had ramped up production of the gas solely to generate more credits, thereby pocketing more profits.

RFF examined the relationship between the emissions reduced at 12 HFC-23 projects in China and Mexico between 2006 and 2013 and the amount of credits subsequently issued by the UN.

“We find it likely that under-credited emissions reductions nearly equal the supply of over-credited offsets, implying that HFC-23 CDM projects effectively have little impact on net emissions and thereby maintain their environmental integrity, on average,” said the study.

OVER- AND UNDER-CREDITING

The CDM has awarded over 540 million carbon credits, around one-third of total CER supply, to 19 projects that destroy HFC-23 – a potent GHG that is a waste by-product in the manufacturing of refrigerant gas HCFC-22.

Factories were able to destroy the waste gas for less than €1 per tonne of CO2e, while CER prices were exponentially higher, peaking above €24 in 2008.

The RFF study found that while there had been substantial over-crediting of some projects, which had ramped up their HCFC production during the initial CDM baseline-setting period of 2001-2004, there had also been significant under-crediting of other projects as a result.

Combined, the effects of each phenomenon may have cancelled each other out, the study found.

However, it said under-crediting occurred because the baselines evolved to become relatively conservative compared to the business-as-usual output from the HFC-23 projects, which continued to climb globally.

But because of the massive profits on offer, factories still sought to participate despite only getting credited for emission reductions below this conservative baseline.

In reality, the paper found, the facilities were making more substantial reductions below their BAU levels.

“If policymakers only think about over-credited offsets when they are considering the emissions impact of HFC-23 projects, then they have failed to look at the far side of the moon. For this project type, under-credited emissions reductions seem to play quite an important role,” RFF’s Clayton Munnings, co-author of the study, told Carbon Pulse.

The analysis examined projects that have earned credits under the third, fourth and fifth versions of the CDM’s HFC-23 methodology, installations that account for the vast majority of issued units.

Regulators have since come up with a sixth version that applies even stricter crediting measures, though it is unlikely to significantly affect CER supply due to the low price of the credits – a trend that has made ongoing participation in the UN scheme financially unviable for many projects.

The authors admitted that the findings may not have a wider application because of the particularly low mitigation costs involved with HFC-23, which enabled much of the under-crediting to occur.

“Nonetheless, carbon offsets that reduce HFC-23 emissions may increase in importance despite bans from the EU and New Zealand because HFC-23 emissions are expected to significantly increase in China over the coming decades.”

IN RETROSPECT

The previously disregarded under-crediting identified in RFF’s paper comes in addition to findings published last month by Germany’s NewClimate Institute on the back of its two-year survey of 1,310 CDM projects worldwide.

NewClimate researchers found that the CDM might have had a net mitigation impact of around 480 million tonnes in 2014 – around 1% of total global emissions – as a side effect of the currently depressed market conditions, which have left CDM prices languishing below €1 per credit.

This is due to many CDM projects continuing to operate but no longer bothering to apply for the units, which would have let the CER buyers emit an equivalent amount of CO2.

Despite the climatic benefits, the NewClimate researchers said this was an undesirable effect because it comes at the cost of disenfranchising private investors that may now be less inclined to fund similar schemes in the future.

By Ben Garside – ben@carbon-pulse.com

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