China to subsidise carbon cuts from HFC 23 projects

Published 11:10 on June 4, 2015  /  Last updated at 05:42 on August 26, 2015  /  China, International, Kyoto Mechanisms  /  Comments Off on China to subsidise carbon cuts from HFC 23 projects

China will subsidise greenhouse gas emission reductions from HFC 23 projects that used to earn carbon credits under the CDM but have been banned from most markets, the NDRC said.

China will subsidise greenhouse gas emission reductions from HFC 23 projects that used to earn carbon credits under the CDM but have been banned from most markets, the NDRC said.

China’s top economic planning agency will pay 4 yuan ($0.65) per tonne of CO2e from HFC 23 destruction projects achieved in 2014, then reduce the amount each year until it phases out the subsidy scheme altogether after 2020, it said on its website.

HFC 23 projects were at one stage the biggest supplier of CERs to the European carbon market, but were banned from Jan. 1, 2013 after reports suggested the projects cut emissions so cheaply that several factories increased production only in order to earn more money from destroying the gas.

The NDRC introduced the temporary subsidy scheme to ensure emissions from the projects did not soar again when the route to the international carbon market was cut off.

In the short term, the scheme means emission cuts will continue to be a cash cow for the involved companies, according to Shanghai-based analysts Idea Carbon.

It said Changshu 3F Fluorochemical Industry Co., a subsidiary of Shanghai-listed Shanghai 3F New Chemical Materials, would receive 40 million yuan for reducing 10 million tonnes of CO2e last year.

Of that, 25 million would be net profits, four times the company’s total profits in 2014, Idea Carbon said.

Another chemical firm, Juhua Group, stood to gain 30 million yuan for cutting 8.5 million tonnes of CO2 last year, the analysts said.

PROJECT SURVIVAL

Concerned that the lack of CDM funding might lead to the dismantling of projects destroying particularly potent GHGs such as HFC 23, Germany last year funded a study to examine the fate of projects worldwide.

An interim report from that study by consultancies Ecofys and NewClimate Institute published last month found that between 69-85% of CDM projects are fully implemented.

Despite CER revenues being sufficient for fewer than 3% of projects, only around 7% foresee mitigation activity being stopped, the report found.

There are several reasons for this, including that investment decisions are irreversible, the abatement is required by binding contract or national regulations and that developers expect to receive alternative means of support.

By Stian Reklev and Ben Garside – stian@carbon-pulse.com