Today’s SBSTA agenda item on the “practical solutions” of including HFC-23 abatement at new HCFC-22 facilities in the Clean Development Mechanism (CDM) is a matter of serious concern. ECO believes there are no practical solutions that remove the perverse incentives created if these projects are included in the CDM. Exclusion is the right cause of action.

HFC-23 is a highly potent greenhouse gas controlled by the Kyoto Protocol, having 14,000 times the global warming potential of carbon dioxide. It is a by-product of HCFC-22 production, an ozone-depleting refrigerant as well as a greenhouse gas.

The implications of including HFC-23 abatement in new HCFC-22 facilities in the CDM would create high revenues for these project developers. So high in fact, it may be enough to outweigh the cost of building any new facility. And as such, it creates the incentive to continue using these technologies rather than substituting to environmentally friendly ones. This merely delays the replacement of this technology.  For the international community to first pay for reductions of emissions from new HCFC-22 plants, and then, a few years later, pay for the phase out of this same HCFC-22 plant, seems  to be an inept misallocation of funds.

Moreover, due to the low cost of destroying HFC-23, which could be as low as US$0.20 to US$1 per tonne of carbon dioxide-equivalent, the carbon market will be flooded by cheap credits. This could crowd out projects that meet real sustainable development objectives such as renewable energy and energy efficiency because they have to compete against cheap HFC-23 abatement projects. HFC-23 abatement technology also offers nothing in the way of real technology transfer, sustainable development benefits, reduced local air pollution, job creation or any of the other goals of the CDM.

There have been a number of practical solutions suggested in Parties submissions to limit these perverse effects. These include applying a discount rate or a setting a fixed cap on the quantity of Certified Emissions Reductions to be issued. However, these solutions will not eliminate the perverse incentives themselves and their effectiveness would vanish with higher carbon prices. This is why they cannot be considered as fundamental solutions.

It is clear that HFC-23 emissions have to be dealt with, given both the projected growth of HCFC-22 in developing countries, and the terms of their regulation under the Montreal Protocol. ECO believes, however, that if Annex I countries support non-Annex I Parties to reduce their use of HCFC-22, it is possible to ensure a transition to real sustainable technologies that do not threaten either the ozone or climate systems.