Perverse Consequences of Greenhouse Gas Credits

Mark Sharpiro: ‘Perverse’ Carbon Payments Send Flood of Money to China 

European legislators in Brussels have discovered that the strategy they devised to combat climate change is helping subsidize the economy of their, and America’s, major global competitor — China. European companies have been overpaying Chinese companies more than 70 times the cost to eliminate a potent greenhouse gas — triflouromethane, or hfc 23, a byproduct of manufacturing a refrigerant that has been banned in developed countries and is being phased out in developing ones.


In order to offset their own greenhouse gases, companies and utilities in Europe that are subject to the emission limits of the Kyoto Protocol have been paying vastly inflated prices to Chinese companies to destroy hfc 23, and in the process have been providing the Chinese government with hundreds of millions of dollars in tax revenue to compete against Europe’s own “green” industries. European concern about this practice was a major source of contention during last week’s climate negotiations in Cancun, as the UN attempted to defend the integrity of the multi-billion dollar global carbon offset market.

And in an odd twist, the incentives offered through the UN’s Clean Development Mechanism (CDM) also appear to be stimulating production of an ozone-depleting refrigerant gas that has been landing in the U.S. black market. Investigations by the U.S. Environmental Protection Agency (EPA)

Two European Parliament members have alleged a ‘gross misuse of European consumers’ money.’and U.S. Customs and Border Protection have led to the conviction of several smugglers who have illegally imported the ozone-depleting refrigerant, hcfc 22, into the U.S. for sale to trucking companies, supermarkets, automotive supply shops, and other large-scale users of refrigerant gases. The illegal refrigerant is significantly cheaper than non-ozone-depleting refrigerants permitted in the U.S., a price discrepancy triggered partially by the large overpayments to Chinese firms that have led to an ample supply of hcfc 22 on the international black market.

That black market completes a global circuit unique to the era of climate change: From China’s industrial zones, the credits for the greenhouse gases — bought and sold as commodities on the global carbon markets — flow to European companies that need them to continue polluting at home, while the underlying ozone-depleting gas responsible for creating those credits flows to American companies seeking discounted refrigerants.

“It’s perverse,” says Gerben-Jan Gerbrandy, a Dutch member of the European Parliament. “You have companies which make a lot of money by making more of this gas, and then getting paid to destroy it.”