The European Commission’s decision to exclude two key ozone-depleting gases from the purview of carbon trading from 2013 would have negative implications for global warming. The two industrial emissions marked for this purpose are Hydrofluorocarbon-23 (HFC-23), essentially trifluoromethane, and nitrous oxide. These are highly potent greenhouse gases (GHGs) that together account for the bulk of the trade under the EU’s emission trading system, which is, by far, the world’s largest certified emission reduction (CER) trading market under clean development mechanism (CDM) of the Kyoto Protocol. It is noteworthy that HFC-23, produced as an unwanted byproduct in making HCFC-22 (essentially chloro-difluoromethane used for refrigeration) is nearly 12,000 times more harmful to the environment than carbon dioxide. In 2009, nearly 60 per cent of the carbon credits traded in the EU are reckoned to have come from the destruction of HFC-23 alone. Nitrous oxide gas, another highly potent GHG responsible for global warming, is produced in hydro-chemical and fertiliser industries during the production of adipic acid, an industrial chemical used in nylon production. The sale of carbon credits earned by offsetting these environment-injurious gases is a significant source of revenue for these industries in China, India and several other developing countries. Though HCFC-22 is also not an absolutely safe refrigerant, developing countries are allowed to produce and use them till 2030 under the Montreal Protocol. Many developed countries have already stopped making HCFC-22, though they are obliged to phase them out only by 2020.
That said, the EU has good reasons for barring from carbon trading the offsets from these two GHGs. Installation of HFC-23 destruction facility does not cost much, though the profits it generates are substantial. The returns on investment, therefore, seem disproportionately exorbitant and can, arguably, act as a perverse incentive to continue to produce or even increase the production of these gases. Such arguments tend to justify debarring these gases from being traded in the present carbon market. But, at the same time, the consequences of doing so seem too worrisome to toe this line. There would be no incentive for the chemical industries to trap and destroy these gases to prevent them from entering the atmosphere. Given their woefully high potential to damage the ozone layer, any unchecked release into the atmosphere will undo much of the gain from global efforts to mitigate global warming. The tradable amounts of credits from these gases have been capped at the 2004-05 level. The issue of unduly large returns can also be addressed through a system of differential pricing for various GHGs, linking price cuts or premiums to the investments required in trapping and destroying them. The Montreal protocol provides for financing and pricing of the destruction of HFC-23 on the basis of its actual cost per tonne, which would work out far lower than the market prices of carbon credits. Working out such solutions will be better than blanket bans.
