NCPA - National Center for Policy Analysis

Profits on Carbon Credits Drive Output of a Harmful Gas

August 20, 2012

When the United Nations wanted to help slow climate change, it established a system where greenhouse gases were rated based on their power to warm the atmosphere. The more dangerous the gas, the more that manufacturers in developing nations would be compensated as they reduced their emissions, says the New York Times.

But where the United Nations envisioned environmental reform, some manufacturers of gases used in air conditioning and refrigeration saw a lucrative business opportunity:

  • Industry insiders quickly figured out that they could earn 11,000 carbon credits by simply destroying a single ton of an obscure waste gas that was a byproduct of manufacturing their coolant gases.
  • The elimination of the waste byproduct was rated highly by the U.N. carbon credit system because the gas to be eliminated is particularly harmful to the environment.
  • However, the coolant itself is also harmful in the particles that it emits, yet the U.N. system artificially encourages greater production of the coolant so that manufacturers can reap revenues from eliminating the waste byproduct.

Moreover, the unintended loophole in the system that coolant manufacturers are exploiting is self-preserving.

  • Since 2005, the 19 plants receiving the waste gas payments have profited handsomely from the unlikely business: churning out more harmful coolant gas so they can be paid to destroy its waste byproduct.
  • The high output keeps the prices of the coolant gas irresistibly low, discouraging air conditioning companies from switching to less damaging alternative gases.
  • While some measures are being put into place to break this cycle -- the European Union, it seems, will no longer accept credits awarded for the above-mentioned process -- many of the coolant producers are operating on long-term contracts that will remain profitable for years.

Furthermore, the problem of closing this loophole has become an issue of international politics.

  • Of the 19 plants in the business, more than half are located in China and India.
  • Even raising the possibility of trimming future payments "was politically hard," according to Martin Hession, the immediate past chairman of the United Nations Clean Development Mechanism's executive board, which awards the credits.
  • China and India both have representatives on the panel, including the new chairman.

Source: Elisabeth Rosenthal and Andrew Lehren, "Profits on Carbon Credits Drive Output of a Harmful Gas," August 8, 2012.


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