Carbon Market Watch

For fair and effective climate protection.

Industrial Gases (HFC-23 & N2O)

30 May 2012

HFC-23

HFC-23 is an unwanted by-product in the manufacture of HCFC-22, a refrigerant and temporary substitute for CFCs. The destruction of HFC-23 in HCFC-22 plants in developing countries can be registered as a CDM project and leads to the issuance of a large amount of credits (CERs). As it is very cheap to install a destruction facility, HFC-23 destruction CDM projects have resulted in huge profits for HCFC-22 plants and a perverse incentive to increase the production of HCFC-22 to earn money from destroying the resulting HFC-23.  This is why the crediting rules were suspended in 2010 and made more stringent in 2011. Yet it is still not stringent enough and still threatens to undermine the goals of the Montreal Protocol and the protection of the Ozone layer. The revised rules also do not apply until projects have to renew their crediting period. This means from 2012 until the end of the first crediting periods (seven years after a project started), well over 240 million credits will be issued under the old rules.

This is why the EU has banned HFC-23 credits from use in their European Emissions Trading System (EU-ETS) starting in April 2013. The majority of EU countries have also banned HFC-23 credits for use in non-traded sectors. However, given that HFC-23 credits can still be traded throughout 2012 and given that not all EU Member States have extended the ban to non-traded sectors, the issue has not been fully resolved in the EU.

Learn More About Offsets in the EU
Regulation on the EU-ETS Directive on the Ban of Industrial Gases (
external link)

HFC: Who’s WhoHCFC-22

  • An ozone depleter and a strong greenhouse gas (GHG) (Global Warming Potential: 1,810)
  • Used as an alternative to the highly ozone-depleting CFCs (‘Freon’) because it harms the ozone layer less. However, even this lower ozone depletion potential is no longer considered acceptable. HCFC-22 is therefore being phased out under the Montreal Protocol, to be replaced by other refrigerants with lower ozone depletion potential such as propane
  • Just one of many different HCFCs.

HFC-23

  • A waste gas produced in the manufacture of HCFC-22
  • A very strong GHG (Global Warming Potential: 14,800) but not an ozone depleter
  • Just one of many HFCs.
Montreal or Kyoto?The Montreal Protocol covers chemicals that destroy stratospheric ozone

  • Covered: HCFC-22 for ‘emissive uses’ such as refrigerants, where at some point the HCFC-22 is emitted to the atmosphere
  • Not covered: HCFC-22 for ‘feedstock uses’ where the HCFC-22 is turned into another end product that does not harm the ozone layer
  • Not covered: In both cases HFC-23 is created as a waste product. However, because HFC-23 is not an ozone depleter, it is not directly covered. Because emissive HCFC-22 will be phased out, the related HFC-23 emissions will also indirectly be reduced through the Montreal Protocol. This is not the case for HFC-23 emissions from HCFC-22 feedstock facilities.

 

The Kyoto Protocol covers greenhouse gases

  • Covered: HFC-23 emissions from HCFC-22 facilities built before 2000.
  • Not covered: HFC-23 emissions from newer HCFC-22 facilities.

N2O – Nitrous Oxide

N2O is a strong greenhouse gas (Global Warming Potential: 310). It is an unwanted by-product in two different industrial processes; the production of:

  • Adipic acid, usually turned into nylon
  • Nitric acid, usually turned into fertiliser.

In 2010, an independent study commissioned by CDM Watch provided overwhelming evidence that the high profits from CDM N2O destruction projects at adipic acid facilities had led to carbon leakage: These projects had such high profit margins that a shift in production from non-CDM plants to CDM plants occurred. This carbon leakage caused an estimated increase in emissions of 13 million tons of CO2e. The European Union reacted by implementing a ban of carbon credits from this project type from use in the European Emissions Trading Scheme (EU-ETS). The CDM Executive Board has yet to revise AM0021 to make the baseline sufficiently stringent.

Nitric acid CDM projects do not seem to cause carbon leakage, an independent study commissioned by CDM Watch showed. Yet this project type is problematic for other reasons. N2O is normally an unwanted by product of nitric acid production. Evidence suggests the existing methodologies (AM0028 and AM0034) cause a perverse incentive not to adopt an already widely available technology that would minimise N2O formation because it is more lucrative for project developers to maximise N2O production so that it can then be destroyed to earn credits.