Perverse effects of carbon markets on HFC-23 and SF6 abatement projects in Russia

Abstract

Carbon markets are considered a key policy tool to achieve cost-e ective climate mitigation 1,2 . Project-based carbon market mechanisms allow private sector entities to earn tradable emissions reduction credits from mitigation projects. The environmental integrity of project-based mechanisms has been subject to controversial debate and extensive research 1,3-9 , in particular for projects abating industrial waste gases with a high global warming potential (GWP). For such projects, revenues from credits can significantly exceed abatement costs, creating perverse incentives to increase production or generation of waste gases as a means to increase credit revenues from waste gas abatement 10-14 . Here we show that all projects abating HFC-23 and SF 6 under the Kyoto Protocol's Joint Implementation mechanism in Russia increased waste gas generation to unprecedented levels once they could generate credits from producing more waste gas. Our results suggest that perverse incentives can substantially undermine the environmental integrity of project-based mechanisms and that adequate regulatory oversight is crucial. Our findings are critical for mechanisms in both national jurisdictions and under international agreements.The Kyoto Protocol's project-based mechanisms, the Clean Development Mechanism (CDM) for emission reductions projects in developing countries and Joint Implementation (JI) for projects in industrialized countries, provided industrialized countries flexibility in meeting their greenhouse gas (GHG) reduction commitments. Numerous sub-national and national jurisdictions are implementing similar mechanisms around the world, often in combination with emissions trading schemes 2 .Projects abating waste gases with a high global warming potential (GWP) can generate large volumes of emission reductions at low abatement costs 1,15 . Under the CDM, the two largest waste gas project types-incineration of hydrofluorocarbon-23 (HFC-23) from hydrochlorofluorocarbon-22 (HCFC-22) production and destruction of nitrous oxide (N 2 O) from adipic acid productionaccount for only 0.3% of the registered projects but generated about half of the 1.5 billion emission reduction credits issued so far 16 . For such projects, revenues from credits can significantly exceed GHG abatement costs and, in some instances, the costs of producing the main product 10,11 . This can create perverse incentives for plant operators to increase production or waste generation beyond levels that would occur in the absence of crediting [12][13][14]17 . If more waste gas is generated owing to the incentives from crediting, emission reductions are overestimated; the emissions baseline is inflated compared to the emissions that would actually occur without crediting, and, in consequence, excess credits are issued.Such perverse incentives can be avoided through appropriate safeguards in methodological standards for the calculation of emission reductions, mainly by capping the amount of production and waste generation to historically observed levels or conse...

A faultline in neoliberal environmental governance scholarship? Or, why accumulation-by-alienation matters

“…Secondly Joint Implementation (JI) allows 'developed' countries unable to meet their emission reduction targets to invest in a qualifying 'green' or emission reduction project in another industrialized country. One major review of JI notes that the scheme may have raised rather than reduced the emissions that might have been released in the absence of a market (Schneider and Kollmus, 2015). Thirdly the Clean Development Mechanism (CDM) requires that companies from the Global North place 'additional' investment into qualifying 'green' development projects in the Global South.…”

From climate finance toward sustainable development finance

“…Another strand of climate finance literature has analyzed past experiences with the project‐based clean development mechanism (CDM) and joint implementation (JI). It highlights the difficulties of establishing project‐level baselines (i.e., determining whether the projects in question would have been done independently) and ensuring additionality . Small(er)‐scale projects in particular facing higher transaction costs usually have not profited from project‐based approaches .…”

What's ontology got to do with it? On nature and knowledge in a political ecology of the 'green economy'

“…to reduce aggregate carbon levels through trading emissions in one place with the purchase of credits tied to carbon reductions and/or storage somewhere else (Lohmann 2009). A recent in-depth review of carbon credits awarded and traded under the Kyoto Protocol's Joint Implementation (JI) mechanisms, for example, details how revenues from credits have created "perverse incentives to increase production or generation of waste gases as a means to increase credit revenues from waste gas abatement" (Schneider andKollmuss 2015: 1061). The authors argue that in this case a market in carbon credits under JI may have increased emissions by about 600 million tonnes, and that emissions reductions in many cases may have happened without the associated international carbon credit purchases, meaning that such trades do not meet their stated purpose of generating carbon emissions reductions that are additional to those that would have occurred anyway, i.e.…”