Briefing Paper: HFC-23 Offsets in the Context of the EU Emissions Trading Scheme

European countries are the major market for carbon credits associated with HFC-23 (trifluoromethane) destruction projects under the UNFCCC’s Clean Development Mechanism (CDM). The EU linking Directive allows Certified Emission Reductions (CERs) from the CDM to be traded in the EU Emissions Trading Scheme (ETS). It claims that the “environmental integrity” of the ETS will be safeguarded, while developing countries will be “assisted in achieving their sustainable development goals.”

Under current rules, the 19 registered HFC-23 destruction projects are expected to generate about 478 million CERs by 2012 and more than one billion CERs by 2020. In 2009 European installations surrendered 46,364,460 HFC-23 CERs, worth an estimated €552 million. However these CERs, which constitute the majority of offsets used by European companies (59% in 2009) to address their emissions reductions so far, do not contribute to sustainable development, and are so fundamentally flawed that they risk undermining the environmental integrity of the ETS as well as the CDM.

A request to revise existing rules for HFC-23 projects was submitted earlier this year by CDM Watch to the United Nations’ CDM Executive Board. The submission provides overwhelming evidence that manufacturers are gaming the CDM system and undermining carbon markets by producing more potent greenhouse gases (GHGs) just so they can get paid to destroy them.

HFC-23 is an unwanted byproduct from the production of HCFC-22, a refrigerant gas that is currently subject to a phase-out under the Montreal Protocol due to its ozone-depleting properties. HFC-23 is a ‘super greenhouse gas’, with a Global Warming Potential (GWP) of 11,700, hence its destruction under the CDM yields thousands of offset credits or CERs. Since HFC-23 destruction is relatively cheap, the profits made from HFC-23 credits are enormous – as much as five times greater than the profits made from selling HCFC-22. The new evidence shows that this perverse incentive has resulted in unnecessary HCFC-22 production in order to profit from the CERs issued through the destruction of the HFC- 23 by-product. And since HCFC-22 is itself a powerful GHG (GWP 1,810), the CDM has actually financed increased production of two extremely potent GHGs.

Despite the vast sums of money involved in HFC-23 projects under the CDM, HFC-23 emissions are still increasing due to emissions from facilities not covered by the CDM. Efforts to address these non-CDM emissions are hampered because domestic legislation to address HFC- 23 emissions would ostensibly destroy the ‘additionality’ required by the CDM.

This briefing illustrates how HFC-23 projects under the CDM are working directly against the objectives of the UNFCCC and the Montreal Protocol, which is working to phase out HCFCs. HFC-23 emissions are clearly best addressed through direct measures outside the CDM. Setting the demand for the majority of CDM credits on a global scale, the EU has an important role to play in ensuring that HFC-23 credits will be excluded from the EU ETS.

Banning these credits from the EU ETS would open doors for sustainable solutions to abate emissions from HCFC-22 projects on a global scale. At the same time it would direct investment to where it is needed and enable credits from renewable energy technologies as well as from projects in geographically



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