Small decision, big impact: millions of carbon credits from HFC-23 on hold (Newsletter #20)

An encouraging decision by the CDM Executive Board at its last meeting might substantially limit the amount of questionable CERs to be issued from HFC-23 plants. Currently, nine issuance requests from 7 projects for 6.2 million CERs in total are being reviewed and for the first time since 2008 a project has withdrawn its issuance request for 2.8 million CERs. CDM Watch is waiting for the results of these reviews that will clarify how many plants have used baseline emission factors that may not represent real baseline emissions.

At the last CDM Executive Board meeting, a clarification (CLA0191) became legally valid which may limit the amount of CERs to be issued from HFC-23 plants. It was clarified that any retrofit or replacements of key components of certain identified parts (e.g. reactors) of HFC-23 projects may impact the value of HFC-23 generation in a given year. It further clarified that the historic data used to establish how much waste gas would be emitted (and subsequently destroyed and credited) will be invalid if 1) a retrofit or replacement of key components of the these parts is not clearly like-for-like and 2) the implementation and/or operation of the CDM project does not conform anymore with the description contained in the registered PDD. It also decided that in this case the project may no longer be eligible to request subsequent CERs. For full details of the clarification read this.

The CDM Executive Board is now checking whether the project developers provide information about the above mentioned retrofits when requesting issuance. The issuance requests are put on hold until the DOEs clarify whether retrofits have taken place and hence whether the waste generation rate is still valid.

Nine issuance requests from 7 projects are currently on hold that ask for 6.2 million CERs in total. In addition, this decision might have resulted (for the first time since 2008) in a project withdrawing its issuance request. On 6 June 2012, Project: 0011 located in China withdrew its issuance request for 2.8 million CERs for the period December 2011-February 2012. Since then, no HFC-23 project has requested any further CERs.

Changes to the reactor or other key components of HFC-23 plants could potentially lead to the reduction of the baseline waste generation rate, and hence to the emission of less HFC-23. However, under the currently applied versions of the methodology (versions 2 to 5) project developers have in such situations incentives from the CDM to continue operating their plants at higher HFC-23 waste generation levels. This could lead to over-crediting of emission reductions.

HFC-23 projects do not lead to sustainable development and produce no technology transfer beyond the initial installation of incinerators. The huge finances involved currently profiting the Chinese Government and Chinese and Indian chemical companies and project backers could be better used to support more environmentally ambitious and legitimate projects in Least Developed Countries. In addition, the currently applied versions of the methodology are likely to lead to an over-issuance of CERs due to the perverse incentives from the CDM. This was recognised by the EU who banned the use of carbon credits from HFC-23 from April 2013.

Despite the ban, all 19 registered HFC-23 projects are earmarked to produce millions of CERs by 2012 and about one billion by 2020. While this vast amount of carbon credits is not desirable in the current over-supplied carbon market, the cheap HFC-23 carbon credits also hamper investment into clean energy sources and to Least Developed Countries. HFC-23 destruction is best addressed by mechanisms outside the CDM, preferably through the Montreal Protocol.