World's Biggest Greenhouse Gas Deal

Takes Effect in Win-Win Situation for China

Li Jiao – October 3, 2006 – 5:45am

Under the world's biggest emissions-reduction purchase deal to date,

two Chinese chemical companies will reduce their emissions of HFC-23

(trifluoromethane), a powerful greenhouse gas, starting in October

and December. The companies, Jiangsu Meilan Chemical Co. Ltd. and

Changshu 3F Zhonghao New Chemicals Material Co. Ltd., received a

total of US$1.02 billion from the World Bank's Umbrella Carbon

Facility to cut their HFC-23 emissions by some 19 million tons of

carbon dioxide equivalent annually and eventually eliminate them,

according to Zhang Jingyi, a representative with Changshu 3F.

HFC-23, which has a global warming potential 11,700 times stronger

than carbon dioxide, is produced as a byproduct during the

manufacture of HCFC-22, a chlorofluorocarbon gas used as a

refrigerant and as a building block for other chemicals. Forty-eight-

year-old Jiangsu Meilan leads Asia in the production of methane

chlorides, generating 160,000 tons annually, and is China's top

producer of hexafluoropropene, at 2,000 tons. Changshu 3F, set up in

1975, is the nation's oldest and largest producer of organic

fluorochemicals. Both companies are located in eastern China's

Jiangsu Province and have until now been releasing their HFC-23 into

the open air.

The World Bank finalized the emissions purchase deal with the

companies on August 29 on behalf of a group of public and private

sector entities that included the Danish and Italian Carbon Funds,

Deutsche Bank, and Mitsui & Co. The deal was made in accordance with

the Kyoto Protocol, the international treaty designed to tackle

climate change through reductions in greenhouse gas (GHG) emissions.

HFCs are among six GHGs considered to be the main contributors to

global warming under the Protocol.

As a developing country, China is not required to cuts its GHG

emissions under the Kyoto agreement until 2012. Yet because of rapid

industrial development, the nation's emissions are now second only to

those of the United States, observes Chen Zhongming, associate

professor at Beijing University's College of Environmental Sciences.

China is also suffering from the impacts of climatic warming: this

summer, the southwest, known traditionally as "nature's storehouse,"

witnessed one of the worst droughts on record.

The new emissions-reduction deal is being implemented through the

Kyoto Protocol's Clean Development Mechanism (CDM), which allows

polluters in industrial countries to offset their own GHG releases by

investing in climate-friendly technologies and infrastructure

projects in the developing world. "The HFC-23 project combines major

carbon emission reductions and sustainable development benefits,"

says Dr. Zhang Chengyi with the China Meteorological Administration."

By destroying nearly all the HFC-23 released by the factories, Zhang

notes, the purchase will facilitate record emissions reductions.

Chinese manufacturers are striving for more CDM projects, which will

enable them to achieve their emissions cuts more

efficiently. "Chinese entrepreneurs with foresight are eager to

strike such deals," says Zhang Jingyi with Changshu 3F, adding that

his company started looking into the trade opportunity two years ago.

Both Chinese chemical firms were able to seal the deal because they

are well-established manufacturers and have received ISO 9000

certification, a widely recognized quality standard issued by the

International Organization for Standardization.

Because the CDM is based largely on private investment, early

development of the mechanism requires capturing the interest of

businesses and investors in industrialized countries. Large-scale

emissions-reduction deals offer a strong economic incentive,

according to Zhuang Guiyang, an associate research fellow with the

Chinese Academy of Social Sciences' Research Centre for Sustainable

Development. Industrialized countries can benefit particularly from

the lower cost of reducing emissions in China versus back home, he

notes.

The Chinese government will retain 65 percent of the revenues

generated from the HFC-23 emissions-reduction deal, investing them in

a new Clean Development Fund (CDF) established to support climate

change mitigation. The CDF is expected to finance projects in

priority sectors such as energy efficiency, renewable energy, and

coalbed methane recovery and use. "In the short run, there is no

denying that it is win-win cooperation with industrialized countries

in CDM development for China," says Zhang Jianyu, China program

manager with the U.S.-based environmental organization Environmental

Defense.

Neeraj Prasad, senior operations officer at the World Bank, hopes the

purchase agreement will be just one of many similar deals in the

future. "By itself, this `biggest deal,' equivalent to more than 100

million tons of CO2 reduction, accounts for less than 10 percent of

the total reduction that we hope to see from countries such as China

in the Kyoto Protocol activities," he says. Prasad notes that the

agreement has opened up the Chinese market to more buyers, bringing a

larger benefit as the global CDM business expands. "It has also

demonstrated that the CDM can be very successful," he adds.

In recent years, the World Bank and the Chinese government have

undertaken a variety of joint environmental protection projects.

Phasing out the production and consumption of HCFCs and other ozone-

depleting substances has been a major thrust of these efforts, as

China remains the world's largest producer of the chemicals, says

Prasad. The gases can eat away at the Earth's protective ozone layer,

increasing the risk of human exposure to ultraviolet radiation and

contributing to skin cancer and other health problems.

According to Prasad, the World Bank is investing US$580 million to

support Chinese environmental protection efforts in the 1991–2010

period. Other joint projects target such areas as renewable energy

and persistent organic pollutants.

—This article was coordinated by the Beijing-based Global

Environmental Institute.

http://www.worldwatch.org/node/4634