Have Montreal and Kyoto left a hole in our skies…?

Implications: The Montreal Protocol, an international treaty designed to protect the ozone layer by phasing out the production of a number of substances (CFCs or Chloro Fluoro Carbons) believed to be responsible for ozone depletion, allows developing countries to keep increasing their production of HCFC-22 (also known as R22: a low cost refrigerant commonly from the hydro chlorofluorocarbons family used in air conditioning systems) until 2016, and then freezes production at that level until 2040, when production is supposed to be entirely stopped.

That schedule was devised in the early 1990s when HCFC-22 was mainly used in industrialized countries. Developing countries were seen as too poor ever to afford much of the chemical: who would have anticipated the formidable growth of China and India over the last two decades?

The reality as shown that both India and China are huge and fast growing market where adoption of modern amenities such as air conditioning homes and offices far exceeds the current GDP growth: as a result it is estimated that consumption of such harmful CFC gases will continue unabated at double digit rates, averaging 35% per annum since the 1990s and until 2016.



Analysis: Due to its widespread adoption and implementation, the Montreal protocol has been hailed as an example of exceptional international cooperation with Kofi Annan quoted as saying it is "Perhaps the single most successful international agreement to date..." The treaty was opened for signature on September 16, 1987 and. Since then, it has undergone five revisions.

Under the Kyoto protocol Clean Development and Emission Trading Mechanisms, a ton of HFC-23 eliminated in a developing country such as China is worth 11,700 times more than a ton of Carbon Dioxide (i.e. generating a credit of around US$920,000 per ton of HFC-23 certified emission reduction). It is estimated that CERs (Certified Emissions Reductions or “Carbon Credits”) for such HFCs related CDM projects under will represent an average of 58% of the total CER amounts by 2012.

Two Chinese companies, Meilan Jiangsu Chemical and Changshu 3F Zhonghao New Chenicals Material, manufacture the refrigerant HCFC-22 (R22) and produce the chemical HFC-23 as a by-product. The plants should have been heading ultimately for closure as the phase out deadlines agreed under the Montreal protocol. Taking advantage of both treaties, not only are these two companies not forced to phase out their production of low cost ozone depleting chemicals, but they have successfully applied for and received a sizeable loan to retrofit their facilities (the largest Carbon Credit transaction under the Kyoto CDM to date), using technologies that capture and destroy the HFC by-product, while continuing production of their CFCs. Their revenues from producing a pollutant regulated by the Montreal protocol is ironically what keeps the plants open and profitable.

The New York Times reported on 21 December 2006 that a study calculated that industrialized countries with emission caps could pay up to US$800 million a year to buy CDM credits on such projects, even though the cost of building and operating the incinerators necessary to clean-up HFC-23 is only US$31 million a year. Although the China authorities impose a higher levy of 65% on the transfer of CERs relating to hexafluorocarbons (HFCs) and perfluorocarbons (PFCs), such deals have given the Kyoto CDM a bad name: most stakeholder groups would prefer governments in developing countries to require their factories to deal with such emissions as a business cost or to cover for the elimination of such pollutants through conventional aid program.

This is the best illustration of the challenges posed by international treaties regulating the most global threat of all: the common skies above our heads.