World's Biggest Greenhouse Gas Deal Takes Effect in Win-Win Situation for China, Industrialized Nations

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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.

Outside contributions to China Watch reflect the views of the author, and are not necessarily the views of the Worldwatch Institute.