The gas game
In the mid 1980s, the British Antarctic Survey team discovered a hole in the ozone layer. The depletion had started in the 1970s. There were reports of ozone hole over the North Pole as well. The hole meant we were exposed to harmful UV rays with severe health impacts such as malignant and non-malignant skin cancers. Given that the Caucasian population was more vulnerable to the effects of UV radiation, ozone layer depletion assumed priority for Northern countries.
In 1987, a multilateral agreement, Montreal Protocol on Substances that Deplete the Ozone Layer, was drawn. They agreed that the North would take action to stop the cause of ozone depletion, and the South would follow suit. The South would be given some leeway to take action and provided with financial and technological support to do so. The US agreed to fund it on the condition that the Montreal Protocol would not be used as precedent for future environmental negotiations.
The cause of the hole in the ozone layer was a chemical called chlorofluorocarbon (CFC). Used mainly in aerosol propellants, refrigeration, air-conditioning, plastic foams and solvents for cleaning electrical components, the chlorine in CFC was found to deplete the ozone layer.
Countries decided to shift to a partially halogenated CFC, called hydrochlorofluorocarbon (HCFC), which was a patented product. This also damages the ozone layer, though less than CFC, and was an interim solution. Industrialised countries phased out CFC in 2000 and now have to phase out HCFC by 2020. The alternative of HCFC is an expensive and patented product—non-chlorinated HFCs. The plan is that developing countries would begin HCFC phase-out from 2013, and finish it by 2030.
But the question is, what do developing countries phase in to. There is a virtual war over the chemicals and their alternatives, both because of commercial interests and because each chemical has its good and bad parts. A chemical may not be an ozone-depleting substance (non-ODS), but may have high global warming potential (GWP) and cause climate change.
HFCs pose no harm to the ozone layer because, unlike CFCs and HCFCs, they do not contain chlorine that depletes the ozone layer. But HFCs are super-greenhouse gases with an extremely high GWP. This means they can trap enormous amounts of infrared radiations in the atmosphere and can cause greenhouse effect a thousand times stronger than CO2.
The industrialised world has already shifted to HFCs and is merrily contributing to greenhouse gases with use of this chemical in air-conditioners and refrigerators. All eyes are now on developing countries. Will they also choose HFCs and add to the gases in the atmosphere that take the world closer to the catastrophic climate change?
Sugarcoated knives are out as the rich convince the poor not to take their route but leapfrog to cleaner substances. What they do not say is that the alternatives are still experimental, contested, expensive and in the hands of their companies. They want the poor to jump into the costly, unknown world of patented technologies in the common interest of all. The poor and their companies are also seemingly greedy. They want double gains: get paid to move to substances that win the ozone fight and then get paid to shift away from these chemicals to those that save the world from climate change.
This is the business of ozone. First, companies made money out of CFCs, then they made money out of the alternatives. Now, they want to make money out of the alternatives to the alternatives, all in the name of saving the planet, say Indrajit Bose, Uthra Radhakrishnan and Ankur Paliwal
A profitable protocol
The phasing out of harmful gases has been more business-friendly than environment-friendly
On the face of it, the Montreal Protocol reads like a conscientious effort of the world joining hands to avoid a catastrophe of unprecedented proportions. Look deeper and a grim tale of corporate manipulations emerges. Some of the largest chemical companies administered a nostrum that only compounded the problem.
Phasing out of chlorofluorocarbons (CFCS) was more or less dictated by companies that made the gas. Initially, the companies opposed the switch. In the 1980s, DuPont, synthesiser of polymers such as nylon, teflon and lycra, produced close to 25 per cent of global CFCs. US and European companies together produced 79 per cent of all CFCs. Led by DuPont, many chemical manufacturers coalesced under Alliance for Responsible CFC Policy to oppose any move to discontinue this refrigerant. Imperial Chemical Industries (ICI), a British firm, also lobbied with its government against any change.
But in 1988, DuPont did a U-turn. They had found a substitute and pressed for a change anticipating the Montreal Protocol would mandate its technology for the global transition and create a lucrative market. Robert Falkner, associate professor, International Relations, London School of Economics, in his 2005 paper titled ‘Business of Ozone Layer Protection’, points out, “Beneath the surface of industry cooperation a fierce commercial battle for the substitutes market unfolded. In contrast to the smaller CFC producers, large chemical firms such as DuPont and ICI were already in a leading position to sell alternative products”.
There were two alternatives to the big refrigerant and air-conditioner market—hydrochlorofluorocarbons (HCFCs), a cheaper transition option and its counterpart hydrofluorocarbons (HFCs). HFC was known to be a potent greenhouse gas but was favoured because as companies held patent for HFC-134a, used for air-conditioning, and asked for prohibitive rates for technology transfer. The Montreal Protocol fund did not agree to pay for royalty and patent cost. Given this, developing countries bunny-hopped to the next best option, HCFC.
HCFC is an ozone-depleting substance and has high global warming potential (GWP). This is when the third alternative came in. A German firm developed a refrigerator coolant using a mixture of propane and butane. These hydrocarbon-based technologies were cheaper and not in control of any company, so no one showed interest. In fact, the US went a step ahead and banned use of hydrocarbons saying they were inflammable and unsafe.
Profits part 1: CFC-HCFC
The Montreal Protocol bans trade in ozone-depleting substances between nations that are not party to the agreement. The developing world had to phase out CFCs by 2010. Industrialised countries agreed to pay for incremental transition costs, including transfer of technology and replacement of equipment for transition through a multilateral fund. The World Bank and United Nations agencies were made the implementing agency for the project.
India got a share of the fund as well. Four companies shared the $82 million (Rs 410 crore) grant, which included Chennai-based Chemplast Sanmar Ltd, Gujarat-based Gujarat Fluorochemicals Ltd, Navin Fluorine International Ltd (formerly Mafatlal Industries), and Rajasthan-based Shri Ram Fibres Ltd. In 1998, the four companies accounted for 16 per cent of the world production of CFCs, only behind China’s 35 per cent share. The funds paid for their transition to HCFC, at best the interim solution. Doing all this, India phased out production and consumption of CFCs by 2008.
Profits part II: burning byproduct
The new gas, paid for by the Montreal Protocol, opened a bonanza for Indian and Chinese HCFC manufacturers. It produced a byproduct which was dangerous for climate change and manufacturers got paid so much that they could book profits many times more than what they made by selling the refrigerant. How?
HCFC-22 is a variant of HCFC, used in the majority of the air-conditioners and refrigerators in India. Producing it releases HFC-23, which is 11,700 times more powerful than CO2 as a greenhouse gas. Given HFC-23’s GWP, companies needed to be paid to destroy the gas so that it was not released in the atmosphere. They could apply for credits under Kyoto Protocol’s Clean Development Mechanism (CDM). For every tonne of HFC-23 destroyed, companies would earn 11,700 Certified Emission Reductions (CERs), which were selling at roughly €12-15 (Rs700-1,000) per unit. For every tonne of HCFC-22 produced, 30 kg of HFC-23 is generated. It was profitable to make more HCFC-22 so they could burn more and earn more.
It started a gold rush. Erstwhile CFC and now HCFC-22 manufacturing companies rushed to get registered under CDM. Of the 19 such HFC-23 destruction projects eligible to get carbon credits, 11 are in China, five in India (see table), and one each in Argentina, Mexico and the Republic of Korea. China makes 92 per cent of HCFC-22 among developing countries and, therefore, has made the most from HFC-23 destruction.
HFC-23 is destroyed by incineration and costs pittance. But companies earned 50-100 times more money by selling CERs than the cost of destroying the byproduct. Incinerating a tonne of CO2-equivalent of HFC-23 costs €0.17 (Rs 11). But the money earned by selling CERs is € 12 (Rs 780), which is 70 times more than the cost of destroying the gas. Profit made by these companies selling HFC-23 CERs was much more than selling HCFC-22. For example, Shri Ram Fibres’ annual report shows in 2008-09 the company made profits worth €53.59 million (Rs 348.37 crore) from CERs, which was more than twice the profits from its fluorochemicals products.
The easy money from CERs has not gone unnoticed and elicited criticism from global environmental groups. In 2010, Washington-London based Environmental Investigation Agency (EIA) alleged that Indian and Chinese HCFC-22 manufacturers have a perverse incentive to produce more HFC-23 for every tonne of HCFC manufactured. They argue that as the proportion of the byproduct released is dependent on the manufacturing process, companies can change the process to get more HFC-23. The CDM board uses historical data from an HCFC manufacturing plant to determine the percentage of HFC-23 to be produced from every tonne of HCFC-22. In a well-operated plant this can be as low as 1.4 per cent. However, companies have consistently showed HFC percentage to be above 3 per cent by reconfiguring the process.
Following the controversy, in 2011 the European Union banned CERs for HFC-23 from 2013.
Where is HFC-23 going?
The primary market for HFC-23 CERs is non-existent. However, companies are still producing HCFC-22. The question is what are companies doing with the harmful byproduct. Their options include storage, which would allow for payments later, or incineration, or release it and add to the stock of greenhouse gases in the atmosphere. Sukumar Devotta, former director of National Environmental Engineering Research Institute, Nagpur, speculates that companies would choose to release the byproduct as storage costs money and they are no longer paid for incineration. “There is also no legal rule against venting HFC-23, so they are free to do so,” Devotta told Down To Earth.
EIA, which published results of its sting operation of HCFC manufacturers in India and China in its 2013 report, Two Billion Tonne Climate Bomb, confirms that without an incentive Indian companies are likely to vent the gases. “My sense is that we will probably stop (the incineration) internally because there is cost in incinerating, and unless there is revenue to at least compensate that cost it wouldn’t make sense to keep on incinerating,” EIA quotes a senior official of Gujarat Fluorochemicals Ltd in their report.
Down to Earth sent questionnaires to the five incinerating companies and followed it with phone calls, but the queries were mostly unanswered. Shri Ram Fibres, which produces 11,000 tonnes of fluorochemicals responded, “Under CDM, our project for incineration of HFC-23 remains in operation.” It also said it was investing in HFC-134a, with plans to ramp up production to 17,500 tonnes by 2014. When contacted, state pollution control boards pleaded ignorance and lack of capability to regulate the release or storage of the gas.
Profits part III: transition to what?
Nobody really knows what is happening to the byproduct HFC-23. But the good news is that companies say they are moving from HCFC-22 to something else. The politics is what will they move to: single or double-jeopardy gas?
Starting in January 2013, production of HCFCs in India has to be frozen at the 2009-10 level, about 160.8 ozone depleting potential (ODP) tonnes. Subsequently, as per Indian government’s HCFC phase-out management plan of February 2013, consumption would decrease by 10 per cent by 2015 and stopped by 2030. The Indian government is now expecting funds from the Montreal Protocol for the phase-out. But with the alternatives disputed as they have global warming potential, negotiations have come back a full cycle.