EPU, Alm.del - 2010-11 (1. samling) - Bilag 20: Energistyrelsens redegørelse vedrørende påstået spekulation i CO2-kreditter og HFC-23 udledning fra kinesiske virksomheder, fra klima- og energiministeren

IntroductionOn June 12, CDM Watch issued a press release indicating it has confronted the United Nations with newevidence that alleges emissions reductions from HFC-23 destruction projects under the CDM are actuallyincreasing global greenhouse gas emissions. The evidence was put forward in an official submission tothe CDM Executive requesting the revision of the approved CDM methodology AM0001 and calls for abenchmark that could cut the carbon credits by more than 90%.CDM Watch claims that analysis of monitoring data from all registered HFC-23 destruction projectsshows that CDM HCFC-22 plants are intentionally operated in a manner to maximize the production ofoffset credits. The analysis claims that because of the extra CDM revenue, more HCFC-22 is producedand far more HFC-23 generated than would occur without the CDM.The request for revision of the approved CDM methodology AM0001 for incineration of HFC-23 wassubmitted through a DOE to the CDM Executive Board on March 10, 2010 to revise the HFCmethodology AM0001; this request will be dealt with next week by the CDM Methodology Panel onJune 21, 2010.The request argues that the current methodology of AM0001 can create perverse incentives which canrisk the objective of the CDM to achieve real and additional emission reductions. Specifically, theauthors allege that CDM incentives are driving the production of HCFC-22 and that operators arekeeping the ratio of HFC-23 to HCFC-22 production (w ratio) artificially higher than normal. The authorscite one project which reported a drop in w ratio during a period in which it could not claim credits asevidence of the gaming of the CDM. Finally the authors suggest the adoption of a benchmark on the wratio of 0.2%.BackgroundThe World Bank as Trustee of the Umbrella Carbon Facility entered into emission reduction purchaseagreements with operators of two Chinese HCFC-22 plants in December 2005 and registered with theCDM in 2006. One project is “Project for HFC23 Decomposition at Changshu 3F Zhonghao New ChemicalMaterials Co. Ltd, Changshu, Jiangsu Province, China” (CDMProject 0306).The other project is “Projectfor GHG Emission Reduction by Thermal Oxidation of HFC23 in Jiangsu Meilan Chemical CO. Ltd., JiangsuProvince, China” (CDMProject 0011).Both projects were registered under version 5.2 of AM0001. The methodology requires that a plant bein operation for at least three years from 2000 to 2004. Importantly, the methodology caps annualproduction of HCFC-22 eligible for crediting to the maximum historical annual HCFC-22 equivalentproduction level at the plant during any of the last three (3) years between the beginning of the year2000 and the end of the year 2004. This value includes the actual HCFC-22 production plus an HCFC-22production equivalent to the CFC production at swing plants appropriately adjusted to account for thedifferent production rates of HCFC22 and CFCs.1

Jiangsu Meilan Chemical Company’s HCFC 22 production unit A and unit B were both installed and put inoperation in 2001. As recorded in the PDD for CDM project 0011, annual production of HCFC22production output was 12,371 ton in 2002, 17,806 ton in 2003 and 25,149 ton in 2004. Based on themethodology, the maximum annual value for HCFC22 production was set to 25,149 tons (Q_HCFCeHist).For CDM project 0306, the annual production is based on two production lines (excluding a third linethat started its operation in December 2004). Annual HCFC22 production at 3F Zhonghao in 2002, 2003and 2004 was measured to be 14,375.963 tons, 19,974.024 tons and 30,979 tons respectively. Based onthe methodology, the maximum annual value for HCFC22 production was set to 30,979 tons(Q_HCFCeHist)..HCFC-22 Production in CDM Projects 0011 and 0306The Trustee reviewed the annual production values of HCFC-22 in CDM Projects 0011 and 0306 basedon publicly available documents including the PDDs and monitoring reports. In addition, the Trustee wasable to discuss production figures with the operators of CDM Project 0306 in order to fill gaps in thetime series (2005 and 2006). Annual production of HCFC-22 for CDM project 306 is shown in Figure 1.The graph compares annual production levels (Q_HCFCy) to the maximum annual level for claimingcredits (Q_HCFCeHist). A similar graph for CDM project 0011 is shown in Figure 2 (but missing figures for2005-2006).Figure 1: Annual production of HCFC-22, CDM project 030640,00035,00030,00025,00020,00015,00010,0005,000-2002 2003 2004 2005 2006 2007 2008 2009 2010Q_HCFCyQ_HCFCeHist

Based on the information, the Trustee concludes,1. The overall HCFC-22 production has increased over time in both projects.2. HCFC-22 production hasnotbeen limited to the maximum amount eligible for credits. (Indeed,for CDM Project 0306 a third production line added in 2005 due to the increasing demand forHCFC-22 is not even covered by the CDM project.)The PDD also provides the reportedtechnical capacityof each project to produce HCFC-22. The PDD forproject 0306 reports a total annual production capacity of 40,000 tons (production line A and line B eachhave an individual capacity of 20,000 tons). The PDD for project 0011 reports an annual capacity of30,000 tons (10,000 tons from unit A and 20,000 from unit B). Table-1 provides a comparison of theratio of annual HCFC-22 production (Q_HCFCy) to maximum annual production (Q_HCFCeHist) againstthe ratio of Q_HCFCy to the technical capacity.Table 1: HCFC-22 Production in relation with the maximum eligible amount of HCFC-22 production andthe HCFC-22 production capacity.Actual HCFC-22 production in relationwith the HCFC 22 max. eligibleproductionYears20022003200420052006200720082009Project 306(%)4665100121115125120130Project 11 (%)4971100**135110106Actual HCFC-22 production inrelation with the HCFC-22production capacityyears20022003200420052006200720082009Project 306(%)36507793889793100Project 011(%)415984**1139289

Based on the information, the Trustee concludes,1. After registration of both projects in 2006, HCFC-22 production has been maintained around theannual technical capacity.2. Maximum eligible production for the CDM projects does not appear to be a controlling factor inproduction since both projects are regularly exceeding this annual mark.HFC-23 emissions to HCFC-22 production ratio (w-value)The Trustee reviewed the production ratios of HFC-23 emissions to HCFC-22 (w) in CDM Projects 0011and 0306 based on publicly available documents including the PDDs and monitoring reports. Themethodology requires that the value of w is set at the lowest of the three historical annual valuesestimated and is not to exceed 3% (0.03 tons of HFC 23 produced per ton of HCFC 22 manufactured). Tobe additionally conservative project 0306 used the lowest - not the average - value from the twoproduction lines (2.88%), which took place in 2004. Project 0011 used the w-value from 2003, its lowestannual value from 2002 through 2004 (2.86%). Figure 3 and Figure 4 compare the w-value of the PDDagainst the annually calculated w value for each project.Figure 3: Actual w-values, CDM project 03063.75%3.55%3.35%3.15%2.95%2.75%2002 2003 2004 2005 2006 2007 2008 2009 2010ww-PDD

Based on the information, the Trustee concludes,1. W-values before registration are close or higher to the w-values found in the PDDs for bothprojects. In the case of project 0306, the w-values before registration are higher than the w-value employed selected in the PDD.2. W-values are consistent after registration of the PDDs from monitoring period to monitoringperiod.3. A closer examination of monitoring periods in which no credits were claimed found nosignificant change in the w-value from periods in which credits were claimed. This was thecase for project 0306 for which a w-value of 2.89 and 2.90 were reported for monitoringperiods 9/26/2007-12/21/2007 and 9/26/2009-12/21/2009, respectively.Global Trends on HCFC-22 production and HCF-23/HCFC22 ratiosTo provide more perspective on HCFC-22 production and HCF-23/HCFC22 ratios, the Trustee suggestsreading “Recent increases in global HFC-23 emissions”, an article published inGeophysical ResearchLetters(2010) by1Stephen A. Montzka, Lambert Kuijpers, Mark O. Battle, Murat Aydin, Kristal Verhulst,Eric S. Saltzman, and David W. Fahey. The article makes the following points regarding HFCF-22production.1. A large fraction (57% in 20072) of the developing countries production is not covered byCDM projects. Total annual production of HCFC-22 in developing countries has significantlyincreased over the past decade3mainly due to the increasing demand for feedstockproduction (e.g., use as a co-product of Teflon). Production for feedstock production is notcovered under the Montreal Protocol and thus not covered under the scheduled phase-outfor HCFCs.2. As illustrated in Figure 5, w (E23/P22) values have decreased in developing countries since theearly 2000’s to reach 2.4 � 0.3% for 2006-2008. The E23/P22values for HCFC-22 productionplants not associated with CDM projects are high (3.7 � 0.3%) compared to values in thepast obtained in either developing or developed countries. E23/P22values have steadilydecreased in developed countries from approximately 2% in the 1990s to 0.9% during 2003-2007.Figure 5: HFC-23 emissions to HCFC-22 production ratio (Source: Montzka et al. 2010).

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