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Comments on Ozone Depleting Substances and the Climate Action Reserve

I received an unusually large and detailed number of comments on my post regarding ozone depleting substances. In the hope that people will read them and then evaluate my responses in their light, I’ve taken the liberty of posting them below rather than leaving them in the comments to the original post.

Two extended comments are from the co-founder of an important ODS offsets developer (Jeff Cohen), one from a carbon fund manager (Alex Rau), another from a participant in the CAR ODS development process (Thomas Grammig), and yet another from a CAR board member who is also a senior scientist at NRDC (Peter Miller). The comments raise a number of important clarifying points and largely attempt to rebut the arguments I make in the earlier post.  Look for a response shortly.

From Jeff Cohen of EOS Climate:

1st Email:

My company, EOS Climate, has generated CRTs under the new CAR ODS protocol by destroying CFCs collected from end-of-life refrigeration and A/C equipment. The CFCs under business as usual would have been either recycled back into other older equipment (and leaked during equipment operations), or not collected and vented through poor servicing practice.

Your blog – starting with the title implies there is room for perverse incentives but I don’t see any. We compete with a robust secondary market for the CFCs. If we are not able to secure those CFCs, they will be emitted. Unlike the case for HCFC-22/HFC-23, the CFCs that are destroyed cannot be replaced with more production.

Your primary concern is with the 10-year crediting period and the possibility that governments could increase regulatory controls and thus remove additionality or otherwise reduce the environmental value/integrity of credits. First, the 10 year crediting period is conservative – CFC based equipment leak at a rate of 20-50% per year. At that rate, absent new production, most of the remaining CFC refrigerant inventory will be gone within 5 years. Modeling by the IPCC and Montreal Protocol TEAP project full release of accessible ODS banks by 2015-2020 under business as usual.

Second, any additional controls are unlikely. The Parties to the Montreal Protocol have learned from experience in Australia and the EU that mandating ODS destruction has backfired – requiring hundreds of thousands of equipment owners and facility operators to report, aggregate, transport, and destroy their ODS, at their expense, with little enforcement capacity given the number of diffuse sources, has resulted in venting. The Parties have sought to encourage responsible management (collection/recycling) and the US is now seeing that a market-based incentive for destruction is the best approach. Your blog incorrectly states that the Parties are opposed to carbon finance as an approach to ODS banks.  The TEAP has consistently concluded that given the limited funding available from the Multilateral Fund, carbon finance, supported by strong standards and verification, can indeed provide the most cost-effective and viable mechanism for the sound management of ODS banks.

2nd Email:

Glad to be able to have this dialogue with you and that you will be posting a follow-up. Feel free to reference my comments in the prior email and what follows here. We can add/rebut/clarify/etc.

To round out the conversation, I think it’s easiest to respond to the points in your last email.

1- Not all Article 5 CRTs are alike. Just as we distinguish the ODS CRTs that we have generated through destruction of CFCs recovered from equipment in the U.S., there is an important differentiation in discussing “Article 5 ODS CRTs”. Those issued to date all involved destruction of privately owned, virgin CFCs stockpiles –  following February 3 adoption of the CAR protocol, there was a relatively short window for this type of project (shipment of the virgin stockpiles by June 30, 2010). EOS did not engage in any of these projects.

In contrast, destruction of CFCs recovered from equipment in Article 5 countries continues to be eligible under CAR. Like our projects in the U.S., destruction of CFCs that would otherwise be recycled back into old equipment in developing countries creates incentives for a market transformation that will not only prevent direct GHG emissions but speed deployment of more efficient, climate friendly technologies.

2- We don’t know how much privately owned, virgin ODS still remains in Article 5 countries – regardless, those inventories would not be eligible under CAR.

We know of a small handful of government stockpiles where the CFCs could be put back into use. These stockpiles would be eligible for CRTs but the countries involved could decide to preserve the CFCs for domestic needs. The Montreal Protocol does not track these inventories – my sense is that these stockpiles add up to about 300,000 tons of CO2eq. Not much relative to the estimated amounts in use as refrigerant or tied up in insulation foam.

3- On process, I will defer to CAR but I can share with you some of my perspective. In April 2009 I believe, CAR convened a public workshop to discuss the ODS protocol and I believe one on N2O. They held it in DC, partly to allow full participation across the spectrum, including NGOs. I specifically told my contacts at the major NGOs about it and I recall that at least some attended. CAR solicited requests to be on the working group at that workshop and I believe on their website. My guess is that none of the NGOs signed up.

The working group had a wide range and deep technical expertise that was directly relevant to the technical and policy issues underlying the Protocol. The working group included representatives from the US EPA, CARB, Pew Climate, and the Montreal Protocol TEAP – perhaps not environmental advocates in the conventional sense but I can say that the core motivation behind most of us on the working group was to eliminate unnecessary ODS banks and prevent GHG emissions.

The public meeting on the draft protocol in December 2009 was attended by NGOs – I met with at least one and I recall one made a public statement (supportive) and submitted written comments. I believe the November-December comment period was established and announced when the Protocol development process began earlier in the year. CAR has been explicit that the Protocol is a living document that will be updated with additional data, technologies, policies, etc. and my experience is that they are open to any substantive input at any time.

As you say, the California AB 32 compliance protocol is more critical. Over the past 9 months, ARB has had a series of public meetings and have issued draft documents on the ODS protocol to solicit public input. Again, I believe at least a few of the major environmental NGOs have participated and have voiced their general agreement.

We absolutely agree with you that securing support from a broad range of constituencies
is critical – not just for our business but for the overall effort to address ODS banks. Most individuals and groups (including the NGOs) take for granted that the Montreal Protocol has been a tremendous success but that there is nothing much left to do. After much advocacy and outreach, we and others have been successful in highlighting the short window of time to address CFCs that are rapidly being emitted, and that government mandates and government funding alone has not and will not be sufficient.

From Alex Rau of Climate Wedge Ltd.:

Hope you are well.  I was surprised to be directed to your blog post on CAR’s ODS protocols yesterday and to read of your views here.  While there are some merits to criticism about Article 5 imports I think you are missing the real picture here of how the Montreal Protocol works, the active resale market for ODS gases (and how it is totally different from the HFC case under CDM), the details of the protocols and distinction between end of life materials and stockpiles, and so on.   Certain import projects on CAR may be a bit suspicious but US domestic projects from end of life ODS are an entirely different and far more robust project type so I think criticism like this without making clear distinctions is sloppy.  The whole point of linking ODS destruction to the carbon markets is to provide a price signal to buy up ODS gases from end of life equipment that is not controlled by Montreal and will not likely be, but for which a very robust and active resale market exists to recharge old refrigeration equipment.  That forms one of the biggest constituencies out there for NOT regulating these substances — not carbon credit developers, but rather the entire global old refrigeration equipment stock that requires CFCs to operate.  No regulatory effort would be able to require destruction of existing banks because of the pushback from this constituency which does not want to invest in new equipment.  That’s the whole point of linking ODS destruction to the carbon markets here, to provide a price signal to go out and buy up ODS from hundreds of thousands of sources and which would otherwise be resold back into leaking equipment, and destroy it permanently.  This won’t happen by regulatory fiat, only a financial incentive will make this happen, which is an entirely different case from HFCs under the CDM where a simple quick fix installation on a handful of factories would solve the problem.

From Thomas Grammig of GTZ-Proklima:

Because I wrote the two public comments from GTZ-Proklima on the CAR ODS protocols,
like to react to Wara’s interpretations.
1. 100% credited on destruction date:  any meth has many different parameters that add up to its overall conservativeness.  CAR ODS Protocols have many overly conservative details and others overstating reductions.  Parameters such as “legal and regulatory restrictions” can be related to non-legal parameters that might be more influential for overall conservativeness.  In the EU all ODS recovery must prove to achieve 90% recovery rate whereas CAR ODS credits any share recovered, that in itself, is a more severe limit that the 100% credit at destruction criteria.  More measured assessments of the conservativeness would do a lot of good.
2. the argument might have more merit in non-A5 countries:   These ODS gases are in refrigerant circuits and in insulation foam.  For both purposes only a handful of companies worldwide supply manufacturing equipment.  Agramkow, Galileo, Hennecke and so on are dividing the market among them and they offer the same range everywhere so that any government can regulate at any point in time and know the actual cost difference to respective national companies using these manufacturing equipments.
3. composition of the CAR ODS workgroup:  I could not agree more with Michael Wara, this group was one sided and considered only carbon business interests.  I remember well during the workshop held on December 7, when one participant commented “I hear for the first time that a voluntary carbon methodology should be technologically neutral, why is this?”  He was surprised that something else than profit was discussed.  The best illustration of this one-sidedness is that the first version of the CAR ODS protocols from September 2009 was much more demanding than the one adopted in the end.  So over the course of the Workgroup interaction, the members managed to dilute the protocols in their interest.  The worst aspect is now in Appendix E that states the recovery rate can be established with a sample analysis of !ten! appliances.  Since ODS content in appliances vary much between models, this allows gaming the recovery calculation freely. Some members of the CAR ODS workgroup we
re rather vicious in discrediting the quality standards available.  CAR’s policy people should remember them well.
4. There are 2 other ODS protocols around that should be seen related to CAR ODS, one from the Voluntary Carbon Standard (VCS) and one from SENS International called “Swiss Charter”.  The VCS 2007.1 Extension for ODS is an illustration of how to run a stakeholder consultation better than CAR.  The result is that the VCS ODS standard (undergoing DOE assessment) is more costly and stringent than the CAR ODS protocols.  That is a severe policy problem for CAR, demonstrating that one standard can undercut the other.  However CAR is still benign compared to the “Swiss Charter” containing a ODS methodology that has never been published, never been discussed in a public forum, and whose main purpose is to capture the treatment of all CFC banks by linking it to one particular technology.  Perhaps CAR feels obliged to align with VCS against the Swiss Charter.
5.the preceding point also influences the impact of CAR ODS on the Montreal Protocol.  Another aspect of Wara’s argumentation seems to me important here.  The promise of Montreal Protocol funds is also a disincentive for national regulation and a stronger one because Montreal funds go to governments, whereas carbon money doesn’t add to governmental coffers.  Wara’s position is not plausible, destroying ODS in banks requires large investments and high operating costs. Whether Montreal funds and voluntary carbon market funds have positive or negative interactions depends on the skill of those who make rules on both sides.  I would venture the prediction that when all future Montreal funds are spent and all CAR investments are realised, there will still be a lot more ODS in banks around that will end up in the atmosphere.

The HFC-23 link between Montreal and Kyoto had a unique mechanics to it.  ODS in banks have a very different one and if well understood it could be positive for both.  It is not that it turned out bad once, that it has to be negative again.

From Peter Miller of NRDC:

First, full disclosure. As you may know, I’m a boardmember of the Climate Action Reserve.

Second, I take seriously your concerns about process and the need to have environmental advocates represented in CAR’s working groups.  But, it is not a simple matter to find environmental advocates willing and able to commit the time and effort to help develop CAR protocols, particularly on a highly technical issue like ODS destruction.

I don’t know if Thomas Grammig, whose comment precedes mine, meets your criteria of having an environmental advocacy background, but he is a strong advocate that was actively involved in the working group process and I very much appreciate and value his involvement.

More generally, I agree with you that CAR needs to have the active participation of environmental advocates with substantive technical and/or policy expertise in relevant fields in order to be effective. I would like to encourage anyone who meets these criteria to participate.  And, if someone has suggestions on how to improve CAR’s process and expand working group participation, please let me know.

As for the partial overlap of the comment period with COP 15, I’ll simply note that in the current climate policy world conflicts are inevitable.  If anyone has trouble meeting a comment deadline, please contact Reserve staff and let them know you will be filing late comments.

Finally, the suggestion that a COP15 side event would have been a promising venue doesn’t square with the COP15 chaos I remember so fondly. If the public meeting had been scheduled at a side event we might have had a great discussion amongst those few who were tenacious and fortunate enough to get into the Bella Center after waiting in line outside in the cold for eight hours.

Third (a substantive issue, at last), you argue that freezing a project’s baseline based on regulations in place at the time will create a constituency opposed to future regulatory actions.   I would argue that quite the opposite is true. If an offset provider’s credit is linked to future regulations — as you recommend — then the offset providers will oppose future regulations.   In contrast, with a fixed baseline existing projects will be indifferent to future regulations and won’t add to the already significant opposition to future regulations.

Also, while a variable baseline reduces the possibility of over crediting, it also increases risks to project proponents and would likely reduce participation.  The argument that we should be willing to forego near term reductions from offset projects for the possibility of greater reductions through future regulations doesn’t strike me as a slam-dunk. I appreciate your optimism that future international action under the Montreal Protocol is likely to make a significant impact on emissions of legacy stocks over the coming decade, but I am not entirely convinced it is warranted.

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