The law of unintended consequences strikes again!

It’s a well-known principle in both business and government: if you want to encourage certain behaviors, subsidize them. This will encourage more people to engage in them. Unfortunately, sometimes no-one thinks what will happen if so many engage in them that you can’t afford to pay them. China is now blackmailing the entire world thanks to such a miscalculation in the ‘carbon offset‘ market. MarketWatch reports:

China has responded to efforts to ban the trading of widely discredited HFC-23 offsets by threatening to release huge amounts of the potent industrial chemical into the atmosphere unless other nations pay what amounts to a climate ransom.

China’s threat comes after the European Union and other nations moved to ban HFC-23 credits from internal carbon markets in recognition of the perverse incentives created by these credits under the UN Clean Development Mechanism (CDM). The vast amounts paid for HFC-23 offsets have led factories in China and elsewhere to manufacture far more HCFC-22 and its HFC-23 by-product than necessary, just to maximize the amounts paid to destroy HFC-23 through the UN-backed carbon trading scheme.

In a shocking attempt to blackmail the international community, Xie Fei, revenue management director at the China Clean Development Mechanism Fund, threatened: “If there’s no trading of [HFC-23] credits, they’ll stop incinerating the gases” and vent them directly into the atmosphere. Speaking at the Carbon Forum Asia in Singapore last week, Xie Fei claimed he spoke for “almost all the big Chinese producers of HFCs who “can’t bear the cost” and maintain that “they’ll lose competitiveness”.

China’s claim belies the fact that HFC-23 can be destroyed for just 0.20 cents per CO2e tonne. The destruction of one CO2e tonne generates one Certified Emission Reduction (CER) under the CDM, which historically has been sold on carbon markets at an average price of $18 — 70 times the actual cost of destroying HFC-23.

Because of these vast profits, China has repeatedly rejected attempts to destroy HFC-23 emissions through the Montreal Protocol. At the 2009 and 2010 Meetings of the Parties to the Montreal Protocol, China blocked progress of a North American proposal to pay the actual costs of destroying HFC-23 emissions at plants not currently covered by the CDM, which account for over half of developing country HFC-23 production.

. . .

“Attempting to force countries into squandering billions on fake offsets that actually increase production of greenhouse gases is extortion,” said Samuel LaBudde, Senior Atmospheric Campaigner with the Environmental Investigation Agency (EIA). “China is not the victim here, and a world order responsive to climate change cannot be predicated on unrepentant greed.”

With a 65 per cent tax on CDM projects, the Chinese Government has already received $1.3 billion — enough to destroy all the HFC-23 it produces for decades to come. Despite this, China still vents at least as much HFC-23 as it destroys, since about half of its HCFC-22 production is ineligible for CDM funding. Xie Fei’s statement makes it clear that preventing emissions is not nearly as important for China as continuing the enormous CDM revenues that benefit its government and industry alike.

There’s more at the link.

Hey, if I were in China’s shoes, I’d probably act in precisely the same way. Having already been handed over a billion dollars in essentially free profits, why should I support changes to carbon offset compensation that would take that away from me in the future?

Someone should have thought this through before implementing it. Because they didn’t, the whole world – including this country, and its taxpayers – is now subject to this sort of environmental blackmail.



  1. I haven't been able to track down any primary sources, but a lot of people I respect (Warren Meyer over at Coyote Blog and IIRC Tyler Cowen at Marginal Revolution, for example) have been raising flags about the PRC's economic growth grinding to a halt soon to now. This may be a symptom of panic.

  2. Rob Janicki of Capitalist Conservation turned some of us on to Gordon G. Chang's book, The Coming Collapse of China. It is a fascinating look at a government that despises capitalism yet is raking in mega bucks; a system that tries to present its financial acumen at the expense of its people. They will not acknowledge that the massacre at Tiananmen Square ever happened.
    This is the other side of the Marxist coin our president is embracing – full speed ahead, no matter what.

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