Trump’s not wrong about climate change

US president Donald Trump's famous climate change tweet

US president Donald Trump’s famous climate change tweet

The idea that global warming was invented by the Chinese is one of US president Donald Trump’s most famous and incendiary tweets.

When brought to light during the 2016 US presidential campaign, his 2012 message caused uproar and anger across the board.

But if you take a look at the economics and the schemes being built around global warming, particularly around 2012, Trump’s tweet looks a little less insane. The latest figures from the United Nations may show why.

The Clean Development Mechanism (CDM) was a much-heralded cornerstone of the Kyoto Protocol, which came into force in 2005 and aimed to encourage companies in developing nations to reduce their carbon footprint. CDM would effectively pay companies for every tonne of CO2 (or equivalent) they reduced through projects such as wind, solar or geothermal energy. Projects would earn Certified Emissions Reduction (CER) credits, which could be bought and sold on open carbon markets for those who wanted to trade or manage their own carbon footprint.

CDM, the UN hoped, would encourage “green” power generation, such as biomass, which might not be commercially viable without the subsidy, and help get new technologies off the ground.

At least, that was the concept. But Chinese industry had other ideas.

By mid-2007, Chinese chemical companies dominated the project list with something known as “HFC23 reduction”.

HFC23, a byproduct of HCFC22 production, is a pretty nasty greenhouse gas: one tonne of HFC23 has the same “global warming potential” as around 12,000 tonnes of CO2.

The economics of HFC23 create a massive arbitrage opportunity. If you have a tonne of HFC23 you can, in China, legally vent it to the atmosphere where it acts like 12,000 tonnes of CO2 in heating up the planet’s surface; or you destroy it for around €4,000, and you will earn, under CDM, around 11,700CERs for doing so. In 2012, a CER was valued at around €6.

Destroying this gas became a huge profit centre.

Now, the destruction of HFC23, is, of course, a good thing for the planet. But there was zero law requiring this in China – effectively, the United Nations was not only having the western world pay for destruction of Chinese HFC23, under the banner of solving global warming, but also allowing Chinese companies to earn a nice profit for doing so. (And at the same time, requiring western companies to limit and pay for their own carbon reductions under Kyoto and subsequent climate change agreements.)

It wasn’t long before Chinese HFC23 completely dominated CER production (India and Korea were pretty active too, but nowhere near the Chinese magnitude) with some observers claiming that factories had actually ramped up their output in order to have more HFC23 to destroy. As the EU noted in 2011 “Allowing credits from the destruction of HFC23 can create a perverse incentive to continue to produce or even increase production of it and of HCFC22, a gas which both depletes the ozone layer and is also a powerful greenhouse gas.”

The UN solved this by requiring companies to limit the amount of planned HFC23 destruction, but limits in design documents were complex, always higher than existing plant capacity and invariably led to an increase in the HCFC22 and HFC23 production.

CERs to January 2017

CERs to January 2017

And so, the destruction of the gases was no longer a good thing for the planet: it was a very bad thing for the planet because more greenhouse gases were being produced so that more could be destroyed to take advantage of the free money being handed out by the United Nations and the Kyoto Protocol.

The net effect is that firms who needed to buy market-based carbon credits (and social justice followers who bought consumer credits to offset their air travel carbon footprints, for example), were essentially giving money to polluting Chinese industry.

The UN, to be fair, came down reasonably quickly to stop this chemical loophole. But, too late, given how many CERs had already been issued. To date, even though no new HFC23 project has been approved since 2009, the CER registry is completely overrun by Chinese and Indian HFC23.

China’s dominance of the Kyoto subsidy scheme and the quantities of HFC23 CERs beggar belief. Chinese HFC23 accounts for 76% of the total world’s HFC23 reduction credits, at around 447 million tonnes, with HFC23 now accounting for 43% of China’s total CER haul and 25% of the world’s total CERs. 447 million CERs is $2.7 billion at 2012 prices.

So when you buy carbon credits, as a consumer, don’t think “this is nice, I’m saving the planet, I’m cutting my carbon footprint, I’m funding geothermal projects in Colombia”. No. If your credit is a CER, a quarter of it has gone to a chemical factory in China, which has pocketed the cash and probably ramped up its output of Ozone-killing greenhouse gas HCFC22. The rest of it is probably burning up natural gas or siphoning blast furnace gas in a steel mill. Other projects under CDM include millions of CERs issued to an Uzbekistan gas company for fixing gas pipe leaks, and chemical plants in India, China and Brazil building new natural gas fired power plants – yes, they are cleaner than coal, but they are still fossil fuelled. Landfill methane recovery, together with industrial gas and heat recovery, together account for around 244 million tonnes.

So back to Trump’s point. Is climate change a hoax invented by the Chinese? It’s tempting to make that jab. In China’s defence, we’re only talking a few billion dollars in subsidies – roughly Dow Chemical’s 2012 earnings – so it’s hardly going to make or break an industry. And newer CDM projects coming on line through China do look much more legitimate: I still wouldn’t buy a CER if the South China Sea was lapping at my 11th floor window, but at least some of Kyoto’s initial aims are finally becoming reality.

But Trump’s not wrong: “climate change” has certainly been channeling money into some strange places, and Chinese support for Kyoto has been a double-edged sword. And worse, for all the investment and subsidies, the air quality in many Chinese cities has become worse than dangerous, as industry continues to set the “green” agenda and continues to police itself so poorly.

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