Carbon credits drive manufacture of harmful gas

| August 10 2012
Hannah Thoreson

If you subsidize something, you get more of it. If you tax something, you get less of it.  — Milton Friedman

Even the New York Times has had to recognize that what goes up, must come down.  There have been more “unexpected” developments as things are not going according to the central plan to reduce carbon output.  The United Nations’s carbon trading system has led some manufacturers to create pollutants because the scheme makes it profitable to do so.

They quickly figured out that they could earn one carbon credit by eliminating one ton of carbon dioxide, but could earn more than 11,000 credits by simply destroying a ton of an obscure waste gas normally released in the manufacturing of a widely used coolant gas. That is because that byproduct has a huge global warming effect. The credits could be sold on international markets, earning tens of millions of dollars a year.

That incentive has driven plants in the developing world not only to increase production of the coolant gas but also to keep it high — a huge problem because the coolant itself contributes to global warming and depletes the ozone layer. That coolant gas is being phased out under a global treaty, but the effort has been a struggle.

So since 2005 the 19 plants receiving the waste gas payments have profited handsomely from an unlikely business: churning out more harmful coolant gas so they can be paid to destroy its waste byproduct.

Of course, now the very existence of this subsidy has created a newly-wealthy vested interest that will oppose any efforts at reform, so it has become very difficult to stop the output of HFC-23.  The U.N. has awarded 46% of all carbon credits to the factories participating in this scam in previous years.  Even after an attempt at changing the rules, only 0.2% of the credits are expected to go to solar energy projects.

It’s really just a classic example of warped incentives.  The U.N. Clean Development Mechanism, like anything else of its nature, relies on quotas and benchmarks.  Unfortunately, companies have found a way to game the system by producing a lot of output (harmful gases) which they can then destroy for a profit by selling the resulting carbon credits to energy utilities.  What could possibly be a better example of “dig a hole, fill it back up” logic than that?

No one wants to deliberately harm the environment, but it’s an understanding of economics that has driven hostility to similar policies in the U.S.

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1 comments
WesternFreePress
WesternFreePress moderator

The Friedman quote is perfect for more than one reason. Friedman and the Chicago School were deeply concerned with unintended consequences and perverse incentives. Gee, I can't imagine why . . . .