The proposed scheme of the Climate Opportunity Initiative is a very ambitious one. Not only is it based on a new approach to align the short-term self-interest of countries with climate action, but also its scope is very broad covering all greenhouse gases. So the question arises whether the proposed approach could be implemented and tested with a pilot scheme that has a more limited scope. This blog entry makes the case that hydrofluorocarbon (HFC) emissions would be an ideal area to pilot the Climate Opportunity Initiative.
On 15 October 2016, participating countries agreed the Kigali Amendment to the Montreal Protocol. The aim of the Kigali Amendment is to limit and eventually reduce emissions of HFCs, which have a very high global warming potential.
Following is a brief and selective overview of HFCs and the Kigali Amendment with a focus on aspects that are relevant for the suitability of HFC emissions for a pilot project.
HFCs are the fastest growing greenhouse gases in much of the world, increasing at a rate of 10-15% per year. They are industrial gases used in air conditioning, refrigeration, foam insulation, and other specialized sectors. They have a very high global warming potential ranging from 50-14,800 CO2e.
The Kigali Amendment requires a phasedown of HFCs, which is differentiated across countries. It puts more stringent mitigation requirements on developed countries, which are required to start reduction from 2019 onwards, compared to developing countries, most of which are required to start cutting HFC use in 2029 with some countries starting in 2032. The initial reduction requirement is followed by a 15-17 year period, during which consumption needs to gradually decline, after which countries HFC’s use is capped for the long-term at 15-20% of the baseline level.
The HFC phasedown mandated by the Kigali Amendment is projected to prevent around 70-130 GtCO2e emissions by 2050, and avoid up to 0.5°C global warming by 2100. In addition, it is expected to catalyze significant energy efficiency gains in air conditioning and refrigeration systems, in the range of 30 to 60%, and as a result should significantly reduce indirect CO2 emissions.
HFC emission reductions are a very cost-effective approach to limiting global warming. The cost of avoiding HFC emissions is estimated to be in the range of $0.05 - $0.54 / CO2e per ton – with most of the cost estimates falling into the lower end of this range – even without assuming significant technological advances. This implies a cost that is roughly two orders of magnitude, roughly hundred times lower than the cost of reducing CO2 emissions through cutting fossil fuel consumption.
The Multilateral Fund is the financial mechanism of the Montreal Protocol and supports the implementation of commitments by developing country. Developed counties will provide funding for the incremental costs of the developing countries’ HFC phase-down through the Multilateral Fund.
The Amendment does not require a complete phase-out or a rapid phase-down of HFC emissions. Significant further climate benefits could be realized by faster emission reduction and/or a complete eventual phase-out of HFCs. A rapid phase-out by 2020 could reduce greenhouse gas emissions by a further 50-80 GtCO2e.
The opportunity: A rapid and complete phase-out of HFCs
The Kigali Amendment of the Montreal Protocol represents an important step towards effective mitigation of climate change and the goals set out in the Paris Agreement. However, a more rapid and more complete phasing out of HFCs represents an attractive opportunity to further mitigate climate change. The attractiveness of this opportunity arises partly due to the material additional greenhouse gas emissions and global warming that could be avoided and partly due to HFC reductions being a very cost-effective method of limiting climate change.
The borrow-and-pay-for-performance approach of the Climate Opportunity Initiative could be used to achieve further HFC emission cuts beyond those secured by the Kigali Amendment. In short, a new financing mechanism or Fund could be created that pays countries every year for every ton of emission saving they achieve compared to their respective emission cap under the Kigali Amendment. To make these payments, the Fund could borrow from private investors for the long-term relying on the backing of participating countries. In the future, for example after 20 years, participating countries would start to make payments to the Fund based on a pre-agreed percentage or allocation formula in order for the Fund to repay its liabilities. (For a detailed discussion of this approach and its advantages refer to Cseh (2016)).
As an example, a $1/CO2et would provide a very strong incentive to cut HFC emissions considering the much lower cost of switching to existing HFC alternatives. This could lead to much faster and stronger HFC consumption cuts. On the other hand, $1/CO2et would be a very low-cost way to reduce greenhouse gas emissions.
In addition to the benefits of faster HFC abatement, such a scheme could serve as a pilot for the Climate Opportunity Initiative with a relatively narrow and well-defined scope and relatively easy implementation. Let’s look at why HFC emissions would be suitable for a pilot project.
Assessment of a pilot scheme focusing on HFC emissions
HFC emissions lend themselves as an ideal pilot scheme for the Climate Opportunity Initiative and its proposed approach for a number of reasons:
There is already a strong international political commitment to reduce HFC emission as evidenced by the Kigali Amendment.
As the Kigali Amendment does not require full and rapid phase-out of HFCs, allowed emissions under the Amendment represent a further emission reduction potential that could be the subject of a pilot.
The Kigali Amendment prescribes emission limits for countries, which could be used as the benchmark against which the performance of countries is assessed. The financial payments could be made for reducing emissions below to the respective HFC consumption caps agreed under the Kigali Agreement.
Reducing HFC emissions is a very cost efficient way of reducing greenhouse gas emissions when adjusted for the global warming potential of these gases. This makes HFC emissions a low hanging fruit, a no-brainer, for climate change mitigation. This in turn makes HFC emissions an attractive area for a pilot scheme.
The size of financial resources needed to finance a scheme focused on HFCs would be much more limited than for a scheme covering all net greenhouse gas emissions. This is partly due to the fact that HFC emissions represents a relatively small portion of all greenhouse gas emissions, and partly due to the fact that a much lower CO2e price could be effective to incentivise cuts in HFCs than most other greenhouse gases.
While the Kigali Amendment secures important cuts in HFC consumption, a more rapid and more complete phase-out of HFCs could deliver material additional climate benefits. Applying the approach of the Climate Opportunity Initiative to HFCs would result in significant additional emission and global warming reduction. On the other hand, such a scheme could serve as a pilot scheme for the Climate Opportunity Initiative, demonstrating its viability and advantages, and lead to an eventual scheme that covers all greenhouse gases.
Borgford-Parnell, N.; Beaugrand, M.; Andersen, S.O.; Zaelke, D. (2015): Phasing Down the Use of Hydrofluorocarbons (HFCs) , Contributing paper for Seizing the Global Opportunity: Partnerships for Better Growth and a Better Climate. New Climate Economy, London and Washington, DC. Internet: http://newclimateeconomy.report/misc/working-papers/ .
Cseh, A. (2016): Designing a Climate Agreement for the Reality of Self-interested and Short-term Oriented Decision Makers, Internet: http://www.climateopportunityinitiative.org/resources
EIA (2016): Kigali Amendment to the Montreal Protocol, A Crucial Step in the Fight Against Catastrophic Climate Change , EIA Briefing to the 22nd Conference of the Parties (CoP22) to the United Nations Framework Convention on Climate Change (UNFCCC), Internet: https://eia-international.org/wp-content/uploads/EIA-Kigali-Amendment-to-the-Montreal-Protocol-FINAL.pdf
EIA (2016): AVERTING CLIMATE CATASTROPHE, Our obligation to adopt an ambitious Kigali HFC amendment to the Montreal Protocol, EIA Briefing to the 38th Resumed OEWG and the 28th Meeting of the Parties to the Montreal Protocol, Internet: https://eia-international.org/wp-content/uploads/EIA-Averting-Climate-Catastophe-FINAL.pdf
IGSD (2016): Primer on HFCs, Fast action under the Montreal Protocol can limit growth of hydrofluorocarbons (HFCs), prevent 100 to 200 billion tonnes of CO2-eq by 2050, and avoid up to 0.5°C of warming by 2100, Institute for Governance & Sustainable Development (IGSD) Working Paper: 12 September 2016, Internet: http://www.igsd.org/wp-content/uploads/2016/09/HFC-Primer-12Sept2016.pdf
Shah N.; Wei M.; Letschert V.; Phadke A. (2015): Benefits of Leapfrogging to Superefficiency and Low Global Warming Potential Refrigerants in Room Air Conditioning, Ernest Orlando Lawrence Berkeley National Laboratory, Internet: https://eetd.lbl.gov/sites/all/files/lbnl-1003671_0.pdf