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Managing Institutional ComplexityRegime Interplay and Global Environmental Change$

Sebastian Oberthür and Olav Schram Stokke

Print publication date: 2011

Print ISBN-13: 9780262015912

Published to MIT Press Scholarship Online: August 2013

DOI: 10.7551/mitpress/9780262015912.001.0001

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Managing Policy Contradictions between the Montreal and Kyoto Protocols

Managing Policy Contradictions between the Montreal and Kyoto Protocols

The Case of Fluorinated Greenhouse Gases

(p.115) 5 Managing Policy Contradictions between the Montreal and Kyoto Protocols
Managing Institutional Complexity

Sebastian Oberthür

Claire Dupont

Yasuko Matsumoto

The MIT Press

Abstract and Keywords

This chapter focuses on management of the Montreal Protocol and Kyoto Protocol policy contradictions. It explores features of both regimes along with their influence on each other, specifically the Montreal Protocol’s compliance system—providing cues for the Kyoto Protocol’s climate protection regime. The Kyoto Protocol’s Clean Development Mechanism is one of the reasons for the contradictions between the two regimes besides the promotion of hydrochlorofluorocarbons and hydrofluorocarbons by the Montreal Protocol as ozone-depleting substance substitutes. The evolution and intensification of interplay management since the 1980s are explored, and the climate regime mitigation options are assessed. The chapter concludes with the effectiveness and future prospects of interplay management, along with the pros and cons of governance.

Keywords:   Montreal Protocol, Kyoto Protocol, Clean Development Mechanism, interplay management, governance fragmentation

The international regimes for the protection of the ozone layer and for combating climate change have been at the forefront of global environmental governance since the mid-1980s. The ozone regime is based on the 1985 Vienna Convention for the Protection of the Ozone Layer and its 1987 Montreal Protocol on Substances that Deplete the Ozone Layer. The Montreal Protocol determines the phase-out of the production and consumption of several groups of ozone-depleting substances, most prominently chlorofluorocarbons (CFCs). For more than a decade, it was paradigmatic for global environmental governance, and it has been heralded as one of the most effective international environmental agreements (e.g., Parson 1993, 2003; Benedick 1998; Wettestad 2002; Andersen and Sarma 2002). The climate regime is based on the 1992 UN Framework Convention on Climate Change (UNFCCC) and its Kyoto Protocol of 1997, which, for the first time in history, introduced restrictions on greenhouse gas (GHG) emissions. While not yet as successful as the ozone regime, it contains several important innovations, most prominently three market-based mechanisms (including international emissions trading) (Oberthür and Ott 1999; Yamin and Depledge 2004). Climate change has replaced ozone depletion as the number one global environmental issue, even superseding most nonenvironmental issues on the international political agenda.

Both regimes are interlinked and have influenced each other in various ways. Since they are global in scope and regulate closely related issue areas, it is not surprising that the younger climate regime has in many respects been modeled on the older, successful ozone regime. Both regimes follow the framework-convention-plus-protocol approach and incorporate a strong differentiation between industrialized and developing countries (see, e.g., Thoms 2003). Furthermore, several specific features of the Montreal Protocol, including its compliance system, have informed (p.116) the design of the climate regime. Moreover, the Montreal Protocol makes an important contribution to climate protection, because CFCs and other ozone-depleting substances phased out under the protocol are also powerful GHGs (Oberthür 2001, 2006; IPCC/TEAP 2005; Velders et al. 2007).

Perhaps more surprisingly, partially halogenated fluorocarbons— powerful GHGs manufactured primarily as substitutes for the major ozone-depleting substances (IPCC/TEAP 2005; Velders et al. 2007)— have given rise to two policy contradictions between the regimes. First, the Montreal Protocol has undermined efforts to mitigate climate change by directly and indirectly promoting the use of hydrochlorofluorocarbons (HCFCs) and hydrofluorocarbons (HFCs) as substitutes for ozone-depleting substances (Oberthür 2001). Second, the implementation of certain projects under the Kyoto Protocol’s Clean Development Mechanism (CDM) implies an incentive to increase the production of the ozone-depleting substance HCFC-22, thus potentially undermining the Montreal Protocol (Schneider, Graichen, and Matz 2005; Wara 2008).

This chapter analyzes the management of these policy contradictions in four steps, with particular emphasis on the case of problematic projects under the Kyoto Protocol’s CDM. The next section provides further background on the two underlying interactions between the ozone and climate regimes with respect to HCFCs and HFCs. Subsequently we explore in some detail the related interplay management as it has evolved and intensified since the late 1980s, then assess the options available in the climate regime to mitigate and remove the policy contradiction with the Montreal Protocol regarding CDM projects. In the concluding section we assess the effectiveness of interplay management so far and its future prospects, and also discuss the pros and cons of the fragmentation of governance of both issue areas.

Background: Underlying Interactions

We can distinguish two underlying disruptive interactions between the regimes for the protection of the ozone layer and the global climate regarding fluorinated GHGs. These interactions run in different directions: one of them undermines the implementation of the Montreal Protocol, while the other runs counter to the objectives of the UNFCCC and the Kyoto Protocol. They constitute “behavioral interaction” (Oberthür and Gehring 2006, 39–41) because each protocol provides (p.117) incentives for actors during implementation that are contrary to the objectives of the other regime.

First, the Montreal Protocol undermines efforts to mitigate climate change by promoting the use of fluorinated GHGs. The phase-out of CFCs and other fully halogenated ozone-depleting substances agreed to under the Montreal Protocol also contributes significantly to protecting the climate, but agreement on this phase-out was contingent on the availability of appropriate substitutes (for use in, e.g., refrigeration, air conditioning, and as a foam-blowing agent), the most important being HCFCs and HFCs (Anderson 2001). Consequently, parties to the Montreal Protocol allowed the continued use of the ozone-depleting HCFCs in industrialized countries until 2020/2030 and in developing countries until 2040. Developing countries were even allowed unrestricted growth of production and consumption until 2015 (see table 5.2). Because HFCs have no ozone-depleting properties, they were not controlled under the Montreal Protocol at all and have been considered particularly suitable substitutes. Emissions of HFCs not only arise from their use as substitutes but also occur inadvertently as a significant by-product during the production of the most important HCFC, HCFC-22. Both HCFCs and HFCs are potent GHGs (Oberthür 2001).

Second, the CDM of the Kyoto Protocol potentially undermines efforts to protect the ozone layer. In accordance with Article 12 of the Kyoto Protocol, the CDM allows industrialized countries to invest in climate change mitigation projects in developing countries. Credits gained for GHG emission reductions achieved in CDM projects can be used by industrialized countries for compliance with their emission reduction targets under the Kyoto Protocol. In addition, the CDM aims at promoting sustainable development in developing countries that host projects. In principle, projects for the destruction of HFC-23 during the production of HCFC-22 are eligible under the CDM. However, such CDM projects can provide a considerable “perverse incentive” to continue and increase the production of HCFC-22 beyond normal market demand, thereby detrimentally affecting the ozone layer and the implementation of the Montreal Protocol. This interaction and its management are the major focus of this chapter.

The aforementioned perverse incentive stems from the enormous financial gains to be reaped from HFC-23 abatement projects under the CDM (Schneider, Graichen, and Matz 2005; McCulloch 2004; Wara 2008; UNFCCC 2005a). HFC-23 possesses a particularly high global (p.118)

Table 5.1 Economics of HFC-23 destruction under the CDM



Low impact


High impact

HFC-23/HCFC-22 ratio (%)




HFC-23 abatement costs (USD/CO2e)




Market price for CERs (USD/CER)




Market price for HCFC-22 (USD/kg)




CER market price/abatement cost ratio




Net financial gain/HCFC-22 market price ratio




Source: Adapted from Schneider, Graichen, and Matz 2005

warming potential: each ton of HFC-23 contributes as much to global climate change as 11,700 tons of CO 2.1 The gains from related CDM projects depend on the ratio of HFC-23 inadvertently produced per ton of HCFC-22 production, the cost of HFC-23 abatement, and the market price of the emission credits known as Certified Emission Reductions (CERs). Table 5.1 gives an overview of various scenarios on the basis of plausible ranges of these factors. Even in the best case (“low impact”), the financial gains from HFC-23 abatement projects under the CDM would exceed the costs by a factor of five. In a “high-impact” scenario, the gains-cost ratio could even increase to around 75. In the lowest case, HFC abatement projects would constitute a significant subsidy to HCFC-22 production, equaling roughly a third of HCFC-22 market prices. Already in a moderate “reference” scenario, the profits exceed the HCFC-22 market price. In reality, CER prices on the European spot market and for CER futures have regularly exceeded the USD 15 assumed in the high-impact scenario since 2005 and have never dropped to the level of the reference scenario. Thus, the gains from HFC-23 abatement projects under the CDM have by far exceeded the costs.2

The impact of HFC-23 destruction projects under the CDM is considerable also in terms of the absolute number of emission credits. Under the Montreal Protocol, HCFC production in industrialized countries has been restricted, but it has been allowed to grow in developing countries. In 2004, approximately thirty HCFC-22 production plants existed in (p.119) developing countries, with a combined output of about 210,000 tons and a combined annual production capacity of about 340,000 tons (UNFCCC 2005a; McCulloch 2004). Furthermore, the worldwide production of HCFC-22 was set to increase from 491,000 tons in 2000 to 707,000 tons by 2015 (IPCC/TEAP 2005, 395–396; TEAP 2007, 25–37). Even without any artificially inflated production, CDM projects for the destruction of HFC-23 could thus generate emission credits of up to 160 million tons annually during the Kyoto Protocol’ s first commitment period, 2008–2012 (see also Schneider, Graichen, and Matz 2005, 44; Cames et al. 2007, 38–41). The amount of 160 million tons exceeds Belgium’s 2005 emissions by roughly 15 million tons. The resulting five-year total of 800 million tons compares to a total of around 2.7 billion CERs that are to be issued during the first commitment period. At prices of 15 to 20 euros per ton, they would have a value of around 12 to 16 billion euros (approximately USD 16 to 21 billion at the exchange rate of 1.33).3

HFC-23 abatement projects under the CDM may not only seriously undermine the Montreal Protocol, they also entail several other problematic effects for the climate regime and the CDM itself. First, HFC-23 abatement projects under the CDM could result in a net increase in global GHG emissions. CDM projects reduce the costs of compliance for industrialized countries with emission targets, but they do not contribute to a reduction in global GHG emissions. One CDM emission credit transferred to an industrialized country to meet its emissions commitment would relieve that country of reducing one ton of GHG emissions domestically (Oberthür and Ott 1999, 169). Although CDM emission reductions are required to be additional to what would have occurred without the CDM project activity, a significant portion of CERs have been shown to exist only on paper. With respect to HFC-23 projects, the danger is further reinforced, both because HCFC-22 production may be shifted from industrialized countries (where HFC-23 abatement has become the standard) to developing countries in order to gain emission credits and because HCFC-22 production may be increased for the sole purpose of earning CERs from HFC-23 abatement. Industrialized countries may thus offset domestic emissions with emission credits that exist only on paper (Schneider, Graichen, and Matz 2005; Schneider 2007; Wara 2008; Wara and Victor 2008).

Furthermore, HFC-23 abatement projects score particularly poorly on secondary benefits. HFC-23 abatement through “thermal oxidation” (burning) does not produce any further environmental or social benefits. (p.120) It does not provide additional advantageous spillover effects, induce structural change in the energy sector, or help diffuse technology to developing countries (Schneider 2007). Relevant projects also reinforce the unequal distribution of CDM projects by focusing on a few large developing countries, such as India and China, which together account for over 80 percent of HCFC-22 production in the developing world (UNFCCC 2005a). Finally, these projects distort market competition by providing a competitive edge to the relevant chemical industry in developing countries (Schneider, Graichen, and Matz 2005; TEAP 2007; Wara 2007).

More stringent controls on HCFC production and consumption (defined as production minus exports plus imports) under the Montreal Protocol could only partially resolve the issue. While the CDM ’s economic clout may impede attempts to strengthen these restrictions, production of HCFC-22 for feedstock—especially in the production of polytetrafluoroethylene (Teflon)—is not controlled under the Montreal Protocol because it results in comparatively minor emissions (Schneider, Graichen, and Matz 2005). The share of total HCFC production used for feedstock was projected to increase from about one-third in 2003 to about 40 percent by 2015 (McCulloch and Lindley 2007, 1563; IPCC/TEAP 2005, 396). Even with stringent controls under the Montreal Protocol, the CDM could thus create a considerable incentive to increase HCFC production for feedstock purposes—a major concern for efforts to protect the ozone layer.

Intensifying Interplay Management

Early Interplay Management: Building the Foundations (1989–1999)

The tensions between efforts to protect the ozone layer and combat climate change were acknowledged early, but the first decade of interaction saw little targeted political effort to address them. The emergence of the UNFCCC and its Kyoto Protocol as the foundation of the global regime on climate change, on the one side, and the maturation of the Montreal Protocol on the other, set the stage for the policy contradictions and their political management. The interplay management that occurred proceeded unilaterally in each of the institutions, without explicit coordination.

Although parties to the Montreal Protocol have long been aware of the climate-damaging potential of fluorinated substitutes, they began to focus on developing controls for HCFCs only in the 1990s. After (p.121) scientific advice had indicated in May 1989 that the global warming potential of HCFCs and HFCs should be “taken into account when their suitability as substitutes is being considered” (UNEP 1989, para. 19), parties in 1990 requested the Scientific Assessment Panel of the Montreal Protocol to include an evaluation of the global warming potentials of these gases in its work (Decision II/13).4 Parties then agreed to restrictions on HCFC consumption in 1992, strengthened them in 1995, and added controls on production in 1999. Accordingly, industrialized countries had to freeze their HCFC production in 2004 and phase out 99.5 percent of HCFC consumption in stages until 2020, with a “service tail” of 0.5 percent allowed until 2030. Developing countries had to freeze HCFC consumption and production in 2016 and to phase out consumption by 2040. No intermediate reductions were determined between the freeze in 2016 and phase-out in 2040 (see table 5.2).

Throughout this process, the impacts of these gases on climate change played a limited role. The global warming potential of HCFCs remained clearly subordinate to considerations related to the protection of the ozone layer (Benedick 1998; Oberthür 2000; Parson 2003). In particular, industry had received assurances of continued HCFC availability when it agreed to phase out CFCs. Consequently, parties to the Montreal Protocol supported HCFCs and HFCs against more climate-friendly alternatives in 1992 by requesting that both the “direct and indirect global-warming effects” of alternatives be taken into account (Decision IV/13), since HCFCs and HFCs were believed to generate indirect climate change benefits from energy-efficiency gains.

On the side of the climate regime, two features shaped the relationship with the Montreal Protocol. In order to delimit clearly the regulatory authority of the two regimes, the UNFCCC determined, first, that it would not cover GHGs already controlled by the Montreal Protocol. As a result, HFCs fall under the climate regime, while authority for regulating HCFCs rests solely with the Montreal Protocol. Second, the Kyoto Protocol includes HFCs in the “basket” of six controlled gases and groups of gases (CO2, CH4, N2O, HFCs, perfluorocarbons, and sulfur hexafluoride) covered, in aggregate, by industrialized countries’ emission targets for 2008–2012. As a result, HFCs are generally controlled under the Kyoto Protocol, but their production and use are not subject to any specific restrictions. With HFCs having so far contributed less than 5 percent to total emissions, industrialized countries can thus further increase the use of these gases as long as growth in emissions is offset by reductions in the emissions of other GHGs (Oberthür and Ott 1999, 124–126).

(p.122) The Use of Fluorinated GHGs: Focus on Scientific Cooperation (1998–2005)

The disruptive effect of the Montreal Protocol ’s promotion of HCFCs and HFCs on the climate regime triggered scientific and technical cooperation between both regimes, in two phases. This cooperation improved the consensual knowledge base about the options for limiting the emissions of fluorinated GHGs. While it did not lead to consequential political decision making in either regime—let alone by the regimes jointly—the resulting scientific reports made a valuable contribution to the political discussions on strengthening HCFC controls under the Montreal Protocol and the treatment of HFC-23 destruction projects under the CDM.

Both regimes initiated scientific cooperation in 1998. The parties to the Montreal Protocol and the parties to the UNFCCC then each called for a joint workshop of their respective scientific advisory bodies—the Intergovernmental Panel on Climate Change (IPCC) and the Technology and Economic Assessment Panel (TEAP) of the Montreal Protocol—to assess available and potential means of limiting HFC and perfluorocarbons emissions. Held in May 1999, the workshop resulted in a report on options for the limitation of these emissions (IPCC/TEAP 1999). Written submissions from parties provided further input into the political debates under the UNFCCC, while TEAP provided an additional report on the matter to the parties to the Montreal Protocol (TEAP 1999; see also Oberthür 2001, 368–369).

The subsequent political debates remained largely inconclusive. Parties to the climate regime could have, for example, directly restricted emissions of fluorinated GHGs, and parties to the Montreal Protocol could have given clear priority to existing non-GHG alternatives. Coordination between the regimes could have made it more difficult for the laggards to play both regimes against each other and would have provided the opportunity to prioritize available climate- and ozone-friendly alternatives to fluorinated GHGs (Velders et al. 2007; Matsumoto 2008). However, both parties to the Montreal Protocol and parties to the UNFCCC took up the issue again separately during their annual conferences in 1999. While political discussions under the Montreal Protocol failed to result in any decision at all, parties to the climate regime merely agreed to invite individual parties to assess the information presented, and mandated the Subsidiary Body for Scientific and Technological Advice (SBSTA) to consider the issue further (Decision 17/CP.5; Oberthür 2001, 369).5

The ensuing process in the climate regime led to a second joint IPCC/ TEAP report in 2005 which served as a fig leaf for taking the issue off (p.123) the agenda. With several parties (among them the United States, Japan, and China) opposing further decisions, the climate regime emphasized providing further “policy-neutral, user-friendly information.” Following discussions with the respective advisory bodies, both the parties to the UNFCCC (Decision 12/CP.8) and the parties to the Montreal Protocol (Decision XIV/10) requested the IPCC and TEAP in 2002 to prepare an integrated report by early 2005. The joint IPCC/TEAP special report, titled Safeguarding the Ozone Layer and the Global Climate System: Issues Related to Hydrofluorocarbons and Perfluorocarbons (IPCC/TEAP 2005), provided a face-saving opportunity for proponents of action like the EU to rest their case in view of insurmountable political opposition. On the basis of the joint report, the SBSTA heralded a last round of discussions in May 2005 “with a view to finalizing the consideration of this agenda item” by mid-2006 (UNFCCC 2005b, 16). A year later this aim had been achieved, with SBSTA simply encouraging parties to ensure good interministerial communication and the secretariats of the two regimes to continue their cooperation (UNFCCC 2006, 20). The IPCC/TEAP special report did, however, contribute to discussions on strengthening HCFC controls under the Montreal Protocol and provided useful information with respect to HFC-23 destruction projects under the CDM (see next subsections).

Kyoto Protocol: HFC-23 Destruction Projects under the CDM (2003–2010)

Beyond HFC emissions, relevant political discussions under the climate regime have focused on the treatment of HFC-23 destruction projects under the CDM. Interplay management of the issue has been primarily pursued unilaterally within the institutional framework of the Kyoto Protocol. As a result, HFC-23 destruction projects have been approved in “existing” HCFC-22 production plants, while discussions on the treatment of projects in “new” plants have stalled (as of 2010).

The CDM is an innovative market-based mechanism with a unique governance structure. CDM projects need to be based on approved methodologies for the calculation of baselines and the monitoring of emissions and emission reductions. Proposed methodologies require approval by the CDM Executive Board, composed of ten elected members, who supervise and govern the CDM. Once the board, assisted by a “Methodology Panel,” approves a methodology, project implementation can proceed and certainty about the calculation of resulting credits exists. The approved methodology serves as the basis for so-called Designated (p.124) Operational Entities to oversee and independently validate the projects and the certification of emission reductions (Oberthür and Ott 1999, 168–171; Wilkins 2002; Yamin and Depledge 2004, chap.6.6; Streck 2007).

HFC-23 destruction projects were among the first projects initiated under the CDM, but soon proved controversial. The CDM Executive Board first approved the methodology for HFC-23 abatement projects in July 2003, but decided to put it on hold and to review it in September 2004, in the face of serious concerns about possible negative effects. The board then agreed on a two-track approach in December 2004. It first decided to modify the approved methodology by limiting it to “existing production sites,” which were defined as having at least three years of operating history by the end of the year 2004. Second, it decided to seek guidance from the conference of the parties on the treatment of “new” plants.6

The ensuing discussions among parties produced a specification of the approach toward “existing” plants but has remained inconclusive with respect to “new” facilities (as of early 2010). In December 2004, parties mandated SBSTA to develop, in collaboration with the CDM Executive Board, a recommendation for the treatment of “new” production sites (Decision 12/CP.10). The next annual conference in 2005 specified the meaning of “new HCFC-22 facilities” as those without an operating history of at least three years between 2000 and 2004. In addition, increased production of HCFC-22 in “existing” plants above the maximum historical annual production level during any of the last three years of operation between the beginning of 2000 and the end of 2004 would be considered “new” and thus not covered by the approved methodology for existing facilities. Finally, the conference encouraged industrialized countries and multilateral financial institutions to provide funding for HFC-23 destruction projects in new facilities separately from the CDM (Decision 8/CMP.1). No agreement has since been reached on the treatment of new facilities under the CDM. While China, as one of the major potential beneficiaries, pushed for making projects in “new” plants eligible, European and Latin American delegations resisted on the grounds of environmental and competitiveness concerns (see also Gehring and Plocher 2009). Consequently, HFC-23 destruction projects concerning “new” production facilities have remained ineligible under the CDM.

The limitation of eligibility to “existing” plants has effectively halved the estimated potential of HFC-23 destruction projects under the CDM. In all, nineteen relevant projects had been registered under the CDM as (p.125) of May 2010 (eleven in China, five in India, and one each in the Republic of Korea, Mexico, and Argentina). These projects are expected to generate more than 70 million CERs per year during the first commitment period. Including emission credits from the prompt-start phase of the CDM prior to 2008, a total of around 450 million tons could be generated from these projects by the end of 2012, which would be more than 15 percent of all CERs anticipated to be generated (see data available at http://cdmpipeline.org/cdm-projects-type.htm and http://cdm.unfccc.int/index.html).

The limitation of eligibility to existing plants reduces the negative impacts. Given the growing demand for HCFCs in developing countries especially, current projects do not create a significant direct incentive to expand production beyond demand. However, they generate considerable subsidies that could distort international competition and constitute a significant incentive to continue production. Windfall profits could also be used to cross-subsidize an expansion of HCFC-22 production in order to acquire additional market shares from the chemical industry in industrialized countries. Since any such expansion of production would probably occur without ensuring HFC-23 abatement (also in the hope of becoming eligible under the CDM later on), which is the norm in industrialized countries, it could paradoxically lead to an overall increase in HFC-23 emissions.

Montreal Protocol: Strengthening HCFC Controls (2007)

Parties to the Montreal Protocol eventually responded to the policy contradiction with the Kyoto Protocol by strengthening HCFC controls in 2007. Discussions on HFC-23 destruction projects under the CDM and broader climate change concerns contributed to the agreement, which promises significant benefits for both the ozone layer and the global climate.

Parties to the Montreal Protocol remained extremely reluctant to address the policy contradictions with the Kyoto Protocol regarding fluorinated gases at the beginning of the twenty-first century. In 2001, EU suggestions to launch discussions to strengthen HCFC controls received a cold reception, especially by many developing countries, which cited the risk of “creating chaos among governments and industry” (UNEP 2001, 8). In 2002, agreement to join the climate regime in initiating a special IPCC/TEAP report (see above) was secured only after opponents had received assurances that the parties to the Montreal Protocol were to consider the special report only “in so far as it relates to actions to (p.126) address ozone depletion” (Decision XIV/10)—in other words, they would not attempt to restrict HFCs.

Accordingly, parties focused their attention on HCFCs in the wake of the 2005 IPCC/TEAP Special Report. Progress was driven more by the changed political context (with the rising salience of climate change in international relations and the emerging HFC-23 issue) than the hardly revolutionary content of this report. Hence, parties to the Montreal Protocol first requested TEAP to identify the ozone regime implications of the report more clearly (UNEP 2005, para.97). On the basis of TEAP ’s supplementary report (TEAP 2005), parties agreed to convene an experts’ workshop to elaborate a list of practical measures in late 2005 (Decision XVII/19). At their meeting in 2006, they mandated TEAP to provide a further assessment of the measures identified at this workshop in 2007. Signifying the increasing prominence of the issue, parties requested TEAP to give “full consideration” to the influence of the CDM on HCFC-22 production (para.2 of Decision XVIII/12). The news that the recovery of the ozone layer could be delayed to between 2060 and 2075—ten to twenty-five years later than previously thought—further contributed to a sense of urgency. Higher production of HCFC-22 than anticipated was among the factors responsible for the delay (WMO 2007).

The requested TEAP report, presented in August 2007, paved the way for an adjustment of HCFC controls under the Montreal Protocol. TEAP reported that an “accelerated HCFC phase-out had been demonstrated to be technically and economically feasible” (UNEP 2007, para. 72) and emphasized that the adverse impacts of HFC-23 abatement projects under the CDM on the ozone layer were a major rationale for tighter controls. The panel further pointed out that, under the current phase-out timetable, total emissions of ozone-depleting substances could reach an estimated 900 million tons of CO 2 equivalent per year from 2025 to 2040—thus highlighting the significant climate gains of an accelerated HCFC phase-out (TEAP 2007).

In addition to the TEAP inputs, several other factors facilitated the 2007 agreement on strengthened HCFC controls under the Montreal Protocol. A progressive stance taken by the United States, which cited the climate benefits of an accelerated phase-out as a major motivation, advanced the negotiations. Furthermore, agreement on providing financial assistance for the phase-out in developing countries was crucial for sealing the deal (Depledge 2007). The stalled negotiations on HFC-23 destruction projects under the CDM had a twofold positive effect. First, the diminished prospect of receiving credits under the CDM reduced the (p.127)

Table 5.2 HCFC phase-out schedule under the Montreal Protocol

Industrialized countries

Developing countries









1996: freeze

1996: freeze

2016: freeze

2013: freeze

2004: –35%

2004: –35%

2040: –100%

2015: –10%

2010: –65%

2010: –75%

2010: –35%

2015: –90%

2015: –90%

2025: –67.5%

2020: –99. 5%

2020: –99. 5%

2030: –97.5%

2030: –100%

2030: –100%

2040: –100%





2004: freeze

2004: freeze from 2010: as consumption

2016: freeze

As Consumption

Baseline (consumption): 1989 HCFC consumption + 2. 8% of 1989 CFC consumption.

Baseline (consumption): 2015

Baseline: Average of 2009 and 2010 consumption and production, respectively.

Baseline (production): Average of: (1) 1989 HCFC production+2. 8% 1989 CFC production; and (2) 1989 HCFC consumption+2. 8% of 1989 CFC consumption.

Baseline (production): Average of 2015 HCFC consumption and production.

Sources: UNEP 2006; UNEP 2007, Decision XIX/6 and Annex III

temptation for countries with “new” HCFC–22 production plants to block progress under the Montreal Protocol so as to secure a future source of income. Second, progress under the Montreal Protocol reduced the policy contradiction with the Kyoto Protocol and thus had the potential to advance negotiations under the climate regime.

Table 5.2 provides an overview of HCFC controls before and after the 2007 adjustment. The most significant change with respect to industrialized countries was the alignment of controls of production with those of consumption. Developed countries thus relinquished the prospect of net exports to developing countries—not much of a sacrifice, given the growing production capacity in China and India in particular (whose competitiveness was further enhanced as a result of CDM HFC–23 destruction projects). More important, the overall phase–out in (p.128) developing countries was effectively brought forward by ten years, to 2030, with significant intermediate control steps in 2013, 2015, 2020, and 2025. In addition, the baseline of controls was changed from 2015 to the average of 2009 and 2010. Remaining production and consumption allowances after 2020 for industrialized countries and after 2030 for developing countries apply to servicing existing equipment. The need for this “service tail” is to be reviewed in 2015 and 2025, respectively. Owing to the special “adjustment procedure” applicable to strengthening existing control measures under the Montreal Protocol, the 2007 agreement entered into force automatically, without any need for ratifications, in May 2008.

The accelerated phase–out of HCFC consumption and production promises moderate positive effects for the ozone layer and the global climate. Assuming full compliance, the accelerated phase–out could speed up the recovery of the ozone layer by a few years (WMO 2007; TEAP 2007, 106–108). As regards the climate benefits, the HCFC emissions avoided would amount to about 15,000 million tons of CO2 equivalent until 2040, which is equivalent to about three times the current annual GHG emissions of the EU (own calculations based on TEAP 2007, esp.7–9). The net climate effect is significantly reduced, however, because several of the most promising substitutes are also powerful GHGs—the most important being the HFCs controlled under the Kyoto Protocol (Velders et al. 2007, 2009; Norman, DeCanio, and Fan 2008). Nothing in the agreement reached under the Montreal Protocol restricts the use of these substitutes. However, a second positive effect is that reduced HCFC production in developing countries automatically leads to reduced HFC–23 emissions. Consequently, the potential for gaining CDM credits and thus the perverse incentive to continue or increase the production of HCFC–22 was effectively limited—without disappearing altogether.

Epilogue: Discussions on HFC Controls (since 2008)

HFC emissions came onto the agenda of the Montreal Protocol and, to a lesser extent, the UNFCCC in 2008 and 2009. After parties to the Montreal Protocol had agreed to hold a dialogue in 2008, Mauritius and the Federated States of Micronesia, as well as Canada, Mexico, and the United States, tabled concrete proposals in 2009 to regulate and phase down the production and consumption of HFCs by 85–90 percent within twenty to twenty–five years under the Montreal Protocol. Their proposals also covered a ban on HFC–23 emissions from HCFC–22 production plants not covered by the Kyoto Protocol’s CDM, with funding (p.129) for developing countries provided through the Montreal Protocol’s Multilateral Fund. While authority for regulating HFCs legally rests with the climate regime, the Montreal Protocol’s experience with the relevant industrial area and its existing institutional infrastructure, including the Multilateral Fund, speak in favor of making it the major forum for HFC controls. In the 2009 discussions under the UNFCCC on a post–2012 climate agreement, the EU thus tabled a proposal calling for the delegation of authority to regulate and phase down HFCs to the Montreal Protocol, which aimed to ease concerns about the competency of the ozone regime to address non–ozone–depleting substances (Depledge 2009).

Given the longstanding opposition of major stakeholders to specifically targeting HFCs under either regime, and in particular under the Montreal Protocol (see above), how can we explain the momentum toward regulating HFCs in the context of the Montreal Protocol at the end of the 2000s? Besides the more environmentally minded administration of U.S. president Obama, two interacting and interconnected factors can be identified. First, the chemical industries in developed countries had come to support, and push for, HFC controls because of the imminent expiry of their patents on HFC production processes and their advances in research on alternatives (which could again receive patent protection). The proposed HFC controls were thus in line with the traditionally strong industrial interests in the framework of the Montreal Protocol, raising concerns about the overall environmental integrity of the proposals (environmental impact of substitutes, continued production of HFCs) and their compatibility with the polluter–pays principle. Second, forecasts for future HFC production and consumption were revised upward, thus making clear the considerable need for HFC controls.7 The “indirect” effects of HFC use on energy efficiency, previously highlighted to protect these gases from regulation (see above), now received less attention (Velders et al.2009; Depledge 2009).

As of early 2010, no agreement on HFC controls had been achieved under either the Montreal Protocol or the UNFCCC. Legal complications due to the allocation of regulatory authority for HFC controls to the climate regime have hindered progress under the Montreal Protocol. However, developing countries have opposed the proposals under both regimes (including proposals under the UNFCCC addressing the legal issues) also because of substantive concerns regarding costs and the availability of substitutes (Depledge 2009). The proposals tabled under the Montreal Protocol in 2009 were reintroduced to the debate in spring 2010.

(p.130) HFC–23 Destruction Projects under the CDM: Further Options

Among the various options that have been put forward in the climate regime as well as in the literature (see, e.g., summary in TEAP 2007, 55–57), we assess in this section the merits of three principal options that aim to counter the perverse incentive created by HFC–23 destruction projects under the CDM: (1) excluding these projects from the CDM, (2)reducing the amount of emission credits issued for such projects, and (3) taxing emission credits from such projects, either nationally or internationally.8

These options could in principle be applied to both “new” and “existing” HCFC–22 production facilities, but proposals to date have focused on the treatment of “new” facilities because changing the rules for “existing” facilities is unrealistic. Such a rule change would require the agreement of the beneficiaries of the current arrangements, which is highly unlikely, and could infringe on the property rights of those who have invested in existing CDM projects. Under the current rules, approved CDM projects gain crediting for ten years, or for seven years with the possibility of two renewals. Most HFC–23 destruction projects (with the exception of those in India) have chosen the second option (TEAP 2007, 53) and are thus up for renewal between 2012 and 2014. In the absence of other political guidance by the conference of the parties (which would again require the agreement of the beneficiaries of approved projects), there is little scope for denying them renewal. The possible resolution of the issue in the context of a broader climate agreement post–2012 remains hypothetical at the time of writing. While the options discussed are in principle also applicable to “existing” facilities, the discussion therefore is de facto primarily relevant for the question of how to treat “new facilities” for the benefit of the environment.

Excluding HFC–23 Destruction from the CDM

Excluding HFC–23 destruction projects from the CDM would remove the perverse incentive to increase HCFC–22 production inherent in such projects. Since CDM projects do not reduce global GHG emissions, the additionality of HFC–23 destruction projects is in doubt, and, as these projects hardly produce secondary benefits (see above), the overall environmental and climate balance of an exclusion may even be positive. As of 2010, the political stalemate in the related discussions under the Kyoto Protocol has rendered “new” HCFC–22 production facilities de facto ineligible under the CDM.

(p.131) The related emissions could be addressed through means other than the CDM. If the costs of HFC–23 destruction, including the costs of installing and running the necessary equipment, we re cove red from other sources, this could lead to real reductions in global emissions. Several parties to the Kyoto Protocol—including Argentina, the EU, Mexico, Nicaragua, Panama, Switzerland, and the United States—have supported such an approach (UNFCCC 2005c). In Decision 8/CMP.1 (2005), the parties to the Kyoto Protocol encouraged industrialized countries and multilateral financial institutions to provide funding separately from the CDM (see above). The Global Environment Facility, which operates the financial mechanism of the climate regime, is an obvious candidate for providing multilateral funding (Schneider, Graichen, and Matz 2005). Recent proposals under the Mont real Protocol suggest its Multilateral Fund as a source of financing.

However, implementing this alternative app roach faces several challenges in the current regulatory environment. Firstly, industrialized countries have shown reluctance to provide the additional funding required (Wartmann, Hofman, and de Jager 2006), so that no such funding has yet been forthcoming. Second, the prospect of HFC–23 destruction projects under the CDM has dissuaded plant operators and developing countries from accepting alternative sources of funding. Even with this prospect declining, plant operators and developing countries might require incentives beyond the cove rage of incremental costs to engage in related projects. The rise of climate change on the international agenda may give reason for heightened expectations in this respect.

Restricting the Amount of Emission Credits from HFC–23 projects

The effectiveness of restricting the issuance of emission credits from HFC–23 projects will depend on the specifics of the discount. If the discount is set too high, the incentive to engage in these projects may disappear; if it is set too low, the perverse incentive emanating from such projects may persist. The difficulty of determining a discount rate is aggravated by the uncertainty of future prices on the carbon market. Table 5.1 indicates that the discount would have to exceed 90 percent in order to reduce the perverse incentive significantly. Such a discount could also ensure that HFC–23 destruction projects would contribute to global GHG emission reductions, because a large part of the emission reductions achieved would not be offset in industrialized countries (Schneider 2007, 62).

(p.132) The definition of ambitious technology benchmarks may be the most appropriate way of implementing this option. Other proposals include a flat-rate discount rate of, for example, 95 percent and the flexible adaptation of the amount of emission credits issued so as to generate an agreed fixed monetary income (TEAP 2007, 56). However, these proposals would appear to require major deviations from the current regulatory framework of the CDM. In contrast, Schneider’s proposal (2007, 62) of defining ambitious technology benchmarks for HFC–23 destruction projects to calculate emission reductions could achieve a similar result, while being compatible with the existing regulatory framework.9

Irrespective of the specific approach, reaching agreement on this option may prove elusive. On the one hand, several parties have suggested a level that would cover only the costs of installing and operating an incinerator for the destruction of HFC–23 or a small addition to this level (see UNFCCC 2005c). On the other hand, China has resisted such restrictions and has itself introduced a moderate national levy of 65 percent on the revenues from emission credits from HFC–23 destruction projects (Schneider 2007, 48; see also below). The task of reconciling differing positions is aggravated by fluctuations on the carbon market: Since 2005, prices for CERs on the European market have varied roughly between 10 and 30 euros (http://www.ecx.eu/ECX–Monthly–Report).

Taxing Emission Credits

The major difference between taxing emission credits and discounting emission reductions is that taxing generates revenues for the tax authorities, whereas discounting creates a benefit for climate protection. In both schemes, the perverse incentive for plant operators is addressed by reducing the gains to the operator. To make the taxing scheme also contribute to climate protection, the tax revenues could be allocated to activities that create further climate benefits, whether with respect to mitigation or adaptation (TEAP 2007, 56–57).

As noted above, China has introduced a levy of 65 percent on the revenue generated by emission credits from HFC–23 destruction projects. The revenue gained is to support domestic climate–change– related activities in China (Schneider 2007, 48; TEAP 2007, 59). However, this national scheme, although covering the lion’s share of HCFC–22 production in developing countries, is at best an imperfect response to the underlying problem. In line with the above analysis, the tax level is insufficient to counter the perverse incentive. In addition, national tax schemes shift the perverse incentive from the plant operator to the government—a (p.133) situation that might lead a government to encourage production of HCFC–22 (Wartmann, Hofman, and de Jager 2006).

Devising a more appropriate internationally coordinated taxation scheme faces major political hurdles. As in the case of restrictions on the issuance of emission credits, parties are likely to have varying views on the level of such a tax that would need to be agreed upon internationally (see above). Agreement would also be required on who would collect the tax, and for what purposes the income generated should be spent. National tax schemes may simply shift the perverse incentive from the plant operator to the government. They would also require agreement on the use of the tax revenues in order to exclude uses that defeat the purpose of the tax. Such agreement would also be needed in the case of an international scheme run by an international institution. In one variant, emission credits would be allocated to an international institution such as the Global Environment Facility, which could then reimburse plant operators, either at a fixed rate or with a predetermined share of the emission credits (UNFCCC 2005c).10 As in the case of a discount, achieving agreement on such complicated matters may well prove elusive.

Concluding Assessment

The international ozone and climate regimes have a history of problematic interaction with respect to fluorinated GHGs. On the one hand, the Mont real Protocol has explicitly and implicitly promoted the use of fluorinated GHGs (HCFCs and HFCs) as substitutes for ozone–depleting substances. This has created space for increased production and consumption of these gases, and hampered efforts to limit and reduce their emissions—as well as enhancing the viability of projects under the Kyoto Protocol’s CDM for the destruction of HFC–23 in HCFC–22 production plants. These CDM projects, on the other hand, have the potential to inflate HCFC–22 production artificially, thus harming efforts to protect the ozone layer.

Both regimes have primarily managed these policy contradictions unilaterally. Cooperation between the regimes has addressed scientific and technical assessments and the exchange of information, which have provided an important but not an essential input to decision making. Parties to the Mont real Protocol have long been aware at the declaratory level that fluorinated GHGs are negatively implicated under the climate regime. However, concrete regulatory activity to deal with the issue intensified only after 2005. HCFC controls under the Mont real Protocol (p.134) were strengthened in 2007, also to address the perverse incentive created by HFC–23 destruction projects under the CDM. Proposals for regulating HFCs under the Mont real Protocol have been discussed since 2009. Parties to the Kyoto Protocol, on their side, have so far excluded HCFC–22 production facilities established after 2002 from the CDM. Significantly, interplay management in both regimes has been considerably motivated by consideration of the objectives of the other regime, but justified by reference to their own objectives. In this respect, the HFC controls proposed under the Mont real Protocol would, if adopted, constitute an innovation.

The unilateral interplay management has so far delivered mixed environmental results. On the side of the climate regime, existing CDM projects for HFC–23 destruction have provided a significant subsidy for the production of an ozone–depleting substance (HCFC–22), and could continue to do so until 2026–2028, but parties to the Kyoto Protocol have significantly limited the damage by not extending the subsidy to new production facilities. On the other side, the Mont real Protocol’s strengthened HCFC controls make a meaningful, if modest, contribution to both the protection of the ozone layer and the global climate, with the exact net effect on climate change depending on individual actors#x2019; choice of substitutes for HCFCs. Proposed HFC controls under discussion at the time of writing could contribute significantly to combating climate change and enhancing policy consistency between both regimes.

Several factors provide reason to expect that further negative effects can be prevented. The issue of CDM projects for HFC–23 destruction in “new” production plants has been moved to the political level, so a change of the status quo will require consensus by all parties to the Kyoto Protocol. Since extending eligibility to new facilities would not only endanger the protection of the ozone layer but could also have considerable negative climate– related effects, interested parties to the Kyoto Protocol have sound reasons to resist related demands. Further more, the strengthening of HCFC controls under the Mont real Protocol limits the potential of HFC–23 destruction projects in new facilities, there by reducing the overall importance of the issue.

Two particularly promising options for further dealing with HFC–23 emissions of HCFC–22 production plants would have synergistic effects for the protection of both the ozone layer and the global climate. First, a strict benchmarking resulting in a large discounting of achieved emission reductions could help address concerns about the additionality of (p.135) projects and their potentially negative consequences. However, political agreement on an environmentally beneficial technology benchmark or discount rate may be difficult to achieve, judging from the current stalemate in the climate regime. Second, and perhaps more important, ongoing negotiations on HFC controls under the Mont real Protocol and on a global post–2012 agreement on climate change may provide sufficient financial and political incentives to developing countries with new HCFC production facilities to implement HFC–23 destruction.

The story of HFC–23 destruction projects under the CDM illustrates the potential for unintended effects and unanticipated institutional interaction that can result from the introduction of policy innovations in general and the establishment of market mechanisms and the accompanying privatization of global governance in particular. When the CDM was established, negotiators were guided by the principal rationale of this instrument: to unleash the power of the market in order to identify the best way of mitigating GHG emissions. They did not take into account the side effects of employing the power of the market and directly involving private actors: First, market participants aim at maximizing economic benefits (rather than reducing emissions) and will exploit opportunities for reaping excessive profits from investments in emission reductions, even in the face of negative externalities on other issue–areas. Second, the direct involvement and central role of private actors in the CDM further restricts the potential for changing the status quo and strengthening the existing regulatory framework. Politically, private investors, who demand a stable policy frame work, acquire leverage in the policy process because the effectiveness of the CDM hinges on their acceptance and investment. Legally, their direct involvement gives them the option, and a strong motivation, to pursue their interests and newly acquired “rights” by legal means, including by bringing cases to national courts (Gehring and Plocher 2009). The privatization of global governance thus brings its own path dependency, with corrective action becoming more difficult, once the benefits have been privately appropriated.

Would institutional aggregation under an overarching framework deliver better results? That seems questionable. Integration of the ozone and climate regimes might overburden the climate agenda and distract the climate regime from its central task: steering the transition of national and international energy systems. Further, it might lead to a dominance of climate change considerations, with lack of attention to the protection (p.136) of the ozone layer and the implicated fluorinated gases. Arguably, progress on fluorinated GHGs has been facilitated by their having a separate regulatory “home.” It is difficult to imagine how the 2007 agreement on strengthening HCFC controls under the Mont real Protocol could have come about in an integrated regime. In this case, the politics of climate change (without the progressive decision–making rules of the Mont real Protocol) might easily have poisoned the negotiations and blocked clear U.S. support (by the administration of President George W. Bush, which otherwise largely dismissed international climate regulation).

However, delimitation of regulatory authority of over lapping institutions is not necessarily enough. Both the international ozone and climate regimes are legally clearly delimited because the UNFCCC and the Kyoto Protocol exclude from their scope gases controlled by the Mont real Protocol. However, this delimitation of regulatory authority has not prevented the aforementioned problematic interactions because it did not “fit” the underlying functional interlinkages between both regimes (on the concept of “fit,” see Young 2002; Galaz et al. 2008). It defines the regulatory boundaries and thus tells the members of each regime to keep their hands off what is under the authority of another regime (negative coordination). This has facilitated the attempts of interested parties in fending off moves to establish controls to minimize use and emission of fluorinated GHGs.

While a more integrated approach might facilitate the development of mutually supportive policies in both regimes that prioritize climate– and ozone–friendly alternatives to fluorinated GHG, a slight readjustment of the division of labor and regulatory authority may be an even more promising route for further progress: delegating decision–making authority on phasing down, or out, HFCs to the Mont real Protocol.


Support from the following projects is gratefully acknowledged: (1) Inter disciplinary Study on Policy Interlinkages between Global Warming and Ozone Depletion Issues (Japan, FY2008 Grant–in–Aid for Scientific Research, Basic Research (B): 20310025); (2) Environmental Policy Integration and Multi–Level Governance (EPIGOV), which was funded under the European Community’s 6th Research Frame work Programme (contract no.028661). We would also like to thank Ms. Mari Nishiki, Mr. Hiroaki Sakamoto, and Ms. Melanie Jung for their valuable assistance.

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(1.) The 2007 assessment of the Intergovernmental Panel on Climate Change (IPCC) suggests that HFC–23 may actually have a global warming potential of 14,800 over a 100–year period (IPCC 2007). However, the global warming potential of 11,700 has been fixed as a basis of calculations under the Kyoto Protocol for the first commitment period 2008–2012.

(2.) See monthly price reports of European Climate Exchange, available at http://www.ecx.eu/ECX-Monthly-Report.

(3.) See http://cdm.unfccc.int/index.html for latest data on the CDM, including registered projects and expected issuance of CE Rs (accessed 3 May 2010). For historical and current CER prices on the European market, see monthly price reports of European Climate Exchange available at http://www.ecx.eu/ECX–Monthly–Report (accessed 3 May 2010).

(4.) All decisions of the Meeting of the Parties to the Mont real Protocol referred to in the following are available at http://ozone.unep.org/Meeting_Documents/mop/index.shtml.

(5.) All decisions of the Conference of the Parties to the UNFCCC (COP) and the Conference of the Parties serving as the Meeting of the Parties to the Kyoto Protocol (COP/MOP) referred to in the following can be accessed via http://unfccc.int/documentation/decisions/items/3597.php.

(6.) Gehring and Plocher 2009 and reports of the 10th, 15th, and 17th meetings of the CDM Executive Boa rd, available at http://cdm.unfccc.int/EB/index.html (accessed May 2010).

(7.) These upward revisions were in line with projections made earlier by environmental nongovernmental organizations and others. They were also supported by scientists of major chemical companies in developed countries (see Velders et al. 2009).

(8.) Members of the climate regime identified the crediting of emission reductions for project activities that substitute the production or consumption of HCFC–22 under the CDM as an option in 2006 (e.g., TEAP 2007, 56; UNFCCC 2005c). However, this option would have faced severe legal problems, since the climate regime does not cover GHGs controlled by the Mont real Protocol. Consequently, this option has not been pursued further, and it is not included in the analysis here.

(9.) A further proposal concerns restricting CDM eligibility to HCFC production for feed stock uses (TEAP 2007, 57). While this would exclude HCFC production for immediate use and thus address concerns regarding increased HCFC emissions, it would not deal with the perverse incentive to increase HCFC production for feedstock uses in order to gain cheap emission credits.

(10.) If the surplus emission credits collected internationally were to be canceled, as some have suggested (Earth Negotiations Bulletin 12, no.313, 2006; available at http://www.iisd.ca/vol12/), this solution would be equivalent to the option of restricting the issuance of emission credits discussed before.