Thomas Grammig

CDM Blockages
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Even the most experienced CDM methodology makers have a mixed record and often fail to bring the best out of the UNFCCC’s EB.  Much needed methodologies were rejected repeatedly.  I suggest to focus on the trajectories and externalities of technical change to improve choices and trade-offs in methodologies.  Especially when technology provider companies and methodology makers are blocking each other.  The easier half of CDM projects for N2O abatement were done while it took the EB 4 years to address competing catalysts.  Methodologies are shaped by the interests of CDM developer companies proposing them and more so the more technically complex.  The case of N2O shows the EB’s problem of access to the best expertise, aggravated by proprietary knowledge.

When Carbon Traders block the CDM Executive Board

The economics of innovation has been revived by Nelson and Winter  and then by Giovanni Dosi, establishing Evolutionary Economics.  Several concepts for the influence of organizational routines are being pursued there.   One typology of innovations in large firms goes back to Keith Pavitt (from SPRU, Sussex U.).  I explore this typology with evidence from the competition between N2O methodology proposals and the innovation services these technology providers bought.

Innovation services for CDM

Not knowing how technological complexity fits CDM regulations (maze of Marrakesh Accord interpretations), those owning or running the industries where N2O arises are usually at the receiving end.  The providers of N2O abatement technology happen to be concentrated in Germany and so I wrote a history of CDM methodologies from their perspective (in german).

CDM Barriers in N2O

Even for the more profitable CDM projects, technology providers mostly fail to invest in methodology making and Heraeus, BASF and Uhde allowed small N.serve GmbH and Carbon Climate Protection GmbH to launch themselves (carbon trader barriers).  For N2O, the chemical engineering is concealed by commercial interest (profits built up into catalysts).  The German Environment Ministry created NACAG in 2017, to pursue N2O projects as trials for Paris Agreement Art.6.2 and Art.6.4, unfortunately ignoring the market relations between platinum catalyst suppliers and plant owners, and so the limits of AM28 and ACM19 will remain.  NACAG ought to define how it allows for the confidentiality between suppliers and owners if NACAG is to achieve mitigation volumes and impacts.  That might be a lessons learnt from the CDM methodology problems to avoid in Art.6.2 and Art.6.4, albeit a very special case.  But, to speak freely, the German BMU has a long record of struggling to understand methodology making and failing to demonstrate what quality in methodology making implies.  Lambert Schneider's inroads into standardized baseline making and the real impact of ACM19 should be brought to light.

In the famous case of HFC-23, the blockages originate in policy and the rather different political coalitions in the Montreal and the Kyoto Protocol regimes.  Suddenly three years after Kyoto, in 2001, a Montreal-Kyoto link of such strength to endanger the integrity of the Kyoto Protocol appeared.  It illustrates rather well Sebastian Oberthür’s theory of relations between regimes.  This link occurs in the production of a refrigerant chemical HCFC-22, supported with Montreal funding, where HFC-23 is a by-product, vented and is eligible under Kyoto (GWP of 11,700).  In other words, Montreal created a partial and short-term solution that has reduced the effectiveness of emissions trading with CDM for a short period of time.  The environmentalists’ critique of the Kyoto Protocol by Michael Wara, most prominently, is based on a flawed assessment of this link because HFC-23 CER never affected the market signals of CDM emissions trading. 

HCFC-22 und das Montreal Protokoll Regime

HFC-23 CDM and technology

The HFC-23 block was due to the difficulty of weighing benefits between China and other non-Annex B countries.  80% of worldwide HCFC-22 production is in private Chinese firms (mostly new ones).  The tension "China against the other South" persists.  There was only minor technological reason for using HCFC-22 as refrigerant in the first place, and its steep expansion was certainly avoidable.  HCFC-22 is a typical BRIC - issue, difficult to fit into the Montreal Protocol and "HCFC-22 Phaseout Management Plans"("HPMP"in all countries aside of Syria and Libya) at present rushed into a second phase HPMPs in all countries.  Taking advantage of the Kyoto blockage, some influence of DuPont, Dow and ICI persists and works its way into some voluntary emission trading schemes (pursuing what is excluded from the CDM since EB34, Meeting Report paragraph 17), as I showed in two comments from GIZ-Proklima to the Climate Action Reserve (CAR) and in comments to the American Carbon Registry (ACR):

                           Public Comment to CAR                                                 Public Comment to ACR Foam Blowing Agents

Through the Kigali Amendment to the Montreal Protocol, the overlap Montreal - Kyoto has become much stronger because the entire class of chemicals HFC is being influenced by both regimes in parallel.  The HPMPs finance the switching to HFC and the Kyoto CDM (in Paris Agreement SDM) credits HFC reductions. There is an element of circular financing when Montreal funds increase HFC usage (esp. R-410a) and Kyoto projects fund replacing them.  This whole class of problems has not been addressed yet, a new illustration of Sebastian Oberthür's observation about regimes ignoring each other.  This is made worse because 80% of HCFC-22 currently being produced is in China, and the whole class of Hydrofluorolefins (HFOs) is being developed by DuPont, Dow and Honeywell.  The Chinese air conditioner industry decides whether HFOs can gain market share as a replacement of HCFC-22.  The overlap between the Kigali Amendment and Kyoto CDM becomes a relation between Chinese gain versus US gain.  HFC-32 technology, promoted by Daikin, can grow into an intermediary step with HFC reduction financing (internal Montreal Protocol problem).  The connections between HCFC phaseout and HFC phase-down are still undefined.  For refrigerators, these connections will play out well because these concern only foam blowing agents, for refrigerant in refrigerators, there is no alternative to the already dominant Isobutane.  For air conditioners, export strategies are as uncertain as competitive. An overview of these and details of the Kigali Amendment and its implications for CDM regulations are outlined here:

Interactions of Montreal funding and Kyoto CDM, Kigali Amendment and the Intensified EB34 error's Impact

A conceptual solution to the regime overlap is developed here, again using Pavitt's typology of innovation in large corporations:

HCFC in Montreal inertia, HFC in Kyoto inertia and the insiders' heuristics

Refrigerant suppliers and compressor suppliers might be as useless as N2O technology suppliers for methodology making.  Actually BASF does both.  One explanation is that Kyoto bodies and Montreal bodies are using too much classic economics and its factor prices heuristics.  But suppliers in the Montreal context might carry over their manipulative traits to the Kyoto Protocol.  Hopefully, they will find that standardized baseline approaches are more difficult to use to their competitive advantage than the incremental cost definitions of the Multilateral Fund.

Oberthür S. 2006, Institutional interaction in global environmental governance, Mass.: MIT.
Pavitt K. 1992, 'Some Foundations for a Theory of the Large Innovating Firm', In Dosi G. et al., Technology and Enterprise in a Historical
, Oxford: Clarendon Press, pp. 212-228.
Pavitt K. 1984, 'Sectoral Patterns of technical change: Towards a taxonomy and a theory', Research Policy, 13: 343-373.
Wara M. 2008, A Realistic Policy on International Carbon Offsets, Stanford University, Working paper 74.