Put this one in the bulging Unintended Consequences file. From the New York Times:
Greenhouse gases were rated based on their power to warm the atmosphere. The more dangerous the gas, the more that manufacturers in developing nations would be compensated as they reduced their emissions.
But where the United Nations envisioned environmental reform, some manufacturers of gases used in air-conditioning and refrigeration saw a lucrative business opportunity.
Really? But the U.N.’s intentions were so good . . .
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. The high output keeps the prices of the coolant gas irresistibly low, discouraging air-conditioning companies from switching to less-damaging alternative gases. That means, critics say, that United Nations subsidies intended to improve the environment are instead creating their own damage.
The United Nations and the European Union, through new rules and an outright ban, are trying to undo this unintended bonanza. But the lucrative incentive has become so entrenched that efforts to roll it back are proving tricky, even risky.
The Times, as always, appears to be genuinely surprised both that governments create perverse incentives when they get involved in such things, and that they often entrench the resultant bad behavior in a way that real markets do not. The paper was not alone in its bewilderment:
“I was a climate negotiator, and no one had this in mind,” said David Doniger of the Natural Resources Defense Council. “It turns out you get nearly 100 times more from credits than it costs to do it. It turned the economics of the business on its head.”
Plus ça change.