Market News

 September 20, 2013
Ozone Treaty Offers Quicker Fix for Global Warming

 A plan to cut some of the Earth's most potent greenhouse gases and combat climate change is gathering support.

The idea is to bypass log-jammed United Nations climate treaty talks and hand responsibility for reducing refrigerants called hydrofluorocarbons to the Montreal Protocol, an instrument designed to protect the ozone layer.

HFCs, made by companies including DuPont Co. (DD) and Honeywell International Inc. (HON) in a $4 billion global refrigerant industry, are used in products from air conditioners and refrigerators to asthma inhalers. Although less abundant, they're a far more powerful in damaging the atmosphere than the carbon dioxide that comes from burning fossil fuels. Success in tackling HFCs may provide a route to break the impasse around regulating greenhouse gases.

"Using the Montreal Protocol is a logical approach," said Ian Shankland, chief technology officer of Honeywell's performance materials and technologies unit, a major HFC manufacturer. "It provides a regulated timetable that gives a degree of certainty for the innovators and producers as well as the end-users to plan ahead."

The Montreal deal, touted as the most successful environmental treaty, was rolled out in 1987 to eliminate the use of chloroflorocarbons or CFCs, once a mainstay of air-conditioner refrigerants and aerosols. Ratified by all nations, it's cut CFCs and other regulated chemicals by 98 percent, replacing them with HFCs.

Warming Agent

The problem is, while HFCs are less damaging to the ozone layer than CFCs, as an agent of global warming they're as much as 11,700 times more powerful than CO2. And because use of HFCs is growing, they may expand to 19 percent of greenhouse gases in 2050 from about 1 percent now, the UN estimates.

HFCs "are growing faster than anything else, and they are a larger and larger fraction of the problem," David Doniger, a policy director at the New York-based Natural Resources Defense Council, said by phone. "The last thing we should be doing right now is adding a big new source of greenhouse gases."

What gives the idea currency is political momentum and environmental urgency. Envoys from the U.S., the European Union and even the tiny Pacific state of Micronesia -- have gathered support from more than half the world's nations to cut fluorinated gases using the Montreal Protocol. Leaders of the G-20 group of large economies this month also endorsed the plan in their end-of summit declaration.

Montreal Diplomacy

An amendment to the treaty requires two thirds of signing parties in attendance at a vote to win approval, a proportion that advocates say is achievable given its mechanism of a gradual phase-out that has already gathered significant support from industry.

The idea is also bolstered by a June agreement between U.S. President Barack Obama and his Chinese counterpart Xi Jinping to work together to tackle HFCs to add to initiatives they're already undertaking to reduce carbon emissions.

The U.S. Environmental Protection Agency estimates an HFC phase-out under the Montreal Protocol could cut cumulative emissions by the equivalent of more than 90 billion tons of CO2 by 2050. That's two years of greenhouse-gas output at current levels.

UN Failure

The UN failed in its last attempt to broker a climate deal between more than 190 nations at a Copenhagen summit in 2009 because of disagreements over whether it should be binding for all. It's trying to come up with interim measures to curb global temperatures before agreeing on a new treaty in 2015 that would start in 2020. Using the Montreal Protocol may be one such step.

The proposals will be debated by delegates to the Montreal Protocol next month and as part of the UN Framework Convention on Climate Change, or UNFCCC, in November.

"The momentum for an HFC phase-down is building fast," said Kaveh Zahedi, deputy director of the UN Environment Program's technology, industry and economics unit. "The earlier this policy message is sent, the quicker industry will move."

The biggest companies making HFCs say the approach is sensible. DuPont supports a gradual reduction and is "investing significant financial and manpower resources," including building two new factories, to develop replacements, said Joseph Martinko, a business manager at the company.

Replacement Chemicals

Honeywell has one replacement chemical and is building plants to produce two other substitutes at a cost of as much as $200 million per factory, according to Shankland.

Japanese HFC manufacturer Daikin Industries Ltd. (6367) says on its website that it's researching "next-generation refrigerants that contribute less to global warming" than HFCs. Mexico's Mexichem SAB, which in 2010 paid $350 million for the fluorine unit of Ineos Group Holdings, says on its website that it supports "regulation on a global basis" to reduce HFCs.

The pitch to use the Montreal Protocol as a vehicle to reduce HFCs was first made at UN climate talks in 2009, when the U.S., Mexico and Canada suggested the idea. The same year, Micronesia and Mauritius proposed to amend the Montreal Protocol to include HFCs. Their bids failed, and the 28-nation EU resurrected the plan this year at low-level discussions in Bonn, citing support from more than 100 nations.

Developing World

Until now, the biggest laggards had been large developing nations such as China, India and Brazil, plus Middle Eastern countries. Chinese opposition waned in June when Xi and Obama agreed to use the "institutions" of the Montreal Protocol to tackle HFCs. Brazilian climate envoy Andre Correa do Lago also has said his country is open to discussing the plan.

Negotiators at the October talks may ask advisers to examine the details of a gradual reduction next year, and "maybe in 2015 we'll see some concrete movement," European Commission envoy Philip Owen said.

Barriers remain. India and Middle Eastern nations have said there are no suitable alternatives to HFCs in air conditioners for hot countries. India says HFCs should be dealt with by the UNFCCC.

Yet the UNFCCC process is congested by demands from the myriad nations represented at talks.

"If you were a betting man you would get strong odds that the UNFCCC will remain paralyzed," said the NRDC's Doniger. "At some point each of these countries has to decide: Do you want to get something done?"