I draw three major lessons from the report.

1. Keep trading transparent. Ownership of RGGI permits are registered in a public tracking system. Futures and options are exchange-traded on the Chicago Climate Futures Exchange and the Green Exchange. Smart, because:

Public exchanges are attractive to firms that need a simple way to trade standard products. Moreover, public exchanges effectively eliminate the risk of default by counter-parties, since the exchange constantly monitors the account holdings of each participant to ensure that they have posted sufficient financial security to meet their obligations.

RGGI does allow over-the-counter (OTC) trades (trades between two private parties) for futures, options, and other derivative products. While OTC markets do provide some benefits for certain firms, they are murkier than public exchanges. And even the public exchanges may not require all the details that are important to understanding a transaction. (Potomac identified one instance in which a small quantity of allowances was traded at a price that seems too high—and though there are a number of perfectly reasonable explanations for the trade, the exchanges did not require sufficient information from the trading parties to allow the market monitor to draw conclusions.)

2. Keep a level playing field. RGGI publicly announces the “clearing price” of its auction at a pre-specified time so that all participants have access to the same information and the same time. Similarly, the U.S. Commodity Futures Trading Commission publishes a weekly report documenting the positions, both long and short, of firms trading futures and options on the commodity exchanges. Once again, market participants operate with shared information, which curbs manipulation.

3. Keep an eye on the ball. Frequent analytical reports, like this one from Potomac, are key to ensuring that the carbon markets are well-functioning and fair. Good market monitoring can enable government regulators and administrators to act in a timely fashion if something goes awry. And they can fine-tune their policies and procedures based on good information.

The projections are based on new baseline scenarios out to 2050. The new global HFC emission projections are significantly higher than previous estimates especially after 2025 in developing countries. By 2050, the emissions are equivalent to 9-19% (CO2 eq. basis) of the projected global CO2 emissions in a business-as-usual (BAU scenario and contribute a radiative forcing in the range of 0.25-0.40W/M2, which is about a factor of 3 larger than previous estimates. By 2050, the HFC radiative forcing fraction is projected to be 7-12% of that for CO2.

By Emily Gertz

At an interagency meeting, this still-unnamed economist argued that HFCs would be needed to trade against other greenhouse gases in a US carbon market — and thus that the US should support controlling them under the Kyoto climate change agreement and its successor treaty.

“In other words,” writes SolveClimate’s David Sassoon,

“a utility company or cement manufacturer on the hook to reduce CO2 emissions under a federal climate law could opt to find sources of HFCs and have them destroyed instead. Since HFCs are as much as 11,990 times more potent than CO2, small amounts could substitute for large amounts of CO2 emissions and offer a cheaper alternative to emissions reductions, lubricating the economy to a more gradual embrace of a price on carbon. It also means CO2 emissions would ratchet down more slowly.

The difference of opinion within the administration on one of its signature issues was an unexpected development.”

HFC23 is a by-product of manufacturing refrigerant gases used to cool fridges and air conditioners.

It is nearly 12,000 times as toxic as carbon dioxide in its climate impact if it enters the atmosphere.

But getting rid of HFC23 is quite easy and relatively cheap.

The solution is to burn it off in an incinerator.

SRF has installed an incinerator for burning off HFC23 at its plant in Rajasthan.

The project has been registered with the CDM and is receiving up to 3.8 million carbon credits a year.

These are currently worth $50m to $60m a year.

SRF is likely to receive the credits for a period of about 10 years, so it is in line for a total windfall in the region of more than $500m, a gigantic sum for a smallish chemical plant located in rural India.

A low carbon tax would create the illusion of action without changing business as usual.

At present, HFC-23 projects produce about 41 Mt of certified CO2 reductions. By 2012, they are expected to be 502 Mt.

The concern is that creating a market for HFC-23 destruction encourages HCFC-22 production.

HFC-23 is destroyed by incineration.