A greenhouse gas is being smuggled into the EU on a massive scale in defiance of quotas designed to limit its environmental impact, compromising the fight against climate change, leading industry figures say.
The volume of black-market hydrofluorocarbons (HFCs) originating in China estimated by the UK-based Environmental Investigation Agency to be flooding the EU market is at least equivalent to the annual emissions of 3.5m cars. HFCs are used in air conditioning and to cool fridges and cars.
“It’s like not having any regulations, or worse,” said Daniel Martínez-Valle, chief executive of Mexican company Orbia, whose Koura division produces about a fifth of the raw material used to make the refrigerant gas from a mine in Mexico. Much of the rest comes from China, which is the largest producer of HFCs.
The illegal imports are costing the five big manufacturers of fluorocarbons for Europe — Orbia/Koura, Honeywell and Chemours of the US, France’s Arkema, and Japan’s Daikin — about $500m in lost profits a year, said Sameer Bharadwaj, Koura president. This undermines the companies’ ability to invest in developing greener alternatives to replace HFCs, which under EU regulations are due to be largely phased out by 2030.
“We need to invest a lot in developing next-generation products that will address the global warming potential of refrigerants and reduce it by a factor of five or 10. If you can easily buy [HFCs] from China, that will limit our ability to continue investing in new products,” he said.
Mr Mártinez-Valle said: “What’s the use of signing commitments, adhering to protocols and going to Davos — it’s useless if we don’t have the capacity to enforce this.”
HFCs were developed to replace chlorofluorocarbons (CFCs), which were banned four decades ago under the Montreal Protocol after the discovery that they had caused a hole in the ozone layer. HFCs do not deplete ozone but do have global warming potential and in 2016 more than 170 countries agreed to phase them out.
While production is legal, they are subject to import quotas under an ambitious EU law that established incremental cuts in the amounts of permitted HFCs from 2015.
HFC prices soared in anticipation of lower supply — creating an incentive for smugglers — and were likely to rise again this year before further reductions took effect next year, said Fionnuala Walravens at the EIA. “This definitely isn’t going away,” she said.
George Koutsaftes, president of Honeywell Advanced Materials which has spent close to $1bn developing new technology to replace HFCs, said it would require a forest the size of Portugal to capture all the illegal emissions.
He said increasing seizures of illegally imported HFCs were encouraging, “but this won’t be fixed overnight, by a long shot . . . Things are not getting worse but they’re not getting much better”.
Some HFCs are trafficked into the EU through border states Turkey, Russia and Ukraine and most end up being used in the auto after-market — for example, the servicing of cars.
EU imports of the gas were not tracked in real time and customs in different member states could not see how much of a company’s import quota has been used up, said Dave Smith, business director at Koura.
Furthermore, when illegal imports were found, fines were puny — as little as €5,000 in Greece, for example — compared with the opportunity to earn €200,000 with just a single shipment, he said.
As a result, illicit HFCs were estimated to make up 60 per cent of the gas used in Italy, and 50-80 per cent in Greece, Bulgaria and Romania but had also been detected in France, Germany, Spain and the UK, Mr Smith said. Croatia had been found to be importing 10 times the amount of HFCs it did four years ago, he added.
In a report last year, the EIA said EU customs data pointed to significant increases in some countries’ HFC imports and noted that bulk HFC imports in 2018 “were too high for compliance with the 2018 quota”. In addition, Chinese HFC export and EU import data did not tally, it said.
According to EIA estimates, 117.5m metric tonnes of carbon dioxide equivalent was sold in the EU in 2018, some 16.3m metric tonnes of CO2 equivalent above permitted levels.
The EU limits are “completely undermined by organised crime activities,” said Mark Vergnano, chief executive of Chemours.
“We urge authorities to crack down on illegal imports of HFCs. This groundbreaking regulation was created to help address man-made climate change, but enforcement action needs to be taken or the regulation is meaningless.”
The EU was trying to step up compliance efforts and Poland stood out for the strides it had made, “but the pace isn’t fast enough”, said Mr Bharadwaj.
“If we solve this this year, we will be a year late,” said Mr Mártinez-Valle.
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