A Japanese firm and a Chinese chemical plant have agreed on the world's largest ever greenhouse gas discharge reduction and emission credit purchase deal.

 

Under the agreement, Japan's JMD Greenhouse Gases Reduction Co., Ltd and the Juhua Co., Ltd based in east China's Zhejiang Province, will establish a Clean Development Mechanism (CDM) project under the Kyoto Protocol to help the state-owned Chinese firm reduce by nearly 40 million tons of its carbon dioxide discharges over seven years.

 

Under the CDM project, the world's largest by far in terms of the volume of reduced greenhouse gases that are blamed for global warming, the JMD will provide all funding and technologies to decompose HFC23 discharged by a chemical plant owned by Juhua, the largest chemical enterprise in Zhejiang and a key manufacturer of fluorine products in China.

 

HFC23, or trifluoromethane, is one of the most potent greenhouse gases responsible for climate change through global warming. It has a global warming potential that is 11,700 times that of carbon dioxide. HFCs are among the six greenhouse gases included in the Kyoto Protocol.

 

In return, the JMD will be able to purchase emission credits at a price of at least US$6.5 per ton, which is equivalent to at least US$36.5 million every year or a total of US$255.8 million for the seven contractual years based on the anticipated annual reduction of more than 5.62 million tons of carbon dioxide.

 

About 65 percent of the profits to be earned by Juhua will go to the Chinese government.

 

The JMD can sell the credits to other Japanese users that face serious challenges in meeting the greenhouse gas reduction targets of the Kyoto Protocol.

 

The Tokyo-based JMD was jointly established by JGC, Marubeni and Daioh and specializes in greenhouse gas reduction trading.

 

Juhua, a listed company in the Shanghai Stock Exchange in China, mainly manufactures raw materials for HFCs, fluorine resins, fluorine chemicals and other fluorine-related products for the domestic and export market.

 

The Kyoto Protocol, which took effect in February last year, sets binding targets for industrialized countries on the reduction of greenhouse gas emissions that would lower the risk of global climate change.

 

The United Nations pact obligates industrialized countries, except the United States, to cut their collective emissions of six key greenhouse gases like CO2 by an average 5.2 percent from the 1990 levels during the 2008-2012 period.

 

The CDM is a market-based financial instrument set up under the Kyoto Protocol that allows industrialized countries to invest in developing country projects and acquire greenhouse gas emission reduction credits, or carbon credits, that they can then use to fulfill their commitments under the protocol.

 

Japan is committed to reducing its collective emissions of greenhouse gases by 6 percent below 1990 levels during 2008-2012.

 

The CDM project with Juhua, the first of its kind involving cooperation between Japanese and Chinese companies, will contribute greatly toward achieving the goal set for Japan in the Kyoto Protocol.

 

China, a strong prospective host country for CDM projects, has ratified 25 such projects so far, according to the National Development and Reform Commission.

 

"The market is playing its role in helping developing countries like China deal with the dilemma of economic growth at the cost of the environment," said Zhou Changyi, an official with the commission.

 

Many Chinese companies have been vying for CDM projects since the country's first CDM project, a wind power plant, was launched in North China's Inner Mongolia Autonomous Region in 2002.

 

However, some enterprises are hesitating over the cooperation with foreign investors, given the complicated international rules, a low price for carbon credits in the world market, insufficient project development capacity, and low efficiency in energy consumption.

 

According to a report by the Beijing-based Qinghua University, CDM projects are expected to bring about 3.94 billion yuan (US$493 million) of foreign investment by 2010.

 

Experts said the market-based mechanism injects an economic incentive into pollution-producing industries and was mutually beneficial to Chinese companies and foreign emission credits buyers.

 

(Xinhua News Agency April 11, 2006)