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Today’s Finshot explains how and why powerful climate-polluting gases called HFCs (hydrofluorocarbons) are illegally traded across Europe.
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story
Imagine Andrei is a Romanian refrigerant trader. He successfully fooled customs authorities at the border by disguising a shipment of climate-damaging HFCs (hydrofluorocarbons) as a more environmentally friendly gas.
And it wasn’t even difficult. All he had to do was mislabel the gas cylinder containing HFC as HFO (hydrofluoroolefin). HFO (hydrofluoroolefins) are marketed as a less toxic alternative to HFCs due to their low global warming potential (GWP).
But Andrei is not the only person involved in such illegal HFC transactions. Many like him import more HFCs than are allowed by under-reporting the numbers. Or they could even export less than they say they would and divert the remaining gas to EU countries.
Currently, this type of illegal HFC trade has serious impacts on the climate, as HFCs are potent greenhouse gases. They can persist in the atmosphere for nearly 15 years. And just one ton of illegally traded HFC could have the same GWP as 30 million tons of carbon dioxide. For comparison, that’s the annual emissions from driving 6.5 million gasoline-powered cars.
But why are HFCs being smuggled into the EU?
Well, you can also blame something called the F-gas regulation.
yes! Regulations that seem to have backfired.
In 2006, the EU introduced this regulation to control emissions from F-gases or fluorinated gases. These are man-made gases used in various industrial applications such as air conditioning, refrigeration, and heat pumps. But because they have a high GWP, the EU wanted to start phasing them out. Therefore, we started by introducing a leak check protocol to prevent F-gas leaks from old refrigerators and air conditioners.
However, the ultimate goal was to reduce and completely abandon these toxic pollutants. And that’s exactly why the EU thought it made sense to slowly reform its rules.
A few years later, revised regulations targeted a 79% reduction in HFC use by 2030, from an average annual HFC demand of approximately 182 million tons. And the EU could only do this if it aimed to reduce production and supply by a small amount each year. So they said, “Let’s introduce limits on HFC traders by introducing a fixed quota for each HFC trader, so they can’t produce or buy beyond the limits we’ve imposed.” You won’t be able to.”
However, it appears that things did not go as the EU hoped. Because this is the problem. According to the United Nations, temperatures in Europe have risen twice as fast as the global average since the 1980s. And if this situation continues, it means that the continent’s use of air conditioning to cope with rising temperatures could double by 2050.
Naturally, therefore, the demand for HFCs will increase. However, restrictions on their trade thanks to F-gas regulations meant that supplies simply became scarce. And you know what happens when the demand for something exceeds the supply, right?
Prices will rise.
In fact, HFC prices have begun to rise in anticipation of future quota cuts. Companies that needed these gases began hoarding them. The Environmental Investigation Report (EIA) that busted HFC smuggling even cited that at one point in 2018, the price of the widely used HFC-404A had soared to 1,190% of its 2014 price.
In countries like Spain, the price of some of these gases has even doubled due to heavy taxes due to increased taxes on HFCs, which have a higher GWP.
Another reason why HFC prices soared was the quota system.
The F-Gas regulation allocates quotas to companies free of charge. However, only large producers or large distribution companies that have been in business for three years or more will be given priority. This means that large companies get nearly 90% of his HFC quota, making it easy for large companies to monopolize the trade and sell HFCs at high prices.
And this simply paved the way for HFC smuggling within the EU. Smugglers sourced HFCs from China, the world’s largest producer of HFCs, and smuggled them through EU border countries such as Poland, Romania and Bulgaria, where customs inspections are weak or open to manipulation.
Getting arrested was their biggest worry, as fines and fines for violating regulations were too low compared to the profits they could make by selling these gases on the black market.
As a result, illegal HFC trade has cost governments significant tax revenue in the form of lost value-added taxes and import duties, apart from increased emissions and organized crime. For example, in 2018, the Polish Ministry of Finance suffered a loss of 7 million euros due to illegal imports of refrigerants. The Lithuanian Ministry of Finance suffered losses of up to 5 million euros. The Greek government then claimed that illegal refrigerants from non-EU countries such as Bulgaria, Albania, Macedonia and Turkey had cost it more than €20 million in lost value-added taxes and taxes.
The only question left, then, is how the EU can recover from the regulatory impact that blew it in its face.
First of all, the EU could invest in a real-time system that updates customs authorities with HFC quotas allocated to importers. That way, you can keep a close eye on who is ignoring the rules.
Tracking cylinders used for HFC trading are also helpful. Single-use, non-refillable cylinders have long been banned in the EU because residual gas inside them can leak into the air. However, smugglers simply use refillable cylinders to transport these gases, with no intention of ever using them again. Therefore, it is important to record the cylinder footprint. Without evidence of a solid cylinder withdrawal scheme, authorities could be tipped off to authorities that an illegal HFC trade may be taking place under their noses.
And finally, closing transportation loopholes. This simply refers to the exemptions available when goods enter the EU from non-EU territories. Some checks, taxes and duties could be suspended to make it easier for such goods to pass through the EU. However, smugglers can exploit these exemptions by cleverly disrupting the tracking of goods, which could mean they never leave EU borders and end up on the black market.
Yes, if the EU wants the F-Gas regulation to actually work, it will probably have to close the door that the regulation itself left wide open to smugglers. We will have to wait and see whether it is successful or not.
Until then…
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