Europe’s climate goals are being undermined by a thriving black market for hydrofluorocarbons (HFCs) used in refrigeration products, it has been claimed.
The exact size of the market is unknown, but a new database created by Oxera Consulting claims to shine new light on the extent of the issue.
Oxera’s assessment of HFC trade flow data, analysed by the European FluoroCarbons Technical Committee (EFCTC), indicates that this illegal trade could represent up to 34 million tonnes CO2 equivalent (eqT) – or 33% of the legally allowed quota in 2018.
A significant quantity of HFCs – common refrigerants used in everything from commercial chillers to automotive air conditioning systems – are entering the European market through covert, illegal supply routes that circumvent the EU’s F-gas regulation.
The existing rules are designed tp phase down the consumption of HFCs with a high Global Warming Potential (GWP) via a quota system.
They are in force at all entry points to the EU and should be controlling the F-gases placed on the European market.
However, a growing black market for non-quota HFCs suggests current regulatory enforcement of the F-gas regulation is inadequate.
This illicit activity funds organised crime and negatively impacts European businesses across the supply chain, many of whom are small and medium-sized companies that are unwittingly distributing and using illegally imported products or suffering huge losses when undercut by those who do.
Because of the illegal nature of the issue, calculating just how much uncontrolled trade occurs has been challenging, with the size of the black market the subject of continued speculation.
An earlier report from the Environmental Investigations Agency (EIA) estimated illegal imports of HFCs in 2018 to be responsible for 16.3 million CO2eqT.
However, based on the research from data analytics consultancy Oxera, the EFCTC estimates the figure to be far higher.
Oxera gathered and compared publicly available data from EU statistics agency Eurostat and the United Nations’ trading statistics database Comtrade, as well as Chinese export data.
Using this data, EFCTC concludes that the volume of HFC refrigerants entering the EU market illegally in 2018 could be as high as 34 million CO2eqT – double previous worst-case figures.
It said the number is equivalent to each of the 1.2 million inhabitants of Brussels taking a transatlantic flight every day for a month or the same as adding 25 million new cars to European roads.
This means that the illegal imports could represent as much as 25% of the combined market of legal and illegal supply (34 of 135.2 million tonnes CO2e), it claims.
“While we have no way of knowing the exact size of the HFC black market since illegal trade is not reported officially anywhere, this new analysis reveals a robust indication of the scale of the problem. Illegal HFC trade could be even more alarming than previous worst-case estimates,” said Daniel Martinez-Valle, CEO of Orbia, parent company of EFCTC member Koura Global.
“With a further reduction of the quota coming up in January 2021, we are calling for a better enforcement of the F-gas regulation to help stem the flow of illegal imports into Europe.”
While the scale of the problem is clearly significant, EFCTC believes it can be fixed through stricter enforcement at the EU and Member State level, tighter border controls, cooperation and use of common infrastructure to support better tracking and tracing of HFC imports, and greater awareness of the issue across the entire supply chain.
The analysis revealed two major trade flows that could be hiding illegal imports.
Firstly, Oxera data revealed a gap of 19 million CO2eqT in 2018 between the reported exports from China to the EU and the official EU reports on imports from China.
This discrepancy could be feeding a thriving black market in HFCs and coincides with a tightening of the allowable HFC quota in 2018.
Secondly, Oxera identified a 40% increase in HFC exports from China to EU neighbouring countries between 2016 and 2018, accelerating steeply in 2018 at the same time as the quota was tightened.
An analysis by EFCTC has shown that market growth does not account for this spectacular increase in imports. There is a 15 million CO2eqT excess in exports above those justified by market dynamics.
Investigations into the trade routes of illegal imports of HFCs by the agency Kroll and public authorities have shown that HFCs frequently travel through these neighbouring countries on their way into the EU.
“The discrepancy between Chinese export numbers and Eurostat’s recorded imports and the substantial increase in HFC imports into neighbouring countries are stark. Illegal HFC trade could be one of the reasons for the differences in the data,” said Matthew Shepherd, principal at Oxera Consulting.