Economics of the "critical use" of methyl bromide under the Montreal Protocol

Contemporary Economic Policy, July, 2005 by Stephen J. Decanio, Catherine S. Norman

I. INTRODUCTION

Methyl bromide (MeBr), a powerful pesticide used for fumigation of soils (and of agricultural products in shipment), is one of the chemicals--like chlorofluorocarbons (CFCs) and halons--that is known to destroy stratospheric ozone. MeBr was first controlled under the Montreal Protocol on Substances that Deplete the Ozone Layer at the Fourth Meeting of the Parties in Copenhagen, 1992. At that time, only a 1995 freeze (at 1991 levels) by the non-Article 5(1) parties (1) was agreed (Benedick, 1998, pp. 207-209)]. (2) Subsequently the stringency of the control regime was increased (Andersen and Sarma, 2002). The protocol now requires, for the non-Article 5(1) countries, a phaseout schedule such that production and consumption of MeBr does not exceed 75% of 1991 levels beginning January 1, 1999, 50% beginning January 1, 2001, 30% beginning January 1, 2003, and a complete phaseout beginning January 1, 2005. Countries operating under Article 5(1) are entitled to a 10-year delay in their schedule, with phaseout to occur no later than January 1, 2015 (UNEP, 2003a). (3)

The Montreal Protocol allows "essential use exemptions" (EUEs) for ozone-depleting substances (ODSs) other than MeBr and allows "critical use exemptions" (CUEs) for MeBr. However, the criteria for exemptions are different for MeBr. Unlike the EUEs for other ODSs that must be "necessary for the health, safety, or ... [are] critical for the functioning of society," the MeBr CUE criteria are couched in technical and economic terms (TEAP and MBTOC, 2002; the MeBr criteria are from Decision IX/6 of the parties and the criteria for other ODSs are from Decision IV/25). In the past, only CFC applications such as metered dose inhalers (MDIs) having life-and-death criticality have been granted EUEs under the protocol. In contrast, CUEs for MeBr have been requested for dog treats, flowers, and golf courses, as well as for agricultural preplanting and postharvest fumigation applications.

In Decision IX/6, the parties requested "the Technology and Economic Assessment Panel to review nominations and make recommendations based on the criteria established in paragraphs 1(a)(ii) and 1(b) of the present decision" and specified that the "decision will apply to Parties operating under Article 5 and Parties not so operating only after the phase-out date applicable to those Parties" (TEAP and MBTOC, 2002). This means that the Technology and Economic Assessment Panel (TEAP) and Methyl Bromide Technical Options Committee (MBTOC) are charged with finding a workable definition of what it means for MeBr substitutes to be (or to not be) "technically and economically feasible." (4) The present article offers an analysis of how this might be accomplished. We are able to use data on spending by developed countries to abate ODSs in developing countries via the Multilateral Fund (MLF) of the Montreal Protocol. In addition, we discuss other economic questions surrounding nominations for CUEs for MeBr, including issues of measurement and data availability, cost forecasting, equity issues, and the relationship of the CUEs to the effectiveness of the protocol. Methodologically this issue is especially interesting because it is not generally easy to assess environmental benefits of regulation in a manner that is not controversial to one of the many interest groups involved in setting and applying policy. The availability of cost data from the MLF provides an objective benchmark that greatly reduces the burden on the regulator.

The article is structured as follows: Section II discusses the historical pattern of MeBr use and outlines the general features of the critical use nominations (CUNs) that were considered in 2003. Section III offers a discussion and definition of "economic feasibility" in light of the MLF's experience in supporting projects to phase out MeBr and other ODSs. Section IV uses standard tax incidence theory to examine the potential burden of MeBr reductions on agricultural producers. Section V presents a statistical analysis of patterns in the cost of MLF ODS phaseout projects over time. Section VI discusses ways in which the CUE process might affect the overall integrity of the Montreal Protocol. Finally, Section VII summarizes the conclusions of the analysis.

II. PATTERNS IN MEBR USE AND CUE REQUESTS

The parties were essentially on schedule to phase out MeBr through 2000, but the exemptions subsequently requested for MeBr represent a much greater proportion of usage before the phaseout than EUEs did for other ODSs. According to the most recent data (i.e., data through 2000), reductions in consumption in the non-Article 5(1) countries (the only countries for which the phaseout schedule is yet in effect) met or exceeded the protocol's MeBr abatement requirements. The time path of actual MeBr use compared to use allowed under the protocol is shown in Figure 1. This global aggregate success was also achieved at the individual country level. Of the 24 non-Article 5(1) parties (counting the European Union [EU] as a single entity) subject to the phaseout schedule, all but two had met or exceeded the MeBr requirements as of 2000, and the noncomplying states accounted for only 69 tonnes of MeBr consumption. (5) The United States has data available through 2001, and these data also show compliance with the protocol's phaseout schedule (U.S. Environmental Protection Agency, 2003). The protocol calls for the Article 5(1) countries to freeze consumption of MeBr at the level of their average consumption over 1995-1998 by no later than January 1, 2002. The base level for the Article 5(1) countries is therefore 9,226 tonnes [computed from UNEP (2002)]. The data for 2002 are not yet available, but as of 2000, the Article 5(1) countries accounted for a consumption of only 6,814 tonnes, well below their protocol limit for 2002. However, 2005 was supposed to be the phaseout date for MeBr in the non-Article 5(1) countries, and 2005 CUEs allowed for 13,438 tonnes (UNEP, 2004). Not only does this fail to achieve the scheduled phaseout, it even exceeds the 30% of the baseline that was supposed to be reached by 2003. Thus the phaseout of MeBr has been significantly delayed by the granting of CUEs.