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Challenge

With rapid industrialization and urbanization, China’s ODS consumption grew over 12 percent per year from 1986 to 1997. By then, China roughly produced 95,800 tons and consumed 87,600 tons of ODS, becoming the largest ODS producer and consumer in the world.

Chlorofluorocarbon (CFC)-11, CFC-12, CTC and halon 1211 were the major ODSs produced and consumed in China.  These chemicals were used in foams, refrigeration and air-conditioning, aerosols, fire protection, and solvent cleaning.

These industries shared several characteristics: rapid industrial growth; geographic dispersion of enterprises; growing profitability of ODS production; non-competitiveness of ODS alternatives due to safety concerns and/or limited commercial availability; inadequate policy/regulatory framework and enforcement mechanisms; and, competition from multinational corporations.

Three World Bank ODS phase-out projects were approved for China between 1993 and 1995. The Third ODS Project introduced an umbrella modality that financed ODS phase-out activities of individual companies producing or using ODS. It was time consuming and costly, and did not allow for control of ODS production and consumption at the national level.

 Solution

The Fourth ODS Phase-Out Project adopted a more comprehensive sector level approach. The first sector approved was the halon sector because of its high ozone-depleting potential. Other nine sectors were added over the life of the project to finally include: mobile air conditioning, commercial refrigeration, CFC production, TCA(1,1,1 -tricholorethane), halon, foam, CTC Production and process agents I and II, CFC and halon accelerated phase-out, and pharmaceutical aerosol.

The basic institutional, financial and monitoring framework and mechanisms developed in the project were designed for application to all sectors. Disbursements were issued based on performance. Funding for sub-project activities was determined through an annual bidding process. Eligible enterprises were invited to submit proposals for ODS phase-out to be achieved, along with a cost breakdown. Enterprises offering the lowest cost per kg of ODS were selected and offered ODS phase-out contracts.

Results

From 1997 to 2013, the Fourth ODS Project successfully assisted the Government of China in phasing out its production (more than 100,000 tons) and consumption (110,000 tons)  of ODS in a timely and cost-effective manner, as mandated under the Montreal Protocol.

• Each of the ODS sector plans implemented resulted in the conversion away from ODS to alternative substances, verified by well-structured monitoring systems under each sector plan, and the dismantling of old ODS-using equipment was verified and certified.
• With the assistance of the project, China successfully completed its accelerated phase-out of halon and CFC on July 1, 2007 when it closed its last six remaining CFC production facilities, fulfilling its Montreal Protocol commitments two and a half years ahead of schedule.
• In addition, through technical assistance and training, the project helped strengthen the management and operational capabilities of the Chinese Ministry of Environmental Protection, other relevant government agencies and the Project's sectoral implementing agencies.

The full scope of the reductions achieved as a result of the Project's implementation of China's production sector phase-out of CFC, halon, CTC and TCA had significant impact at the global level, particularly the production sector closure of CFCs, which contributed directly to global compliance with the Protocol.

Bank Group Contribution

As one of four implementing agencies of the Multilateral Fund (MLF) for the Implementation of the Montreal Protocol, the World Bank was the implementing agency of the Fourth China ODS Project.  The Bank assisted China in developing ODS sector strategies and designing phase-out programs. It also helped improve the government’s capacity of project management, and provided technical assistance to accelerate the research and development of ODS alternatives and technologies in China.

Partners

The Multilateral Fund for the Implementation of the Montreal Protocol provided a total of US$440 million in grants to finance the Fourth ODS Phase-Out Project.  The US Environmental Protection Agency was involved in the Fourth China ODS Project at its outset through the provision of dedicated advice in the design of the policy and regulatory objectives outlined in the Halon Sector Strategy.

Moving Forward

A new grant of US$73 million for the China hydrochlorofluorocarbons (HCFC) Phase-out Project was approved in November 2012. The new project finances investment in HCFC 141-b consumption reduction in the polyurethane (PU) foam sector and in HCFC production reduction, provides technical assistance and policy support, and helps prepare HCFC phase-out activities beyond 2015. Additional funding of $95 million was made available in April 2013, increasing the total grant funding to $168 million.  The additional funding will be used for achieving the HCFC production reduction of 47,000 tons by 2015.   

Beneficiaries

Chen Liang, Acting Director-General, Foreign Economic Cooperation Office, Ministry of Environmental Protection of China:

“The ODS IV Project was jointly developed and implemented by the World Bank and China. It has the longest implementation period and most funding, and involved most sectors and enterprises under the Multilateral Fund. It is innovative in terms of its sector- and performance-based approach, flexibility, and systematic design. ODS IV has witnessed the long-term, good and productive collaboration between the World Bank and China in fulfilling its obligations under the Montreal Protocol. Through this project, China accumulated immense experience and improved its compliance capacity to international environmental conventions. I believe that its impact goes beyond phasing out ODS, and sets an example for international collaboration in the environmental area."