ECONOMICS OF THE “CRITICAL USE” OF METHYL BROMIDE UNDER THE MONTREAL PROTOCOL

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. …