Unlike many other types of CDM activities, industrial gas abatement projects incur ongoing costs. And the only revenue they accrue is from the sale of emission reduction certificates. If this revenue disappears in the face of the carbon market crash, the abatement activities are at risk of being stalled. The resulting damage to the climate would be tremendous. Against this backdrop, the German Federal Environment Ministry (BMU) funds the project Options for Continuing GHG Abatement from CDM and JI Industrial Gas Projects which focuses on the three project types with the greatest greenhouse gas (GHG) reduction potential: HFC-23 emissions from HFC-22 production, N20 emissions from adipic acid production and N20 emissions from nitric acid production.
As a first step, the most important project types under the CDM and JI mechanisms were analysed to assess whether their mitigation activities were at immediate risk of being stalled due to the low market prices for CDM certificates and for JI certificates (Emission Reduction Units or ERUs). This was done using a sequential decision-making matrix. For the most part, the analysis looked at whether the abatement activity generates revenue other than from certificates and whether that revenue could be used to cover the costs of the abatement activity. The results of the analysis show that most project types are not at immediate risk. There is, however, a heightened risk where industrial gas projects are concerned.
In a second step, the emission reduction potential of industrial gas projects and their potential for generating emissions certificates were estimated for the period 2013 to 2030. Around one half of the estimated emission reductions could be achieved with HFC-23 abatement projects. Approximately one-third of the estimated potential falls to N2O emissions from adipic acid production and the rest to N2O from nitric acid production. Over the period in question, savings of around 7.5 gigatonnes of carbon dioxide equivalents (CO2e) could be achieved. This would close somewhere between three and five percent of the existing gap between the necessary and pledged emission reductions needed to limit global warming to below 2 degrees Celsius.
The authors are in favour of finding a long-term solution which also addresses emissions from new facilities, either through regulation or integration into national emissions trading schemes. The industrialised countries could, in addition, provide short-term support to enable continuation and, where appropriate, an extension of projects to abate industrial gas. For HFC-23 and adipic acid projects, “perverse incentives” are to be avoided and emission reductions financed based abatement costs. For this purpose, a fund could be created or certificates could be bought based on abatement costs and, were appropriate, set aside. As HFC-23 is a by-product in the production of a substance which harms the ozone layer, a solution involving the Montreal Protocol on Substances that Deplete the Ozone Layer Multilateral Fund could be highly promising. Be that as it may, when it comes to verification of N2O emission reductions from nitric acid production, the authors recommend continued use of the institutions and methodologies available under the CDM.
Lambert Schneider, Martin Cames (Öko-Insitut e.V)
Ecofys Germany GmbH
2013 – 2014
Lambert Schneider, SEI Associate