Nitrogen+Syngas 368 Nov-Dec 2020
30 November 2020
Tackling emissions in the nitric acid industry
NITROGEN DIOXIDE
Tackling emissions in the nitric acid industry
Malte Plewa, Volker Schmidt, Daniel Ávila and Enrico Rubertus of German development agency GIZ and Dr. Silke Karcher of the German Environment Ministry (BMU) discuss action on climate change from nitric acid production and the Nitric Acid Climate Action Group (NACAG) and its global initiative for mitigating emissions.
It is undeniable that climate change is one of today’s greatest challenges. Greenhouse gas (GHG) emissions are responsible for altering climate patterns and increasing global temperatures. The fertiliser industry is a major source of greenhouse gas emissions around the world. The application and use of synthetic fertilisers account for most of the sector’s emissions, but the ammonia and nitric acid production processes are also major contributors.
Nitric acid is a nitrogen compound used throughout the world as a raw material in fertiliser manufacturing. Nitrous oxide (N2 O) is an unwanted by-product of the production process and a potent ozone-depleting greenhouse gas (GHG) with a global warming potential 265 times that of CO2 . Even though extensive abatement is neither technically difficult nor expensive, this harmful greenhouse gas is released into the atmosphere unabated by most production facilities around the world. The respective abatement technology is consequently currently applied in the European Union (EU), where its operation is highly incentivised by the European Emissions Trading System (EU-ETS). Outside the EU, however, only a few countries or regions have implemented similar incentive systems, often with a limited reach. In addition, there are a small number of nitric acid plants that continue to operate N2 O abatement technology because they still hold valid contracts for selling emission reduction certificates through the UN Clean Development Mechanism (CDM), either through individual purchase agreements or option rights from the last auction of the Pilot Auction Facility (PAF).
Based on the available information, it is estimated that the operation of dedicated N2 O abatement technology is limited to around 25% of the approximately 580 nitric acid plants that exist worldwide. This is especially alarming as N2 O abatement in nitric acid production has been rather successful under the CDM. To date, project activities in nitric acid production facilities have generated emission reduction certificates worth more than 92 million tonnes of CO2 equivalent. In total, almost 100 CDM projects have been registered. However, due to the drastic drop in certificate prices at the end of 2012, approximately 40 of these projects never actually reached technical implementation and most of the rest were decommissioned in the years that followed.
While GHG mitigation can be challenging or expensive in many sectors, proven N2 O abatement technology for nitric acid installations is readily available and mitigation is possible at a comparatively low cost of approximately $1.00 – 5.00/tonne of CO2 equivalent. Moreover, the technology can be installed in existing plants relatively easily and can reach very high abatement efficiencies of up to 98%. Estimates suggest that there is a theoretical additional abatement potential of up to 180 million tonnes of CO2 eq per year globally. Given the ongoing challenges of climate change, we are duty bound to exploit this cost-effective mitigation potential.
NACAG’s launch and offer
Driven by this rationale, the German Federal Ministry for the Environment, Nature Conservation and Nuclear Safety (BMU) launched the Nitric Acid Climate Action Group at UNFCCC’s 21st Conference of the Parties in Paris (COP 21). This global action group’s ambitious vision is for all nitric acid production plants worldwide to implement and permanently operate effective N2 O abatement measures; in other words, transform the entire industry sector towards climate-friendly production.
To achieve this goal, NACAG supports its partner countries in the technical aspects as well as in designing effective policies to ensure the permanent abatement of these emissions. For example, NACAG conducts technical studies at plant level on the most suitable mitigation technology; it also provides policy advisory services by analysing potential options for regulation of N2 O abatement in its partner countries.
In addition, NACAG offers financial support for N2 O abatement measures to plant operators in countries which do not have sufficient resources to implement these activities. There are approximately 95 nitric acid plants located in countries eligible to receive official development assistance, with a total annual abatement potential of roughly 45 million tonnes CO2 eq.
The financial support is provided through two different mechanisms. For plant operators which have not operated N2 O abatement technology in recent years, NACAG provides direct grants to purchase and install nitrous oxide abatement technology and emission monitoring equipment.
Plant operators can apply for a grant to the NACAG Secretariat directly by filling in an application form. The NACAG Secretariat will review the application on eligibility criteria and perform a due diligence assessment of the plant. If the outcome is positive, an agreement is drawn up between the plant operator and the NACAG Secretariat. The grant is non-repayable and covers all costs related to the purchase and installation of the abatement technology.
For plant operators which have recently mitigated production-related N2 O emissions, usually incentivised by the CDM, NACAG offers participation in a climate auction for price guarantees on emission reduction certificates. This second financing programme is based on the World Bank’s Pilot Auction Facility and operates under the Nitric Acid Climate Auctions Programme (NACAP).
In this climate auction, a price guarantee in the form of bonds for future independently verified emission reductions is sold to private companies and individuals; the value of these price guarantees is determined by an auction. Under the Nitric Acid Climate Auctions Programme, the auctions sell bonds that may be redeemed after the bondholder delivers verified eligible N2 O emission reductions from nitric acid plants. The NACAP will make the payments in exchange for eligible carbon credits generated from 2018 to 2024, with the last payment occurring in 2025.
Financial support linked to partner country commitment
All countries worldwide are invited to join the NACAG by signing the NACAG Declaration, a non-binding expression of support for the action group’s goals. To qualify for NACAG funding, the partner countries need to formally commit to implementing effective policy measures that guarantee a commitment to N2 O abatement in nitric acid production after 2023. This strategy is in line with the spirit of the Paris Agreement as it not only ensures the lasting effectiveness of the measures but also invites all countries to count this easily tapped potential towards their own Nationally Determined Contributions (NDCs) to the Paris Agreement, thus contributing to raising the ambition. From the perspective of the partner countries, it makes sense to use these ‘low-hanging fruit’ emission reductions for their own climate commitments, rather than for any form of international trading of mitigation outcomes through existing schemes or possible future set-ups under Article 6 of the Paris Agreement.
This firm commitment is expressed by the government of the partner country signing a unilateral Statement of Undertaking (SoU), which ensures that a one-time investment is turned into permanent mitigation. Since this requires an official agreement from the partner countries’ governments, it can entail a lengthy political process.
The initiative has been in close discussions with more than 30 countries to offer technical and financial support. So far, 14 countries have joined by signing the Declaration, thereby expressing support for the initiative’s goals. Moreover, four countries (Georgia, Mexico, Tunisia and Zimbabwe) have already signed the formal political commitment (SoU) and thus qualify for financial support. NACAG is currently setting up grant agreements with the local nitric acid producers in these countries. It is expected that more countries will sign the SoU in the coming months.
A regulatory deficit
Despite the availability of proven and cost-effective N2 O abatement technology, only a few countries have implemented policies on the abatement of N2 O emissions in nitric acid production. There are several reasons for this regulatory deficit. In developing countries in particular, fertiliser producers are often considered to be of strategic importance for food security, the regulators therefore hesitate to enforce stricter environmental regulations. Furthermore, in most countries, there are only a very small number of these facilities; creating a separate regulation aimed solely at this sector may therefore appear somewhat arbitrary.
However, in working towards the Paris Agreement’s goals to keep global warming well below 2°C, it is now impossible to ignore a sector that generates considerable amounts of GHG emissions when they can easily be mitigated at a comparatively low cost. There are positive signs from a variety of partner countries worldwide that production-related N2 O emissions from the nitric acid sector will be considered in the current updating process of the NDCs, due at the end of 2020. Once included in the NDC, these emissions will need to be covered by some sort of policy to ensure that they are permanently abated.
Outlook
While countries are preparing their successive NDCs to the Paris Agreement, for many countries the inclusion of the nitric acid production sector will present an opportunity to raise their climate ambitions. The NACAG initiative offers technical and financial support, linked to a firm partner country commitment, to incentivise the early realisation of this substantial global mitigation potential.
With 14 member states (as at July 2020) already, the NACAG initiative has proven to be of interest to governments and plant operators around the world. Other countries are invited to join the action group to show their support for the initiative’s goal to phase out N2 O emissions from nitric acid production globally. Plant operators interested in climate action are also welcome to contact the NACAG Secretariat. As the NACAG approach has been well received internationally, it would be interesting to see whether this approach can be expanded to other sectors besides nitric acid production.
Further information: www.nitricacidaction.org
“It is our goal to support the partner countries throughout the entire process of sustainably transforming the nitric acid sector.”
Mr Flasbarth, could you please explain the rationale behind the launch of the Nitric Acid Climate Action Group and its link to the Paris Agreement?
The Paris Agreement marks a major paradigm shift in international climate policy. For the first time, all member states committed to set their own emissions targets and regularly review them to be more ambitious. With the Nitric Acid Climate Action Group, BMU launched an initiative which follows the spirit of the Paris Agreement, providing climate finance and technical support to developing countries for realising the cost-effective mitigation potential of the nitric acid sector. The Action Group therefore contributes to raising ambitions by encouraging the partner countries to include the nitric acid sector in their Nationally Determined Contributions (NDCs) to the Paris Agreement.
A key element of NACAG is that the partner countries need to commit to ensuring that the emissions from the sector will be mitigated permanently. NACAG only provides financial support to countries which have made this firm commitment.
Why does the initiative target the nitric acid sector globally?
The intention was to pick a sector where the abatement of emissions is particularly cost-effective, and for which widely proven mitigation technologies are available. The global mitigation potential in this sector is substantial as nitrous oxide has a global warming potential of 265 relative to CO2 and, in some countries, emissions from nitric acid production account for a considerable share of total national emissions. Therefore, in working towards the Paris Agreement goals, this sector cannot be ignored. NACAG promotes the early achievement of this potential within national mitigation strategies, the raising of ambitions and the updating of NDCs.
Under the Clean Development Mechanism, plant operators from developing countries were given an incentive to mitigate emissions and monetise the resulting emission reductions. However, when the price for these credits dropped, we observed that the mitigation activities in some countries stopped and that many plant operators uninstalled the technology to save on maintenance costs, leading to a rise in emissions. Through NACAG, we aim to revive these abatement activities on a global scale. We would also create an incentive for the plant operators which have not been active under the CDM to begin to address these emissions and to encourage governments to regulate emissions nationally and include them in the NDCs. Hence, the NACAG can serve as an example of how mitigation measures, which previously took place under the CDM, can be transferred into countries’ NDCs and therefore be part of a long-term sustainable solution.
What are the innovative aspects and what made this approach unique when it was launched at the COP in Paris?
To achieve the goals of the Paris Agreement any new initiative needs to have a strong focus on concrete implementation leading to measurable results. However, capacity building and the transfer of technology and knowledge are also important factors. The NACAG initiative combines all of these to reach its vision and goals.
Providing grant-based finance for companies to purchase mitigation and monitoring technology conditioned on a long-term political commitment was innovative. The initiative also offers a market and results-based financing option with the Nitric Acid Climate Auction Program. NACAG’s aim is for all nitric acid plants worldwide to operate with effective N2 O abatement technology thus contributing towards transforming this industrial sector globally and creating a level playing field on a global scale.
From a pure business perspective, plant operators do not have an incentive to abate the N2 O emissions from nitric acid production. How can it be ensured that the emission reductions achieved through NACAG will be permanent?
NACAG links direct financial support with the partner countries’ long-term political commitment to greenhouse gas mitigation in this sector. The key criterion for gaining access to NACAG’s financial support is that countries where the supported nitric acid plants are located must confirm that they will implement suitable measures to ensure that the emission reduction activities continue after the initiative’s support has ended. This can for example be achieved through market-based approaches, such as an emissions trading scheme operating in the European Union but also through direct regulation via emission limits. We see different approaches being evaluated and implemented in a variety of countries. We support partner governments in the design of instruments to measure N2 O emissions and regulate their abatement as well as on ways of including the nitric acid sector in the countries’ NDCs.
How do governments and industry react to NACAG’s offer?
Since NACAG was launched in 2015, there have been discussions with around 30 countries, namely those which produce nitric acid and are eligible to receive official development assistance. So far, thirteen countries have joined the action group by signing a Declaration of Support.
Throughout the work on NACAG, we have received positive signals from both the industry and governments in many countries. The governments understand and embrace the opportunity to use NACAG’s offer to raise their ambitions under the current NDC revision process and nitric acid producers often welcome the offer of technical and financial support. Several plant operators have proactively contacted NACAG to engage in emission reduction activities. We are also regularly invited to speak about NACAG at major industry events. These are signs that industrial companies are increasingly aware of their responsibility and the importance of addressing climate change.
Could you tell us a bit more about how NACAG operates and what has been achieved so far?
In my opinion, a key success factor is the continuous dialogue between all relevant stakeholders, especially partner governments and plant operators. In addition to making financial resources available, NACAG advises its partners on a technical level. It is our goal to support the partner countries throughout the entire process of sustainably transforming the nitric acid sector.
We have conducted more than 30 workshops, performed numerous technical feasibility studies at plant level and advised partner countries on adequate policy instruments through country-specific studies. In some countries, for example Tunisia and Zimbabwe, we are in the final stages of a grant agreement for the implementation of N2 O abatement activity, and other countries such as Mexico and Georgia have made good progress towards the same goal.
NACAG started as a pilot initiative in the nitric acid sector. Would you say that the NACAG approach could be replicated in other sectors? If so, which sectors could these be?
I would like to highlight that the nitric acid sector was selected as several characteristics make it particularly favourable for a global action group approach such as NACAG. The main aspects being that proven mitigation technology is readily available and easy to install resulting in a high yield of emission reductions per individual measure at comparatively low mitigation costs per tonne of CO2 equivalent. Another important aspect is the limited number of stakeholders involved, which makes it possible to provide individual technical advice and financial support.
The NACAG approach combines financial and technological support with a long-term commitment from the participating countries. While it may be difficult to find a set-up as distinct as the nitric acid sector in any other industry, the NACAG approach, or a very similar approach, can generally be applied to sectors that also meet or come close to meeting these characteristics. One example could possibly be seen in caprolactam production facilities which, like nitric acid plants, generate N2 O as a by-product and where the same abatement technologies could be applied. A similar approach could also be used in large municipal landfills that have poor or non-existent waste management systems and produce high levels of methane.
