NACAG is offering financial support for the reduction of nitrous oxide emissions from nitric acid plants located in countries which are eligible for Official Development Assistance (ODA). Both already existing N2O abatement projects and completely new projects can be supported. NACAG provides financial support to individual nitric acid plant operators for their abatement activities on the condition that the country in which the plant is located is committed to sustaining the emission abatement after 2020. This commitment should take the form of a formal Statement of Undertaking by the government. In that statement of undertaking, the government commits to ensuring that from January 2021, all nitric acid production installations located in the country will be equipped with state-of-the-art technology to remove N2O emissions from their production cycles.
Two different financing mechanisms are available: In Stream I, NACAG is providing nitric acid plant operators grant funding to reimburse investment, maintenance and monitoring costs for abatement technology. In Stream II, NACAG offers to purchase emission reductions from N2O abatement projects at prices determined by specifically designed auctions.
More details on the two funding streams are given in the following sections.
Stream I: NACAG Support Facility
In the framework of this funding stream, NACAG is supporting new abatement projects by covering up to 100% of the costs associated with the purchase, installation, and maintenance of the abatement and monitoring technology. Nitric acid plant operators from eligible countries can apply for financial support, which effectively takes the form of grants. The Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) GmbH is the executive institution of this funding stream and acts as the grant managing and contracting authority.
The Grant Application Programme is open and runs until 31 December 2020. The Grant Application Notice can be downloaded here. Eligible grant applications qualify for due diligence assessment as well as intervention advice. In the framework of the due diligence assessment, GIZ will evaluate the technical, legal, financial and operational capacity of applicants as well as the existence of environmental, social, health and gender safeguards and sufficient policy guarantees. In case of a positive outcome of the due diligence assessment, GIZ will adopt a grant award decision and issue a grant agreement for signature to the plant operator.
The activities eligible for funding from the NACAG Support Facility are the following:
- Purchase, shipping, installation and maintenance of a technical device or technology that either removes N2O (i) through the installation of a secondary N2O destruction catalyst in the oxidation reactor (“secondary abatement”), or (ii) from the tail gas through either thermal or catalytic decomposition (“tertiary abatement”), in accordance with methodological guidance established under the Clean Development Mechanism (“CDM”), namely CDM methodology ACM0019: N2O abatement from nitric acid production (in its most recent version);
- Purchase, shipping, installation and maintenance of monitoring equipment;
- Annualized gross staff costs for environmental management (including support to CDM project development and other NACAG activities).
Furthermore, GIZ will directly manage and pay for CDM project development costs; external project validation and verification; registration costs and certificate issuance fees.
Upon signature of the grant agreement, plant operators will select specific abatement technology by means of competitive tendering. The NACAG Secretariat is ready to provide advisory services concerning the selection of the technology. From the outset, it is technology-neutral and supports the technology that is most appropriate under the specific technical and economic circumstances of each individual nitric acid production facility.
Stream II: Nitric Acid Climate Auctions Program
This stream consists of a program of climate auctions. The World Bank is the executive institution of this funding stream. This new program builds on the “Climate Auction Model” developed by the Pilot Auction Facility (PAF), which previously piloted climate auctions to deliver climate finance and pay private sector companies for methane and nitrous oxide emission reductions. Climate Auctions sell to private companies and individuals a price guarantee (in the form of bonds), determined by an auction, for future independently-verified emission reductions or other climate results. For the Nitric Acid Climate Auctions Program, the auctions will sell bonds that may be redeemed after the bond holder delivers eligible N2O emission reductions from nitric acid plants.
The program will hold at least one reverse auction in winter or spring 2019, in which qualified firms or individuals will bid on the strike price (payment per tCO2e to be received upon delivery of eligible results). The anticipated starting price of the auction will be between $US15 and $US8. The definitive starting price will be published later in 2018. The auction winners will pay a premium price of $US0.06 per carbon credit to purchase the bonds. All bidders participating in the auction will pay a refundable deposit of $US0.06 that is held as a payment against the premium for the auction winners and that is returned to those bidders that do not win. The bonds that will be sold under this program will have no penalty for non-delivery and will be tradeable.
Carbon credits will have to satisfy a set of eligibility criteria at the time of redemption:
- Country eligibility will be determined by the NACAG. The NACAG will offer financial support for the reduction of nitrous oxide emissions from nitric acid plants located in countries which are eligible for Official Development Assistance, on the condition that the country in which the plant is located is committed to sustaining emission abatement in the nitric acid sector after 2020. A host country eligible for funding will agree to a formal statement of undertaking with the NACAG to ensure that from January 2021, all nitric acid production installations located in the country will be equipped with state-of-the-art technology to remove N2O emissions from their production cycles.
- Methodology: It is anticipated that Eligible Carbon Credits will have to be Certified Emission Reductions (CERs) or Verified Carbon Standard (VCS) Verified Carbon Units (VCUs), from a project or program of activities that uses one of the methodologies related to Nitrous Oxide abatement from Nitric Acid Production (Not Adipic Acid). The list of eligible methodologies will be published at a later date.
- Generation period: Carbon Credits generated after 2017 are anticipated to be eligible.
- Environmental, Health & Safety and Social (EHS), and Integrity: To be eligible, Carbon Credits will have to originate from a CDM or VCS project or program of activities that has received a passing Environmental, Health & Safety and Social (EHS), and Integrity report from a Designated Operational Entity (DOE).
In order to be eligible for financial support from the NACAG Support Facility, plant operators have to fill in and sign the Grant Application Notice. The notice includes information on eligibility criteria and the application procedure. In addition, its annexes contain the actual application form, the Declaration of Honor and the Declaration on Climatic Benefits.