Germany on Monday launched an initiative to buy CERs from nitric acid destruction projects in poorer nations at above market levels to prevent existing CDM schemes from closing and to encourage new ones.

The government is seeking support from other donor nations, which will purchase and retire the carbon credits in return for long-term commitments from recipient governments, Franzjosef Schafhausen, an official at Germany’s environment ministry told an event on the sidelines of UN climate talks in Paris.

The Nitric Acid Climate Action Group aims to phase out these emissions worldwide by 2020, saving 70-80 million tonnes of CO2e in that year, which would be around 1% of the mitigation gap UNEP says is needed to reach the 2C goal.

Silke Karcher, another official at the German environment ministry, said the initiative could save in the region of 300-400 million tonnes of CO2e to 2020.

She said a further 600-800 million could be avoided over the next decade if the subsequent long-term commitments were made to reduce the potent emissions, which are mostly used for fertilisers.

The initiative will either offer information and cash to governments to help them implement abatement measures themselves or buy CERs to support abatement to 2020 in return for a commitment for lasting cuts after that.

“[Germany] doesn’t have a fixed, allocated budget for this. What we are going to do depends on whether we find the right projects, but we have set a ceiling of €20 million a year,” Karcher said.

Industry representatives have said the emission reductions could be incentivised at a cost of €2-2.50/t of CO2e, though Axel Michaelowa of consultancy Perspectives suggested it could be as low as €1/tonne.

“This demand could mean a lifeline for the CDM and shows continued German and Norwegian trust in the integrity of the mechanism … The budget of €20 million/year currently envisaged by Germany does not seem to be sufficient to cover the whole supply,” he said.

Peer Stiansen, an official from Norway’s climate ministry, told the event that his country was considering supporting the initiative.

Norway has already contracted to buy CERs at above market rates from six nitric acid projects it deems at risk of closure as part of its compliance with 2020 Kyoto Protocol target.

PROJECTS AT RISK

Industrial gas CDM projects have generated around half of the 1.6 billion CERs issued to date, but funding has dried up as prices dropped from above €20 in 2008 to around €0.60 today as nations wrangled over a new global climate pact and no additional demand for credits emerged beyond initial Kyoto Protocol compliance requirements from the EU and Japan.

Unlike CDM projects underpinning renewable electricity, nitric acid projects are not one-off investments and without CER income companies are unwilling to pay for reduction measures themselves, while few national regulations to curb the gases have been introduced outside of the developed world.

Before launching the initiative, Germany commissioned a two-year study from the NewClimate Institute, which surveyed 1,310 CDM projects worldwide, and found that while most did not expect their mitigation activity to stop due to sunken investments, N2O abatement schemes were at a high risk of closure.

GETTING VALUE

The World Bank’s Vikram Widge and the UNFCCC’s John Kilani welcomed the initiative as an effective use of the CDM infrastructure.

“It’s an opportunity – we know the points of pollution and it is a relatively straightforward problem to address. We know for a fact that this can happen if the incentive is there,” Widge said.

He said the initiative could be suitable for an auction-type approach to ensure it was getting cost-effective abatement and offered the platform of the World Bank’s Pilot Auction Facility to deliver this.

“We are considering allocating a small portion [of PAF’s] resources for this,” he added, referring to the fund’s targeted capitalisation of $100 million, of which it has so far received over $50 million from the US, Germany, Switzerland and Sweden.

FUTURE USE

Germany’s Karcher said her government’s contribution to the initiative would not result in the country using the CERs to meet international emission obligations but did not rule out other participants buying the units for compliance.

She said that ideally after 2020, CER funding should transition to national policies preventing N2O emissions and that this abatement effort should form part of the host nation’s contributions to the Paris climate pact.

“These should be owned by the implementing countries not given away to industrialised countries,” she said.

By Ben Garside – ben@carbon-pulse.com

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