N2O abatement in the context of market-based approaches

Market-based approaches to climate change mitigation are key to achieving cost-effective mitigation outcomes. In contrast to command-and-control approaches and purely domestic mitigation action, they increase flexibility and can reduce the cost of emission reductions by enabling abatement to take place where it is cheapest. As a result, market-based approaches also have the potential to contribute to scaling up mitigation ambition. The Kyoto Protocol established three flexible mechanisms: Joint Implementation, the Clean Development Mechanism and international emissions trading. For NACAG, the CDM represents a useful cooperation scheme. As such, it forms the basis for concrete project activities. General information on the Kyoto mechanisms can be found here.

Abatement of nitrous oxide emissions under the CDM

Currently, there are 97 registered CDM projects focusing on N2O abatement from nitric acid production, of which 57 have so far issued CERs. 71 million CERs, equivalent to 4% of all CERs issued, originate from this type of project. The overall accumulated potential is estimated to reach 290 million CERs by 2020.

The EU ETS has been the major source of demand for certified emission reductions from the CDM. Due to the financial crisis, economic stagnation and political uncertainty, demand for CERs has fallen dramatically, resulting in plummeting international market prices. The average credit price in 2014 (US$ 0.17) was less than 1% of the value of the average credit price in 2008. Under these circumstances, N2O abatement projects under the CDM are economically unattractive as they offer no or very low return on investment. As a result, many project activities have been abandoned and institutions, infrastructure and monitoring expertise are at serious risk of being lost.

The Nitric Acid Climate Action Group aims to revitalise abandoned N2O abatement projects as well as to kick-start abatement in plants that were not previously covered under the CDM.

Under JI, there are 52 projects focusing on the abatement of nitrous oxide emissions from the production of nitric acid. Of these, 10 are located in non-EU countries. Since the beginning of its 3rd phase, which started in January 2013, the EU Emissions Trading System (EU ETS) has covered N2O emissions related to nitric acid production. As a result, the 42 former JI projects in EU countries are now covered under the EU ETS.

Market-based approaches under the Paris Agreement

Market-based climate change mitigation instruments also play a role in the Paris Agreement. Having entered into force on 4th November 2016, the Agreement sets out a new legal framework for climate change mitigation at the global level. Article 6 of the Agreement enables Parties to use cooperation mechanisms which allow emission reductions to be transferred between countries.

Two different market-based mechanisms are provided for in the Agreement. Article 6.2 provides for Cooperative Approaches (CA). Here, Internationally Transferred Mitigation Outcomes (ITMOs) are established, which countries can trade and use to help fulfil their NDCs. Article 6.4 introduces a Mitigation and Sustainable Development Mechanism (MSDM) which enables Parties to implement greenhouse gas mitigation activities in other countries. The resulting emission reductions can be used towards fulfilling a Party’s NDCs. Under the Paris Agreement, the most important purpose of the international carbon market is to raise mitigation ambitions. In contrast to the flexible mechanisms under the Kyoto Protocol, market mechanisms under the Paris Agreement are not meant to serve as pure offsetting mechanisms. Rather, they represent instruments for raising mitigation ambition because they enable the exploitation of the most cost-effective mitigation potentials and provide countries with the flexibility to achieve emissions reductions abroad. More information on these mechanisms can be found here.