Carbon Market Watch

For fair and effective climate protection.

Carbon leakage caused by adipic acid projects (Newsletter #2)

05 Jul 2009

In total, four projects that reduce N2O from adipic acid production are currently registered in China, South Korea and Brazil. While this technology has become business as usual and integral part of most adipic acid plants in almost all countries, the CDM is generating lucrative business which has resulted in a production shift from Annex 1 to non-Annex 1 countries. Although the methodology is limited to existing capacity of these plants by the end of 2004, they all run far above their capacity. Naturally, there is an increasing interest to expand the scope so to include new facilities into the CDM.

The significance of these numbers can be seen when comparing the numbers to adipic acid production projects in countries that mitigate N2O without the CDM: a plant in Singapore basically stopped production and production in industrialized countries is going down in a similar way.

This ongoing carbon leakage results in the issuance of millions of CERs without any real emission reductions. Although the methodology caps the issuance to historical production, project participants, the DOEs and the CDM Executive Board have so far ignored the guidance in the methodology.

Now, for the first time after (too) many CERs have been issued, the CDM Executive Board has the chance to prevent this significant carbon leakage: At the upcoming meeting, the Board is going to decide whether to accept a request concerning revision of the approved methodology AM0021 to expand its applicability to new adipic acid plants and at the same time decide upon measures to prevent the negative effects as a consequence of adipic acid production subsidized through the CDM. The Meth Panel recommends against it, suggesting that the possible negative side effects of the inclusion of new adipic acid facilities in the methodology AM0021seem difficult to prevent. CDM Watch agrees.

Instead, the Meth Panel suggests to work on the basis of a clarification request 0148, to adjust the cap on the amount of specific N2O production in the baseline situation. Reducing the amount of CERs in such a way would drastically limit any incentive to displace any direct or indirect production from other sources.

Action to be taken by the Board:

–       When responding to clarification request 0148, CDM Watch recommends that the Board should support the approach suggested by the Meth Panel. Moreover, instead of limiting the crediting to the maximum historical production between 2002, 2003 and 2004, CDM Watch believes that the average production from these years should be used. Using average data from three historical years is a common practice approach followed in many methodologies.

–       Review of request of issuance of 44973 CERs for the N2O Emission Reduction in nitric acid plant Paulínia, SP, Brazil: In parallel, the Board is going to consider a request for issuance of the adipic acid plant in Brazil. 44973 CERs depend on this review. Instead of using the baseline of maximum capacity, the Board should require the DOE to recalculate the number of CERs to be issued for this project according to the real emission reductions that have taken place in 2004.