Brazil: N2O Emission Reduction Project Region. Latin America and the Caribbean Country. Trust Fund / Carbon Finance Project ID

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1 PROJECT INFORMATION DOCUMENT (PID) CONCEPT STAGE Report No.:59292 (The report # is automatically generated by IDU and should not be changed) Project Name Brazil: N2O Emission Reduction Project Region Latin America and the Caribbean Country Brazil Sector Environment Lending Instrument Trust Fund / Carbon Finance Project ID P Borrower(s) Rhodia Group Implementing Agency Rhodia Group Environmental Screening [ ]A []B [ ]C [ ]FI [ ]TBD (to be determined) Category Date PID Prepared December 14, 2010 Estimated Date of Appraisal February 16, 2011 Completion Estimated Date of Board N/A Approval Concept Review Decision Following the review of the project concept on December 21, 2010, the decision was taken to proceed with the preparation of the operation. Other Decision {Optional} Teams can add more if they wish or delete this row if no other decisions are added I. Introduction and Context Country Context Brazil, the largest tropical country, ranks 7 th in terms of total greenhouse gas (GHG) emissions (approx. 1 billion tons of CO2e per year), excluding land use change and forestry which, if included, brings the country to the 4 th position with a total of approx. 2,841 million tons per year 1. Brazil remains strongly committed to reducing its GHG emissions. In December 2008, President Lula launched the National Plan on Climate Change (PNMC) 2, which amongst other measures calls for a 70% reduction in deforestation by The PNMC is based on work of the Interministerial Committee on Climate Change and its Executive Group, in collaboration with the Brazilian Forum on Climate Change and civil society organizations. In December 2009, the Brazilian Parliament adopted law instituting the PNMC and setting a voluntary national GHG abatement target of between 36 and 1 World Resources Institute - date (last visited November 16 th 2010) 2 Plano Nacional sobre Mudança do Clima %28PNMC_MMA%29.pdf (last visited Nov 16 th 2010)

2 38.9% of its business as usual (BAU) projected emissions by , which equates to a reduction of 1 to 1.1 billion tones of CO2e 4. Brazil s GHG emissions profile is rather unique. Close to 85% of all electricity generated in Brazil comes from hydropower 5. Despite the increasing trend of other electricity sources and the socioeconomic and environmental constraints of hydropower projects in general, hydropower will continue to be the main source of electric power in Brazil for the foreseeable future according to the National Agency for Electric Energy (ANEEL) 6. Transportation is not a major source of GHG emissions in Brazil, due to ethanol substituting 40% of gasoline fuel 7. The energy and transport sectors in Brazil are, thus, widely based on low-carbon alternatives and current efforts to keep the energy matrix clean must be acknowledged. While Brazil s energy and transportation sectors do not represent major sources of GHGs - contrary to what is normally found developing countries - the industrial sector plays a significant role with its high fossil fuel consumption and its associated emissions, particularly of Nitrous Oxide (N2O). As per Brazil s last GHG inventory, N2O represents 25% of the total GHG emissions excluding land use change and forestry. Reducing industrial gas emissions should thus be considered a priority target to reduce overall emissions while continuing to grow in a sustainable manner. Sectoral and Institutional Context The proposed project targets the abatement of N2O in the chemical sector of Brazil. N2O is generated as a by-product of the adipic acid production process and is emitted in the waste gas stream. N2O is a powerful greenhouse gas with a global warming potential (GWP) that is about 300 times greater than the GWP of CO2. N2O emissions are covered under the Kyoto Protocol s basket of six regulated GHGs. The main use for adipic acid is as a component of nylon, and thus, adipic acid production trends are closely correlated with nylon consumption trends. Rising demand for engineering plastics has sparked expansion in existing adipic acid capacity in North America and Western Europe, as well as new facilities in the Asia-Pacific region. Economic drivers for adipic acid production include new housing starts and nylon engineering resins in the automotive and electronics industries 8. Worldwide, only a few adipic acid plants exist. The U.S. is a major producer with three companies in four 3 Appendix II Nationally Appropriate Mitigation Actions of Developing Country Parties - (last visited Nov 16 th 2010) 4 What do the Appendicies to the Copenhagen Accord tell us about global greenhouse gas emissions and the prospects for avoiding a rise in global average temperature of more tha 2 C? Nicholas Stern and Christopher Taylor March (last visited Nov 16 th 2010) 5 Brazil Low Carbon Study - (last visited Nov 16 th 2010) 6 (last visited (Nov 16 th 2010) 7 Brazil Low Carbon Study - (last visited Nov 16 th 2010) 8 N2O Emissions from Adipic Acid and Nitric Acid Production - (last visited Nov 16 th 2010)

3 locations accounting for approximately 40% of worldwide production. Other producing countries include Brazil, Canada, China, France, Germany, Italy, Japan, Korea, Singapore, Ukraine, and the United Kingdom. Most of these countries have only one adipic acid plant. In 1990, adipic acid production was the largest source of industrial N2O emissions. As of 1999, industrial sources report that almost all major adipic acid producers have implemented N2O abatement technologies. As a result, nitric acid production is currently believed to be the largest industrial source of N2O emissions 9. Global emissions of N2O accounted for 9.4% of total global emissions (in 2000) and N 2 O ranks as the third most emitted gas amongst the six gases regulated under the Kyoto Protocol 10. II. III. Proposed Development Objective(s) The development objective of the proposed project is to reduce emissions of N2O, a powerful greenhouse gas, which would, in the absence of the project, have been emitted into the atmosphere contributing to the damaging effects of climate change. Preliminary Description The French chemical company Rhodia Group owns an adipic acid production plant in Paulinia, state of São Paulo, Brazil. The adipic acid plant in Paulinia was constructed in 1965 and expanded in 1996 and As a consequence of the incentives created by the CDM, Rhodia Group installed a N 2 O collection and thermal decomposition process equipment to the operating adipic acid plant in 2006, which did not imply the expansion of the already existing facility in Paulina. Before that the project had been registered under the Clean Development Mechanism (CDM) in December The thermal decomposition installation reduces GHG emissions compared to a baseline situation in which N 2 O would be released to the atmosphere in the waste gas stream. The difference of the baseline and the scenario with installed N 2 O oxidizer results in approximately 42 million tco2e (i.e., Certified Emission Reductions, or CERs in short) for the first crediting period between 2007 and Verifications as required by CDM regulations are being conducted on a regular basis and around 600,000 ERs are currently being issued every month. Over three dozen verifications and issuances of the project have been completed by the UN CDM Executive Board so far. A license to operate was provided by Brazilian authorities in 2005 and has been recently renewed till No complaints have surfaced on the project in the five years that it has been operating. The World Bank s Spanish Carbon Fund commitment to purchase ERs will end on December 31, 2013 and the Emission Reduction Purchase Agreement 9 N2O Emissions from Adipic Acid and Nitric Acid Production - (last visited Nov 16 th 2010) 10 World Resources Institute - (last visited Nov 16 th 2010) 11 UNFCCC: Project 0116 : N2O Emission Reduction in Paulínia, SP, Brazil (last visited Nov 16 th 2010)

4 (ERPA) will define this date as the closing date of the project, clearly identifying the Bank s supervision period IV. Safeguard Policies that might apply Safeguard Policies Triggered by the Project Yes No TBD Environmental Assessment (OP/BP 4.01) Natural Habitats (OP/BP 4.04) Pest Management (OP 4.09) Physical Cultural Resources (OP/BP 4.11) Involuntary Resettlement (OP/BP 4.12) Indigenous Peoples ( OP/BP 4.10) Forests (OP/BP 4.36) Safety of Dams (OP/BP 4.37) Projects in Disputed Areas (OP/BP 7.60) * Projects on International Waterways (OP/BP 7.50) V. Tentative financing Source: Spanish Carbon Fund Borrower/Recipient IBRD IDA Others (specify) Total ($m.) N/A VI. Contact point World Bank {Same as TTL information in AUS} Contact: Sebastian Martin Scholz Title: Environmental Economist Tel: sscholz@worldbank.org Borrower/Client/Recipient Contact: Philippe Rosier Title: President, Rhodia Energy Tel: philippe.rosier@eu.rhodia.com Implementing Agencies Contact: Pascal Siegwart * By supporting the proposed project, the Bank does not intend to prejudice the final determination of the parties claims on the disputed areas

5 Title: CO2 Operations Director, Rhodia Energy Tel: Pascal.SIEGWART@EU.RHODIA.COM Contact: Elder Martini Title: Rhodia Energy Brazil Director Tel: +55 (11) Elder.MARTINI@BR.RHODIA.COM VII. For more information contact: The InfoShop The World Bank 1818 H Street, NW Washington, D.C Telephone: (202) Fax: (202) Web: