Empirical Analysis of “GHG Emission Avoidance” Calculation for Selection of Sustainable Environmental Projects

According to the European Parliament [1], the main sources of emissions of carbon dioxide (CO₂), methane (CH₄), nitrous oxide (N₂O), sulphur hexafluoride (SF₆) and (per)fluorinated hydrocarbons (PFC, HFC) are human activities, fossil fuel combustion, deforestation, and farming. By the end of the century, greenhouse gas emissions will increase global average temperature by 3.75℃ [1]. Climate change will result in natural disasters and extreme weather events (floods, droughts, torrential rains, and heat waves), forest fires, water scarcity, glacier disappearances and sea level rise, changes in the distribution (even extinction) of fauna and flora, plant diseases, scarcity food and fresh water and the migration of citizens fleeing dangers [2].

As defined by The Paris Agreement [3], European strategic long-term vision A Clean Planet for all [4] and European Green Deal [5], the goal of the EU is to become a climate-neutral economy with zero net greenhouse gas emissions by 2050.

Following the EU's climate-neutral vision [4] of 2018, the European Green Deal strategy [5] aims to increase Europe's resilience to climate change and thus improve the quality of life of present and future generations, with a modern, competitive, and resource-efficient economy. The Sustainable Europe Investment Plan [6], a pillar of the European Green Deal, encourages the adaptation of all EU policies in response to the EU's climate and environmental challenges.

Over the next decade, at least €1,000 billion of private and public sustainable investments will be mobilized from the EU budget and related instruments to combat the effects of climate change, reduce greenhouse gas emissions, and preserve Europe's natural environment.

The main investment policy of the EU remains European cohesion policy with an increased level of importance of the human performance factor on the environment. This is reflected in the new system of criteria for the development of regions, which adds indicators of youth unemployment, level of education, reception and integration of migrants and climate change to the GDP per capita indicator [7].

The second of the five main objectives under Regulation 2018/0197 [8] is a greener, carbon-free Europe, which foresees:

• implementation of the Paris Agreement,
• investing in energy transition and renewables,
• combating climate change,
• reduction of the level of energy intensity,
• improving air quality.

The main source of funding for environmental projects is the MFF 2021-2027 budget for the implementation of cohesion policy. Compared to the 2014-2020 programming period, it is by €13 billion lower. One third of the priority investment funds will be focused on the Environmentally friendly (Greening), Carbon-Free Europe objective [9].

Another source of funding is NextGenerationEU, recovery instrument for repairing economic and social damage from the COVID-19 pandemic. Rescuing of natural resources and the environment will be supported by €17.5 billion in repayable assistance and grants [9]. In the period 2021-2030, InvestEU will provide financial leverage for around €279 billion of private and public investments, related to climate and the environment. The Just Transition Mechanism will mobilize investments of at least €100 billion.

The Innovation Fund [10], the EU's strategic tool for the development of low- and carbon-free technologies for the transition to a carbon-free economy, funded by part of the proceeds from the auctioning of carbon allowances under the EU ETS scheme, will provide €25 billion for the transition of the EU on climate neutrality [9].

The selection of projects, financed from the listed sources, is based on predetermined quantitative and qualitative criteria and weights. Quantitative financial criteria evaluate the financial stability of the project, while by evaluating with qualitative non-financial criteria, the projects are ranked based on the idea, content, references, and impact [11]. Research on award criteria [12] shows that inadequate combination that favours only one aspect and neglects the others, is wrong. Projects must be selected based on the combination of quantitative and qualitative criteria [12].

In adjustments to climate change (e.g., assessment of the impact of technology, activities, or the final product on the environment), qualitative non-financial criteria were given priority in tender award criteria in the 2014-2020 programming period, however noticing that evaluators with a lack of knowledge in the field of environmental protection were subjectively assessing them. The content persuasiveness of the project was evaluated better than the measured contribution to the environment. As a result, projects with a weak environmental contribution were funded. To avoid such errors, the evaluation of projects in the MFF 2021-2027 has been upgraded to include concrete quantitative indicators.

“GHG emission avoidance” will become the leading indicator of credible sustainable environmental intent of projects and is as such already included in the award criteria of the first published public tenders of the Innovation Fund. The objective of this article is to investigate the theoretical and practical procedure for calculating that indicator and its application in energy-intensive industry sector.

The rest of this research paper is divided into four sections. Section 2 presents the used research methodology, concerning theoretical approach and research design, followed by the calculation methodology for “GHG emission avoidance” in section 3. To gain an in-depth understanding of a sustainable impact of environmental projects, a case study for “GHG emission avoidance” was performed in section 4. Section 5 presents the results through a real case study of a project in the sector of glass, ceramics and building materials. Final research findings and conclusion are presented in section 6.

Both large scale (over €7.5 million) and small scale (€2.5 -€7.5 million) projects funded by the Innovation Fund support:

• innovation in low-carbon technologies and processes in energy-intensive industries,
• environmentally safe capture and use of carbon dioxide,
• products replacing carbon-intensive products,
• promoting the construction of infrastructure for the environmentally safe capture and geological storage of CO₂,
• innovative renewable energy and energy storage technologies.

They are the first to introduce an absolute and relative quantitative “GHG emission avoidance”, to determine the level of co-financing, project excellence and to ensure credible monitoring of results after the project conclusion.

With the indicator, applicants quantitatively evaluate the emission avoidance potential in the project proposal. The absolute “GHG emission avoidance” is calculated as the difference between the reference greenhouse gas emissions and the expected greenhouse gas emissions of the project scenario in the first 10 years after the start of operation. It is measured in metric tons of CO₂e (CO₂ equivalent) [13]:

$\Delta G H G_{a b s}=\sum_{y=1}^{10}\left(\operatorname{Re} f_{y}-\operatorname{Proj}_{y}\right)$  (1)

where, Ref_y are emissions, created without the realization of the project, and Proj_y are emissions, created after the realization of the project.

The relative “GHG emission avoidance” is calculated as the quotient of the absolute “GHG emission avoidance” and the reference greenhouse gas emissions in the first 10 years [13]:

$\Delta G H G_{r e l}=\frac{\Delta G H G_{a b s}}{\sum_{y=1}^{10}\left(R e f_{y}\right)}$  (2)

where, GHG_abs is the absolute “GHG emission avoidance”, and Ref_y are emissions created without the realization of the project. The “GHG emission avoidance” comprehensively covers the effects of “inputs, processes and outputs” between the project and the reference scenario (current situation in supported sectors). Each project applicant submits a process block diagram for the project, a reference scenario and the expected changes (Figure 1).

1.jpg

Figure 1. Block diagram of processes [13]

In the block diagram, emission sources are divided into five levels, corresponding to “inputs”, “process(es)”, “products”, “use” and “end of life”:

$\Delta G H G_{a b s}=\sum_{y=1}^{10}\left(\Delta E_{\text {inputs }}+\Delta E_{\text {processes }}+\Delta E_{\text {products }}\right.$$\left.+\Delta E_{u s e}+\Delta E_{E o L}\right)$  (3)

where, ∆E_inputs are emissions, occurred before the “processes” phase (energy and material inputs), ∆E_processes are emissions of processes related to the production of the selected main product of the project, ∆E_products  are emissions of products (semi-finished products, components), created during the production of the main product of the project, ∆E_use are emissions in the use phase of the main product of the project, and ∆E_EoL are stoichiometric (Quantitative ratios between reactants before a chemical reaction and products after a chemical reaction) carbon emissions “at the end of life-cycle”.

The project presents parameters that will include all emission sources for the duration of the project. In most cases, several parameters for the project and the reference scenario are the same, so their change in emissions is 0. During the operations, beneficiaries will have to confirm the predicted parameters as part of the monitoring of the predicted avoidance of greenhouse gas emissions. This will also be a condition for the payment of the full value of the grant awarded [13].

The reference value for a 10-year period for the estimated production capacity is equal to:

$\operatorname{Re} f_{y}=Q_{P B} \cdot \operatorname{Re} f_{P B} \cdot n$$=100,000 t \cdot 0.131^{\mathrm{tCO}_{2} \mathrm{e} / \mathrm{t} \cdot 10}$$=131,000 \mathrm{tCO}_{2} \mathrm{e}$

Table 2. Summary of calculated reference values

The estimated electricity consumption is 50 MWh/t, water consumption 0.2 L/t and thermal energy consumption 0.0016 TJ/t. No other input parameters are considered. The electricity emission factor is equal to 0 in accordance with the methodology [13]. Emissions for water supply are not considered, as they do not have a significant impact on the projected greenhouse gas emission estimates (emissions disregarded). A significant share of the consumed energy is covered by the required thermal energy. Emissions related to the production of gypsum boards are calculated within the input parameters for the operation of the new technology (electricity, water, heat), thus the default value of emissions from production-related processes is equal to 0:

$\operatorname{Proj}_{y}=Q_{P B} \cdot n \cdot\left(E \cdot \operatorname{Re} f_{E}+W \cdot \operatorname{Re} f_{W}+H \cdot \operatorname{Ref}_{H}\right.$$\left.+\operatorname{Proj}_{P B}\right)$

$=100,000 t \cdot 10 \cdot\left(50 \mathrm{MWh} / t \cdot 0^{\mathrm{tCO}_{2} \mathrm{e}} / \mathrm{MWh}+0.2 \mathrm{~L} / t \cdot 0 \mathrm{tCO}_{2} \mathrm{e} / \mathrm{L}\right.$

+0.0016 TJ/ $_{t} \cdot 62.3^{\mathrm{tCO}_{2} \mathrm{e}} / \mathrm{TJ}+0^{\mathrm{tCO}_{2} \mathrm{e} / \mathrm{t}}$

$=100,000 t \cdot 10 \cdot\left(0.0016^{T J} /_{t} \cdot 62.3^{\mathrm{tC} \mathrm{O}_{2} \mathrm{e}} / \mathrm{TJ}=\mathbf{9 9 , 6 8 0} \mathrm{tCO}_{2} \mathrm{e}\right.$

where, Q_PB is annual production capacity of gypsum plasterboards, n is number of years of operation of production infrastructure, E is the amount of electricity consumed to produce 1 t of product, Ref_E is the electricity emission reference factor (EU ETS Directive [16]), W is the amount of water used to produce 1 t of product, Ref_W is the water supply emission reference factor, H is the amount of heat energy used to produce 1 t of product, Ref_H is the reference factor of thermal energy emissions, and Proj_PB is the emission factor of production-related processes. Summary of calculated project emission values is presented in Table 3.

Table 3. Summary of calculated project emission values

Considering the Methodology for GHG emission avoidance calculation, the absolute quantitative “GHG emission avoidance” is calculated:

$\Delta G H G_{a b s}=\sum_{y=1}^{10}\left(R e f_{y}-\operatorname{Proj}_{y}\right)=131,000 \mathrm{tCO}_{2} \mathrm{e}$

$-99,680 \mathrm{tCO}_{2} \mathrm{e}=31,320 \mathrm{tCO}_{2} \mathrm{e}$

with the calculation of the relative quantitative “GHG emission avoidance”:

$\Delta G H G_{r e l}=\frac{\Delta G H G_{a b s}}{\sum_{y=1}^{10}\left(R e f_{y}\right)}=\frac{31,320 \mathrm{tCO}_{2} \mathrm{e}}{131,000 \mathrm{tCO}_{2} \mathrm{e}}=23.91 \%$

The results of the calculations for the selected case show that the project avoids the 31.320 t CO₂e. On a relative basis, this represents a 23.91% improvement over the reference scenario.