China - Nanjing Steel Converter Gas Recovery Project

PROJECT INFORMATION DOCUMENT (PID) CONCEPT STAGE Report No. 35008 Project Name China Nanjing Steel Converter Gas Recovery Project Region EAST ASIA AND PACIFIC Sector Environment (100%) Project ID P088106 Borrower Not applicable Implementing Agency Nanjing Iron and Steel Company, Ltd (NISCO) Environment Category [ ] A [X] B [ ] C [ ] FI [ ] TBD (to be determined) Safeguard Classification [ ] S1 [ ] S2 [ ] S3 [ ] SF [ ] TBD (to be determined) Date PID Prepared March 3, 2005 Revised November 11, 2005 Date of Appraisal June 8, 2005 Authorization Estimated Date of Board Not applicable Approval 1. Key development issues and rationale for World Bank involvement Support for client countries to address the objectives of international environmental conventions, including on climate change, is an identified priority in the World Bank's Environment Strategy1. The 2005 Environment Strategy for the East Asia and Pacific Region (EAP) reaffirms that commitment. It also identifies Carbon Finance (CF) in EAP as an area of major potential for generating local and global environmental benefits. The World Bank has also undertaken a pioneering role in developing the Clean Development Mechanism (CDM) market in China, and supported preparation of the China CDM Study in 2004. In addition to this project, the World Bank has helped develop ten other CDM projects in China focusing on solid waste, coal mine methane, industrial gases, forestry, and hydro energy. With this prior experience in China, the World Bank is well positioned to facilitate the Nanjing project transaction for emission reductions (ERs). This project will result in an 8.4 percent reduction in overall power consumption at the project site, resulting in a reduction of about 80,000 tons of CO2 emissions per year. It is therefore fully consistent with the Country Assistance Strategy (CAS) and the EAP Environment Strategy in terms of addressing pollution control and energy conservation in the iron and steel industry. The Italian Carbon Fund (ICF) is one of the Annex I country funds operated and managed by the World Bank as the trustee. In late 2003, the World Bank entered into an agreement with the Ministry for the Environment and Territory of Italy to create a fund to purchase greenhouse gas emission reductions that may be recognized under such mechanisms as the CDM. The ICF has three main objectives to (i) purchase ERs at a competitive price to help reach the reduction targets of the Italian domestic program for the allocation of quotas of permissible emissions; (ii) promote international projects in renewable energy and energy efficiency; and (iii) acquire knowledge and experience of carbon finance and the carbon market. The World Bank's 1Making Sustainable Commitments: An Environment Strategy for the World Bank, 2001.  involvement is also necessitated because the additional revenue stream of ERs sales to the ICF provides strong incentives and resources for NISCO to include the Oxygen Converter Gas Recovery Project (OG system) in the larger Wide Plate Coil (WPC) project. The revenue from the ERs will more than offset the reduction in production capacity (and lower revenue) due to the processing time associated with the OG system. The revenue from the ERs will also help reduce the risks associated with implementing a new technology. 2. Proposed objective(s) The higher level objectives of the project are to (i) support China's participation in global efforts to address climate change through the hosting of CDM projects, and (ii) contribute to China's sustainable development. The project contributes to sustainable development through: (a) increased energy efficiency in the iron and steel industry; (b) significant reduction of emissions of environment pollutants to the atmosphere; and (c) improvement in the quality of life for the local community through a social component. 3. Preliminary description The OG project has been developed in association with NISCO's own WPC Project. Construction of the OG project began in May 2002 and was completed in June 2004 along with the WPC project it supports. The OG project construction was undertaken prior to the signing of the Emissions Reduction Purchase Agreement (ERPA) with the anticipation of carbon financing being available for NISCO. No problems are expected in terms of the project being able to establish the `additional' nature of the ERs, and there is clear guidance from the CDM Executive Board regarding similar project circumstances. This issue will be examined in more detail during the validation of the project by a designated technical expert. Details of the Carbon Finance OG project are provided below.