Nationally Appropriate Mitigation Actions NAMAs for lowcarbon enduse

Nationally Appropriate Mitigation Actions (NAMAs) for low-carbon enduse sectors in Azerbaijan (A Project of UNDP, GEF and SOCAR) Project Targets, Progress and Way Forward 6 th November 2018

Project Objective and Goal Project Objective To support SOCAR in the implementation of its Climate Change Mitigation Strategy by promoting and upscaling GHG (Greenhouse Gases) mitigation measures Project Goal To reduce greenhouse gas (GHG) emissions as well as energy consumption in SOCAR's buildings, vehicles and oil-fields.

Approach SOCAR, the national oil company of Azerbaijan, is the main stakeholder and implementing partner because: • Its core business (oil & gas sector related production, processing and distribution) is a major source of GHG emissions • SOCAR is a major energy user and thus GHG emitter • NAMA approach offers a valuable opportunity to SOCAR to develop and implement a large scale GHG mitigation program • The project supports SOCAR’s long-term sustainable development strategy • The program can be replicated to the national level and thus influence the country’s overall GHG emission reduction goals.

Methodology To improve the energy performance in the oil& gas and enduse sectors, namely: • Oil-Fields: Capture associated gas evaporating from existing on-shore Siyazzaneft oil-field and direct it to nearby residential areas • Buildings: Install retrofits in new and existing residential, service and public buildings • Vehicle Fleet: Improve the fuel-efficiency in passenger cars, trucks, buses, special purpose vehicles

Planned Outcomes (Revised version based on Mid-Term Project Review) • OUTCOME-1: Prioritizing most feasible measures with highest GHG reduction potential and lowest costs using the Marginal Abatement Cost Curve (MACC) • OUTCOME-2 Development of NAMA program/action plan in oil & gas and enduse sectors • OUTCOME-3 Invest in pilot projects implemented for large-scale replication through NAMA mechanism • OUTCOME-4 Develop the MRV (Measurement, Reporting and Verification) framework for better management of the NAMA program/action plan

Project’s Status • OUTCOME-1: Prioritizing most feasible measures with highest GHG reduction potential and lowest costs using the Marginal Abatement Cost Curve (MACC) (Extract from Marina’s presentation)

Example of a Marginal Abatement Cost Curve (MACC)

NAMA Program’s Target Outputs

Basis of Target Outputs – Project Based Reductions • 8, 000 m 2 building space will be retrofitted which will result in 10, 500 t. CO 2 eq reduction over 25 years. • 10 vehicles will undergo fuel-switch thus resulting in 98 t. CO 2 eq reduction and efficient driving practices on 340 vehicles will result in 1495 t. CO 2 eq reduction over 10 years. • 600 households with average size of 80 m 2 will receive captured gas and displace kerosene oil use thus resulting in emission reductions of 549, 044 t. CO 2 eq over 25 years.

Basis of Target Outputs – Indirect Reductions Gas Capture: ⁻ At pilot scale, 600 households would receive captured gas through pipelines. ⁻ The displacement of kerosene and wood fuels would result in reductions of 550, 000 t. CO 2 eq. ⁻ Targeting 15 times the number of households (i. e. 9000) would result in reductions of 4. 9 million t. CO 2 eq (considering 60% causality factor. ) Buildings: ⁻ At pilot scale, 2% of total building space would cause a reduction of 10, 500 t. CO 2 eq based on 20% lowering of consumption. ⁻ Retrofitting 15% buildings with 40% lowering of consumption plus new buildings built by SOCAR will lead to 1. 3 million t. CO 2 eq reduction. Transport: Negligible reductions expected in SOCAR fleet of vehicles.

Findings to date and the Way Forward - Buildings • Lack of: ₋ awareness about EE technologies and their benefits; ₋ technical knowledge on sourcing and installation of EE building materials and technologies; ₋ incentives as energy prices are highly subsidized, especially for the lower-income groups; ₋ comprehensive and formal regulations for EE in housing. The way forward ₋ Develop framework for a comprehensive sustainable housing development program; ₋ Structure financing arrangements with active partnership of Azeri banks; ₋ Enact/enforce building energy codes and a legislative framework at the government level; ₋ Develop a local market for environmentally friendly building construction technologies.

Findings to date and the Way Forward - Transport ₋ Suitable sources of other decarbonized fuel types e. g. hydrogen and (m)ethanol are not easily available; ₋ Compressed natural gas vehicles don’t result in sufficient GHG reductions; ₋ Electric vehicles cannot be considered momentarily because Solar based charging stations are not likely in the near future. The way forward ₋ Awareness and training in Eco-Driving offers highest reductions in GHG emissions; ₋ Hybrid-electric cars and buses is the most viable option for expanding the vehicle fleet of SOCAR;

Findings to date and the Way Forward – Gas Capture ₋ Siyazanneft oilfield No. 3 has 63 active wells (total wells in Siyazan are 554) which release associated petroleum gas (APG) to the environment measured at 19, 000 m 3 per day; ₋ Only 4 wells are currently delivering gas to the gathering gas centre of “Azeri Gas” while no infrastructure exists to capture/transport from remaining 59 wells; ₋ Collected gas has to pass through separators, heaters, compressors, and the main distributor line; ₋ Capturing and distributing APG to end consumers requires a functioning gas pipeline grid. The way forward ₋ Varying gas flow and pressure requires different pipeline diameters and wall thicknesses (in total, 10 different types of pipelines are recommended to cover 45 km length); ₋ Siyazanneft oilfield is located in a mountainous area and construction works will require road-reconstruction and tree-cutting to avoid bending the pipelines excessively; ₋ Expedite selection of contractor to procure and install gas gathering/distribution equipment; SOCAR arrangements for pipeline network must proceed in parallel; ₋ Construction has to be on fast-track basis to avoid snow season from November to March.

Gas Capture - Procurement in Process

Key Tasks Planned in 2019 -20 • Measurement, Reporting & Verification (MRV) system and national registry for mitigation actions to be set up with contributions from sector experts (i. e. buildings, transport and associated gas capture). • 2 (two) major energy management workshops to be held by each of the three international experts. • A market-based financing structure for 20% of co-financing needs for EEM in buildings will be initialized. • Information Centre) for promoting Energy Efficiency (EE) in the Building and Transport sectors to be set up in SOCAR.

Panel Discussions (3 Panels) Panel No. 1: Technical Approaches to GHG Reductions under NAMA Project Panel No. 2: Assessing Viability of Investments in GHG Reduction Projects and Financing Arrangements Panel No. 3: Institutional Structure and Implementation Arrangements for Reducing GHGs

Buildings – What is missing in this approach?