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Carbon dioxide removal: stuck in the futures
Carbon dioxide removal: stuck in the futures
Victoria Harvey
By Victoria Harvey
Jul 14 2022 · 5 min read

Illuminem Voices
Sustainability · Carbon Removal · Carbon Market

Large-scale carbon removal is necessary to hit global climate targets. At present, demand significantly outweighs supply, with advanced market commitments dominating financial support for project development and very few retirable ex-post credits. This needs to change fast if we are to reach gigatonne scale of removal by the mid-century. To spur on this transition, developers need to embrace the voluntary carbon market and the mechanisms it offers.

By 2050, 165 gigatonnes of global cumulative removal is projected. Achieving this scale cannot rely on nature based removal alone. It requires large contributions from engineered methods (such as direct air capture (DAC) or biochar)[1]. But these methods are nascent and currently not prepared to develop to this scale, as demonstrated by their price and commitment type.

These engineered CDR methods are expensive. The current cost of DAC ranges from $320-$2,050 per tonne and biochar ranges from $100-$590 per tonne. Comparatively, nature based removal credits range from $3-$50 per tonne. At this high price, engineered CDR purchase is restricted to those who can both afford it and can absorb the risks of this early stage purchase.

They also are not committing to near term removal delivery. More than 525 thousand engineered CDR credits have been purchased to date - all since 2020 - but with the majority of purchase for future removal[2]. BeZero Carbon’s analysis found that of these engineered credits purchased, 89% are for futures (credits that commit suppliers to remove one tonne of carbon in the future), as opposed to ex-post (credits for carbon that has already been sequestered).

The proportion of future credits varies significantly between CDR methods. DAC is by a distance the engineered method which relies the most on future credits, with 99% - 437,900 credits - coming from future credits. Just 1% are retirable ex-post credits. At the other end of the spectrum, enhanced weathering and biochar have 88% and 65% of their credits ex-post respectively. Macroalgae and Ocean Alkalinity Enhancement methods are also mostly ex-post credits, although their supply is relatively small (4,753 and 4,684 credits respectively). A breakdown of engineered removal purchases as futures versus ex-post credits is seen in Figure 1[3].

Figure 1: Engineered removal credit purchases by method [4][5]
Figure 1: Engineered removal credit purchases by method [4][5]

Figure 1. Engineered removal credit purchases by method

These credit purchases demonstrate increasing demand for CDR. However, as this demand currently outstrips supply it is being matched by a future supply. While important to manage and reflect demand, future credits have no certain time frame for retirement and a higher risk that the removal will not materialise. Purchase of these credits therefore acts as more of a CDR donation than a carbon commitment.

To stabilise the supply and demand relationship, credits need to transition from futures to ex-post. This means engineered CDR project deployment needs to increase in the near term. But to reach this stage, suppliers need significant financing.

The public sector’s role is to support and stabilise engineered CDR as it emerges. It is capable of mobilising large-scale financing to support projects to demonstration stage, such as the UK’s £70 million DAC & GGR Innovation fund. Or it can provide targeted financing incentives to CDR suppliers, such as the US’s 45Q and Low Carbon Fuel Standard tax credits, that make the cost per unit, in this case carbon, feasible. While necessary and potentially significant in size, public sector support is slow to develop and often responds to societal demands instead of anticipating them.

The private sector cannot provide funding to the same scale at the current time, but it has a different role to play - it can provide the signals that move the sector and accelerate scale-up. Private CDR activity thus far mostly consists of future credit purchases by few corporate pioneers, such as Airbus, Microsoft, Shopify and Stripe purchasing 400, 16, 40 and 12 thousand tonnes of CO2, respectively, from different CDR methods and suppliers (both ex-post and futures). Earlier this year Frontier was launched, a $925 million advanced market commitment funded by the private sector, to guarantee financing for suppliers. This demonstrates the beginnings of an escalating demand from the private sector, but in its nature it is mostly random with no system for purchasers to connect with suppliers.To successfully nurture this growing demand and translate it into scale-up, these purchases need to take place within the voluntary carbon market (VCM).

Currently engineered CDR is not accessible in the usual market mechanisms of the VCM. Instead, most credits - 96% - are sold bilaterally, directly between suppliers and purchasers. The systemic structure of the VCM uses physical systems of verification, intermediaries and ratings that could help bring down the cost curve of these technologies. Benefits of using the market mechanisms include:

  1. Competition: supply will compete for demand, creating technical innovations and overcoming existing infrastructure gaps.
  2. Resilience and stability: suppliers will be protected from shocks (e.g. financial crashes or environmental disasters) that can overburden them.
  3. Integration: supply of different methods and technologies is increasingly decentralised internationally. Resources and supply can be unified in a common space.
  4. Accessibility: markets increase inclusivity and accessibility to engineered CDR, making the foundations of this nascent sector more equitable.

The market infrastructure of the VCM can help increase the supply of ex-post credits from engineered CDR. Boosting credibility as demand increases is crucial to accelerating any market. This is no less true of engineered CDR. If the market mechanisms can be harnessed by these technologies, it can help transition removal credits away from the future and into the present.

For more information check out BeZero Carbon’s June 2022 report ‘Removal reconsidered: carbon dioxide removal in the voluntary carbon market’.

Energy Voices is a democratic space presenting the thoughts and opinions of leading Energy & Sustainability writers, their opinions do not necessarily represent those of illuminem.

Footnotes

[1] Further information on CDR methods can be found here.

[2] This is a compilation of Robert Höglunds database on CDR credit purchases to date.

[3] Note: this graph and these data points were collected prior to the announcement of Frontier’s removal purchases on June 29th 2022. The total future DAC credits is now 438,877 and the percentage of enhanced weathering that is ex-post is now only 83%.

[4] Airbus purchased 400,000 DAC credits in 2022 from Carbon Engineering and 1Point5 - extending beyond the scope of the graph.

[5] This figure is limited to available data. Suppliers who claim to be delivering removal today but do not publicly publish retirements have been grouped under futures as there is no proof of delivery.

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Victoria Harvey
About the author

Victoria Harvey is part of BeZero’s carbon removal team since April 2022. Prior to BeZero she researched corporate engagement in carbon removal at the Carbon Removal Centre, analysing the risks and opportunities at the sector level. Additionally her thesis from Imperial College London researched the fragmentation of carbon removal governance, specifically in the UK and US, analysing opportunities of international collaboration for an effective scale-up of carbon removal.

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