The first step to building a new carbon management economy is carbon accounting
Managing carbon like a commodity and creating value from keeping it out of the atmosphere, holds the key to the net-zero puzzle. It is clear that the scale of current emission reduction is nowhere near what is needed to avoid overshooting 1.5 degrees Celsius. Carbon removals too are far short of where we need them to be.
Scaling both carbon removals and activities that reduce emissions represents a historic challenge that will only be overcome with a seismic shift in how we manage carbon dioxide. We need to transition to a carbon management economy. This carbon reduction and removal moonshot can only be achieved with a framework that incentivises, tracks and accounts for every CO2 molecule captured at the source, or directly removed from the atmosphere, and durably stored or used. The market cannot mature without such a framework.
To begin tackling this challenge, the CCS+ initiative developed a robust carbon accounting infrastructure. This infrastructure - which ranges from methodologies to guidance on integrating them into compliance markets - will unlock finance from carbon markets for sorely needed projects that reduce or remove CO2 emissions that are currently not financially viable.
In this article, we outline key goals and challenges that have shaped these methodologies, from quality assurance to the benefits of a modular approach and the critical infrastructure required to fire the starting pistol in a race to the top for the quality of these carbon reduction and removal technologies.
Speed and quality for market scale up
Real, quantifiable emission reductions or carbon removals will always be our north star. To allow the planet's natural carbon cycle to restore itself gradually, we need a comprehensive and sustainable approach to managing carbon emissions throughout our entire economy. This is what we mean by a carbon management economy, which includes implementing solutions like Carbon Capture and Storage (CCS), Carbon Capture and Utilization (CCU), and Carbon Dioxide Removal (CDR).
A significant challenge all of these approaches face is the lack of a standardized approach to quality assurance, which prevents seamless comparison and communication of data on carbon flows across different approaches and technologies. This is where carbon accounting methodologies have a key role to play.
The initiative aims to develop overarching methodology frameworks for projects with point-source fossil emissions, projects using CO2 in durable products, and projects leading to technological carbon removal. Although developed separately, they will eventually all align with the same comprehensive and consistent taxonomy and definitions. The CCS+ carbon accounting framework is designed in a plug-and-play manner. Each activity in the value chain is represented by a methodological module that can be seamlessly combined with the relevant modules of other activities. For example, the DAC module combines with the modules for CO2 transport and storage in saline aquifers. But, the DAC module could also be combined with use in cement, mineralization of CO2 in igneous rock formations, or other “storage” modules.
Another crucial methodological element is the tool for the differentiation between emission reductions and removals. This tool enables the separate accounting of emission reductions and removals in a single project activity with mixed CO2 streams from a fossil and biogenic origin. Equally important is the tool for differentiating between CO2 captured from a carbon project in the voluntary market and CO2 that is coming from other sources covered by a compliance market in a shared infrastructure.
The integrated carbon accounting infrastructure that the CCS+ Initiative is creating will provide the quality needed to ensure that projects lead to real, quantifiable emission reductions or carbon removals. By creating accounting rules and trust in the framework, we will be able to maximize climate action by accessing untapped capital through voluntary and compliance market instruments.
Reductions or carbon removal?
It is vital that within this framework we clearly differentiate between emission reductions and carbon removals from a carbon accounting perspective. The origin and destination of CO2 molecules are significant to assess the climate benefits of a project. The way CO2 is captured and stored determines its contribution to limiting the effects of climate change. Additionally, the functionality and climate impact of technologies such as CCS and CCUS should determine their market value.
For CCS projects, emission reductions are achieved by capturing CO2 emitted from fossil sources (i.e. flue gasses) and storing it securely for a period that is significant for our climate. The term "storage" in CCS is crucial since the climate benefits only materialize when the captured CO2 is effectively locked away, preventing its release into the atmosphere. There has been confusion regarding the climate benefits of CO2 used in CCU applications. If the captured CO2 is not geologically stored but used in products or materials, the use can be either short-term or long-term (considered durable), such as when it is used in concrete.
Carbon removal, on the other hand, is the only activity that can physically extract CO₂ from the atmosphere. Removals are only possible when there is a net increase of a carbon sink or the creation of an entirely new sink. The CO2 must be removed from the atmosphere or from sustainable renewable biomass, which captures CO2 through photosynthesis throughout its lifetime. Both the source and destination of the CO2 are therefore important for the climate benefits achieved from the project activity to be considered a removal.
Hard infrastructure dependencies
While the need for a differentiated accounting framework for reductions and removals is crucial, this does not imply they are distinct in all aspects. In fact, overlapping infrastructure needs make CCS, CCUS and CDR technologies natural allies.
The world needs a vast CO2 transport and storage infrastructure, including an extensive pipeline network, special purpose ocean-faring ships and river barges, trucks and trains that can collect the CO2 from where it is captured at the smokestack or removed from the atmosphere, and transport it to where it will be used or stored. This could be in a product, onshore or out to sea, above or underground. This infrastructure must be as versatile as what can be seen in today’s oil and gas industry.
Governments and the general public have yet to embrace the idea of a carbon management economy in most countries. Some concerns stem from the difficulties in consistently, credibly, and comprehensively demonstrating results. This further reflects the need for technically sound and environmentally robust monitoring, reporting and verification (MRV) systems, as well as appropriate accounting. Solving this challenge can build trust and unlock market scale-up.
Integrated carbon management accounting
Accurate and transparent accounting of mitigation outcomes is the quintessential trust builder. However, the lack of a common language has exposed very few universally accepted guiding principles to measure and verify the performance of such projects. Current carbon accounting approaches are a patchwork. There is a risk of fragmentation across the voluntary and compliance markets in the absence of efforts to standardize high-quality carbon accounting practices. This is what the CCS+ Initiative intends to solve.
As it stands, especially for CDR, the dominant approach for MRV of claimed mitigation impacts has been a combination of project-specific carbon accounting methodologies, project-level due diligence and bespoke verification. CCS and CCU projects with fossil emissions tend to have MRV requirements already regulated. This characterizes a fledgling market with a limited variety of both buyers and suppliers of carbon removal credits. It is clear this model is not scalable and it is time-consuming. It also does not ensure the environmental integrity of the voluntary carbon market, nor can it serve as a bridge to compliance markets.
Building on those solutions while pushing the boundaries of today’s carbon credit standards will allow for greater standardization of quality assurance approaches across markets and significantly reduce transaction costs in the market. Time and money are gained if project developers do not have to accommodate too many different requirements across the markets they operate in.
A race to the top for carbon accounting
The reality is that the rules of the carbon management economy are being written today. The rules are not only about unlocking a trillion-dollar market but also about creating a new yet fundamental life-saving carbon waste and carbon-to-value management operation that humanity will add to its toolbox to stave off climate catastrophe. It is important that the tracking of mitigation impacts is transparent, universal and continuously evolves to ensure ever-greater quality as the market matures and new scientific insights are gained.
We encourage everyone with an interest to participate in the consultation and help unlock climate action by working towards a high-quality accounting framework for the carbon management economy.
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About the authors
Matthias Krey is Managing Director at Perspectives Climate Group, one of the leading advisory firms in international climate policy and carbon credit markets. Matthias is responsible for business development for the private sector.