Carbon Markets + New Type Of Credits= Climate Action

A major report out recently by BeZero Carbon, a ratings agency for the carbon offset market, argues the solutions lie in pulling engineered carbon removal solutions into the “voluntary carbon market ecosystem,” through policies that incentivize innovation and bring costs down, alongside the introduction of accreditation and ratings standards that open up the market up to a broader cross-section of business.

The research states that just 19 percent of the voluntary carbon market today could be classified as “removals credits,” with the market dominated by so-called “avoidance credits.” That is to say credits that correspond to projects that aim to reduce emissions through avoided deforestation or renewables development far outnumber credits issued by projects that aim to actively remove carbon from the atmosphere through the expansion of natural carbon sinks or technical solutions such as DAC systems.

It notes that the overwhelming majority of engineered carbon removal credit sales — a huge 96 percent — are bilateral deals struck between suppliers and buyers, which take place outside of carbon markets. In these instances, the purchaser of credits is typically a large corporation — such as Microsoft, Airbus or Bank of Montreal, to name three recent examples — that has significant resources to throw at undertaking due diligence on each project and pay relatively high prices for the resulting credits. This approach, it warns, may help prove that such technologies can work, but is too expensive for most companies to emulate and as such will struggle to drive the economies of scale that can bring down the cost of crucial carbon removal technologies.

Engineered carbon removals currently comprise less than 1 percent of all carbon removals on voluntary carbon markets today, with the market dominated by nature-based carbon removal credits, BeZero notes. As such, it has argued more robust market infrastructure is required to give investors’ confidence in the decarbonization credentials of the newfangled technologies they are backing.

Currently, 89 percent of engineered carbon removal credits are so-called “future credits” — meaning they do not represent carbon that has been removed, but rather a forward sale a commitment to remove carbon in the future, according to the research. “This system of donations from big purchasers sets the precedent but will not be enough to scale the market to the level necessary,” the report notes.

“We need to drastically reduce the price of carbon removal over the next decade,” said Ted Christie-Miller, head of carbon removal at BeZero. “The public sector cannot do this alone. We need to harness the power of the market to bring costs down and allow these new and emerging technologies to scale up.”

It also argues that initiatives to provide forward financing to firms looking to scale carbon removal — for instance the Frontier fund backed by Stripe, Shopify, Alphabet, Meta and McKinsey and the NextGen CDR Purchase Facility backed by South Pole, Mitsui, Boston Consulting Group, LGT, UBS and Swiss Re — are unsustainable in the long run. Overall, the report suggests the costs of direct air capture need to fall to $100 a tonne from roughly $320-$2,050 per tonne today if the sector is to deliver at the scale necessary to impact climate goals.

Chris Skidmore MP, chair of the Net Zero Support Group and the All-Party Parliamentary Group on Environment, welcomed the report and its call for the public and private sector to work together to scale the industry. “The challenge to scale carbon removal from basically zero to billions of tonnes a year is monumental,” he said. “I welcome this report from BeZero which quite rightly points out that we need both the private and public sector to unite behind this emerging industry if we are to have any hope of hitting our climate targets.”

This story first appeared on: BusinessGreen