Negative emissions under a net zero target: navigating the controversies and pitfalls

Credit: Olivier Le Moal/istock

Almost all modelled emissions scenarios consistent with the Paris Agreement’s target of limiting global temperature rise to well below 2°C include the use of greenhouse gas removal (GGR) or negative emissions technologies (NETs). This is as much the case in the United Kingdom as anywhere else, even though the UK reduced domestic emissions further and faster than most developed economies.

This was made clear in the Committee on Climate Change’s landmark advice to government on reaching net zero by 2050, published last May.

As the new 2050 target, now enshrined in law, is to reduce emissions to net zero, it is important to distinguish between gross zero and net zero. A gross emissions target reduces all emissions, in all sectors, uniformly to zero. Net zero allows for some residual emissions in sectors where abatement is either too expensive or technologically not possible – on the assumption that they are offset by deeper emissions cuts elsewhere. This can be achieved using nature-based solutions (e.g. afforestation) or engineered sinks (e.g. using bio-energy with carbon capture and storage [BECCS] or direct air capture technology [DAC]). Net negative emissions are achieved when gross negative emissions match or exceed gross positive emissions.

The costs of climate change will be vast and pervasive so the promise of technological fixes – such as NETs – that put the brakes on temperature rise while also enabling the continuation of current models of economic growth is an enticing vision for policymakers.

Why negative emissions?

The prominence given to GGR technologies – particularly their deployment in the latter part of this century – is driven by the cost optimisation function of Integrated Assessment Models (IAMs), which suggest that because rapid decarbonisation is too costly today, the deployment of cheaper negative emissions in the future is economically optimal. This approach is encouraged by the use of discounting within models and the high future global carbon prices that result.

For example, in a number of IAMs, towards the second half of the 21st century carbon pricing is the primary mechanism that triggers BECCS deployment at scale, but only when high carbon prices are realised. In this context, it is assumed carbon pricing can act as economic enabler to create markets, drive deployment and generate revenues linked to technologies that remove and store greenhouse gases.

A vital fix or mitigation deterrent?

Negative emissions technologies are controversial across a number of dimensions. Environmental integrity needs to be ensured in both the capture and storage of greenhouse gases to bring about genuine and permanent emissions reductions. It can be hard to define scientifically the equivalence between one negative emissions unit generated through a given NET and one positive emissions unit abated in the industry or power sectors. Therefore, if these two units are to be considered entirely fungible there are important considerations for regulation and temporal governance in relation to monitoring, reporting, evaluation and permanence. Bushfires that have raged in many parts of the world, exacerbated by jurisdictions with weak or weakening forest governance (e.g. Brazil), illustrate the limits to nature-based solutions, for example.

It also goes without saying that every effort needs to be made to reduce the emission of greenhouse gases, across the economy. Assumptions that NETs will be viable in the future should not be an excuse for a lack of mitigation action now. Herein lies a major criticism levelled at NETs: they have the potential to act as a mitigation deterrent. Some might describe this as a ‘moral hazard’, although deterrent seems more accurate, given that the technologies’ risks and challenges do in fact tend to be acknowledged.

The mere inclusion of negative emission technologies and greenhouse gas removal in the climate change discussion, let alone the genuine prospect of future deployment, could be enough to delay drastic emissions reductions now. Arguably, these interaction effects are already being observed before deployment has even begun. Despite the pluralistic nature of democracies, strong vested interest can influence policymaking and incumbents may see GGR as a way of preserving a business as usual approach that continues to favour fossil fuels.

Of course, this sort of conjecture has been observed with other large-scale technologies. Objections to nuclear power can be seen as an antecedent to the current debate around GGR. It, too, was – and still is – seen as exorbitantly expensive, as well as undemocratic and of questionable morality, insofar as accidents and legacy costs could jeopardise future generations’ wellbeing.

To reduce the potential for NETs becoming a mitigation deterrent, a recent paper suggests having separate targets for negative emissions and emissions abatement. This is not without merit.

Inclusion in carbon markets

Despite the prevalence of negative emissions in Paris-consistent scenarios, and indeed in plans to meet the UK’s own target, there is a paucity of R&D and regulatory support for emerging technologies. This is especially acute for demand-side policies. Carbon pricing, including the future inclusion of NETs in carbon markets, is one area that has experienced more attention than others.

The eligibility of NETs within existing emissions trading schemes is currently uncertain, however. Typically, cap and trade systems like the EU ETS are not equipped to deal with the potential carbon dioxide ‘credits’ created when emissions are captured/sequestered using removal technologies. However, it has been suggested that the Sustainable Development Mechanism under the Paris Agreement, a successor to the Clean Development Mechanism, might usefully be expanded to analogously include international trades in negative emission offsets (Honegger and Reiner, 2018).

Similarly, the Royal Academy of Engineering and the Royal Society suggest that carbon trading frameworks with or without some form of linkage to the EU ETS or a robust carbon price – administered through a tax – that can pay for removal of CO2 may encourage business to use a wide portfolio of GGR technologies.

Where does the UK government stand?

Recent consultations suggest the Government is now considering how domestic carbon markets, and carbon pricing more generally, can be augmented to support the development of NETs. For example, in the Government’s consultation on carbon pricing after Brexit, undertaken last year, questions focused on further sources of allowances, if offsets can be used by operators to meet their compliance obligations, and how a UK emissions trading system should evolve over time to ensure the system delivers when faced with future challenges.

Allowing NETs permits to be used by operators to meet their compliance criteria may be deemed desirable if, in these post-Brexit times, a UK-only ETS remains unlinked. This is because it may help to increase market depth or liquidity for a standalone UK ETS which would reduce the burden on the complementary decarbonisation policies that agents in these sectors face.

The Government’s carbon capture, usage and storage (CCUS) consultation, which ran to September 2019, suggested a market of tradable CCS permits may be a viable business model for CCUS. Combined, this infers the Government is giving credence to the proposals put forward by academics and others.

A high level synthesis of GGR policies options has also been conducted by Vivid Economics on behalf of the Department for Business, Energy and Industrial Strategy. This reviews a high level range of policies that could be used to stimulate both the supply and demand of negative emissions simultaneously.  In the short term, the report suggests that including BECCS and DAC in the EU emissions trading system or its replacement after Brexit could be pursued regardless of the long-term policy prescription. Policies that shift financing burden from public to private have generally been favoured by recent UK governments. The rapid decarbonisation required under Net Zero should be reason to rethink this approach.

Risks of including negative emissions in carbon markets

Policies to incentivise NETs have thus far focused on carbon pricing but there are risks associated with the current dominance of carbon pricing as the main policy lever for NETs.

Risk 1:  Treating negative emissions and emissions reductions as entirely fungible may encourage substitution, and fail to ensure negative emissions deliver the necessary additional carbon removal. Incorporating NETs into carbon markets will prevent the use of separate targets (for negative emissions and emissions abatement) and exacerbate this risk, potentially leading to carbon lock-in effects.

Risk 2: There is a risk that expensive negative emissions technologies are exposed to market mechanisms too early and that there is insufficient demand-pull to drive these technologies through markets at scale, failing to deliver replicability, scalability and cost reductions. Given the existing price differential between positive emissions permits and NETs, there is the risk that only low-hanging fruits are reaped and there is no incentive to develop expensive NETs and reduce their costs.

Risk 3: Opening up a market for cheap negative emissions too early brings significant risks for the efficient functioning of the positive emissions market. This includes arbitrage and gaming when negative emissions and positive emissions prices are not harmonised. Without adjustments to emissions caps, this can create a supply of allowances in the market and put downward pressure on the carbon price (as was seen in New Zealand).

The future design and linking of a negative emissions market must consider these implications and have a clearly defined objective – e.g. subsidising innovation or reducing compliance costs. These two objectives imply different policies: a link to a positive emissions market is effective for reducing compliance costs but generally not good at subsidising innovation.

 

This commentary stems from a research project, with Simon Quemin, which will be publishing its findings in the coming months

This commentary was originally published in Business Green