In light of the new Net Zero Guidelines launched at COP27, Josh Burke outlines the risks of treating carbon removals as a homogenous group and how they can be managed in a way that contributes towards net zero targets.

New net zero standards

COP27, which concluded earlier this month, saw many contentious climate issues such as loss and damage, water scarcity, fossil fuel taxation and just transition front and centre of discussions. A more esoteric development that was less commented on but could yet have important ramifications for global climate change governance, was the launch of new Net Zero Guidelines by the UN and the International Organization for Standardization (ISO), the international standard setter.

These standards seek to ensure that carbon removal techniques, which take CO2 out of the atmosphere using land-based, ocean based, geochemical or chemical processes, are “high quality”, meeting a number of criteria including credible accounting standards and third-party verification.

Carbon removals are needed because net zero targets – as implied by the term – are based on net emissions levels, which are important to distinguish from gross emissions. A ‘gross zero’ emissions target reduces all emissions, in all sectors, uniformly to zero. Net zero, on the other hand, allows for some residual emissions in hard-to-abate sectors (i.e. those where cutting emissions is too expensive or the technological solutions do not exist), on the assumption they are offset by deeper emissions reductions or emissions removals elsewhere. Net zero emissions are therefore achieved when gross negative emissions match or exceed the emissions reduced or removed.

The ISO standards provide new guidance for reporting on carbon removals in a transparent way, in an attempt to tackle the fragmented governance that has undermined confidence in the carbon removal sector to date. As the IPCC has set out, for countries with emissions targets of net zero or lower, the core governance question is no longer whether carbon removal should be mobilised, but which methods are deployed by whom, by when, at what volumes, and in which ways. This more nuanced set of questions reflects a reframing of the debate from whether we should use carbon removals to how we can use them in a sustainable and equitable manner.

The importance of recognising differences between carbon removals

When devising equitable and sustainable policy frameworks for carbon removal, it is first important to recognise that not all removals are created equally. Different techniques such as Direct Air Carbon Capture and Storage (DACCS), Bio-Energy with Carbon Capture and Storage (BECCS), afforestation, ocean fertilisation and biochar have very different characteristics in terms of their cost, technological maturity, storage duration, risk of reversal and additionality (i.e. that the carbon removed by a project or activity is over and above what would have happened in its absence).

Government policy must recognise that treating all carbon removal technologies as a homogenous group will fail to incentivise a wide portfolio of approaches and could exacerbate some of the risks inherent to different technologies.

The development of the ISO standards is an encouraging step in addressing the challenges in governing and incentivising carbon removals. However, current monitoring, reporting and verification practices are still not comprehensive enough to determine equivalence between technologies. Additional safeguards are needed, especially as governments are now considering how domestic carbon markets can be expanded to support the development of carbon removal credits – exactly the type of policy that will treat all removals equally.

In a recently published paper we set out the three key risks of prematurely incorporating carbon removals into carbon markets, namely: whether all carbon removal credits can be considered equal (fungible) to other carbon credits; the lack of price incentive provided for investment in carbon removal technologies; and the lowering of the carbon price through over-allocation of credits. These are outlined in further detail below.

Risk 1: Lack of true equivalence across emissions reductions and removals

The genuine permanence and environmental integrity of carbon removals are not a given, and this presents risks. At the heart of the issue is whether the codification of CO2 (or other greenhouse gases) as a tangible commodity, i.e. as carbon credits in carbon markets, can truly represent equivalent units across carbon removals and other forms of emissions reductions. Equivalence would assume that a tonne of CO2 sequestered by natural sinks is the same as either a tonne of CO2 captured by engineered solutions, such as BECCS or DACCS, or a tonne of CO2 not emitted (abated). In other words, all carbon removals, and reductions, are equal.

In reality, it can be difficult to establish whether one negative emissions unit generated through a given carbon dioxide removal technique is the same as one positive emissions unit abated. If the two are to be considered entirely fungible, the long-term durability and overall net additionality of emissions removals need to be ensured, both in their capture and storage.

For example, nature-based solutions are far more prone to reversal than engineered solutions as they rely on the protection of natural carbon stocks (e.g. forests) over long periods of time. This can be a particular issue in jurisdictions with a chequered history of land use governance. Including carbon dioxide removals into carbon markets therefore raises important considerations for regulation and long-term monitoring, reporting and evaluation.

Risk 2: Carbon prices may fail to incentivise carbon dioxide removals

Many large-scale carbon removal techniques (particularly BECCS and DACCS) remain a relatively expensive near-term mitigation option. There are several reasons to be sceptical about the ability of a carbon price delivered by an emissions trading system to drive the requisite innovation and cost reductions in carbon dioxide removal techniques, at least in the short term. The most striking, and possibly most relevant example is carbon capture and storage (CCS), which continues to languish in terms of its contribution to climate change mitigation, with just two power generation plants operating with CCS at a combined power output of less than half a gigawatt.

Even though a strong future carbon price could provide a much-needed boost to the economic prospects of CCS, such a price has failed to materialise in most regions to date. There are suggestions that even a carbon price that peaks at £349 per tonne of CO2 in 2075 (up from £6 in 2015) is insufficient to kickstart the deployment of BECCS and DACCS over this time period. This illustrates that even very high carbon pricing levels may not be able to deliver carbon removals at scale.

Many complementary mechanisms are likely to be required alongside a pure carbon price. A review of innovation and upscaling for negative emissions technologies finds that several processes will be necessary to drive this process, including deployment incentives, niche markets and public acceptance – in addition to the demand created by carbon markets.

Risk 3: Linking a carbon removals market with traditional carbon markets may push down the carbon price

The historical use of offsets in carbon markets demonstrates the risks of allowing cheap carbon removal permits in future carbon markets. For example, the New Zealand Emissions Trading System (ETS) was initially introduced with unrestricted linking to the international Clean Development Mechanism (CDM) market where Certified Emissions Reductions (CER) units could be used for compliance. When the 2008 financial crisis occurred, New Zealand experienced excess supply from both a decline in emitting activity and an oversupply of international offset credits (CERs) in the trading market. This led to a collapse in the New Zealand allowance price from $20 in May 2011 to $2 in May 2013.

While carbon removal credits may seem an attractive option to policymakers to maintain flexibility or reduce decarbonisation costs, without adjustments to emissions caps, even a relatively small number of credits could disproportionately affect market outcomes within an ETS.

Mitigating the risks

Risks to the effective management of carbon removal technologies can be mitigated by recognising that not all carbon removals are equal, and instead adopting an appropriate, multi-pronged and technology-specific policy framework that will allow them to contribute meaningfully to the achievement of net zero targets.

A sensible first step is to promote a wide range of innovation and technology-specific mechanisms in order to drive the currently expensive but highly scalable technological carbon removal technologies down the cost curve. Alongside this, robust monitoring, reporting and verification standards need to be established and enforced through an independent regulator to avoid the pitfalls of employing carbon mitigation options with questionable integrity. The new ISO standards will provide an additional layer of standardisation across technologies.

This combination of measures will help to ensure that policymakers can mitigate each risk while incentivising the development of carbon removal towards its eventual inclusion in carbon markets.

This commentary was first published in Business Green on 29 November 2022.

Keep in touch with the Grantham Research Institute at LSE
Sign up to our newsletters and get the latest analysis, research, commentary and details of upcoming events.