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David Hone

Climate Change Advisor for Shell

Hello and welcome to my blog. There's lots said about why climate change now confronts us, and what it means, but the real issue is what to do about it. Plenty is said about that too, but there's not enough discussion on the practical aspects of implementation. Focusing on energy, that's what my blog sets out to achieve.

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  • Reflecting on the IPCC Synthesis Report through new Shell scenarios
  • Finally, an EU foot in the removals door
  • Business schools and climate change
  • A chat with ChatGPT about emissions mitigation
  • New business models required
  • Revisiting the climate budget maths

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Reflecting on the IPCC Synthesis Report through new Shell scenarios

dchone March 23, 2023

After a year of work, with a few hints along the way offered via this blog, the Shell scenarios team launched The Energy Security Scenarios …

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  • Article 6
  • Emissions Trading
  • Europe

Is it time to open up the EU ETS again?

dchone January 20, 2022

As the new year gets going, the EU is facing much higher energy prices than it has had to contend with in the recent past, topped off with an escalating carbon price driven both by the energy price and the ambitious decarbonisation plans of the EU Commission. Starting in late 2020 at a price of around €20, the purchase of an EU allowance (EUA) in the EU Emissions Trading System (ETS) now costs between €80 and €90 per tonne of CO2.

The current allowance price in the EU ETS provides a significant incentive to reduce emissions, including investment in substantial mitigation technologies such as carbon capture and storage (CCS). As such, this is a welcome and critically important change from over a decade of prices below  €20 and a low of €3 where the system did little to encourage the energy transition. For much of the 2010s the ETS was awash in allowances, with the surplus brought about by the financial crisis and subsequent EU recession, the influx of units from the Clean Development Mechanism (CDM) of the Kyoto Protocol and the overlaying of other policies in the ETS sector, a practice that erodes the need for a specific carbon price and will undermine its impact.

We are now in a world where the EU ETS is driving substantial mitigation action, which is exactly what it is supposed to do. The question that arises is what comes next? One way of answering that question is to look at a scenario analysis of the EU net-zero emissions goal, such as in the Shell EU Sketch released by the Shell Scenario team a bit over a year ago.

A deeper look at the Shell EU Sketch highlights the ambition of the Fit for 55 (FF55) goal. Even in the scenario, the reduction planned under FF55 for the EU ETS sector isn’t fully met in 2030, but instead requires another five years of effort. In addition the energy transformation in the EU is not yet fully matching that of the Sketch. Take for example the build rate of CCS facilities in the Sketch versus the real world. At the rate of change in the Sketch, some 40 major (~ 1 mtpa each) CCS facilities need to be operating by 2030 and over 100 by 2035. The EU has finally started developing CCS clusters, but not yet fast enough to meet these goals. This implies that during the 2020s the EU ETS could see further price escalation if project activity does not fully match the reduction goals of the system.

The Fit for 55 package of measures and targets is extraordinary ambitious, contributing to the global reductions required to avoid passing 1.5°C of warming and setting up the EU for a landing at net-zero emissions in 2050. It does need a meaningful carbon price to usher in the transition, but in the Shell EU Sketch it rises to around €60 by 2030 and €200 by 2050 (but on a much smaller level of emissions than today). The current price of an EU allowance should usher in real change for industry and industrial processes, which is needed, but a continuing steep up-trend may also be a sign of a system that is becoming overly constrained by the rate of reduction required compared to the rate at which projects can be implemented.

When the EU ETS first started the Kyoto Protocol was coming into force and we all imagined a world of interconnected cap-and-trade systems, ambitious clean energy projects in developing countries and a resultant liquid global carbon market. With substantial demand coming from the Kyoto signatory countries with targets and good supply from clean energy projects, the resultant carbon market would be of sufficient size to deliver cost savings to all participants. Importantly, major price spikes could be managed. Almost none of this happened.

In the process, the EU ETS was designed with external hooks to make use of the mechanisms of the Kyoto Protocol (CDM and Joint Implementation or JI) and to connect with other systems. With the prospect of an Australian ETS about a decade ago the EU began early negotiations with the Australian Government to link the systems, but a change of government in Australia put an end to the Australian efforts. With the US leaving Kyoto and other countries making little use of the mechanisms, the EU ETS was left as the only real buyer of emission reduction units (CER) from the CDM. So it was flooded with them, contributing to the 2008 price collapse. The EU rightly closed the doors and it wasn’t until 2020 when they were partly reopened with a link to the Switzerland ETS.

Industry will be feeling the competitive pressure and rising fuel bills for citizens opens the door to voter anger when it comes to elections if the EU ETS price continues to rise without adequate relief valve mechanisms. The Market Stability Reserve (MSR) would offer some reprieve as it starts releasing banked allowances, but a longer term solution could also be found through Article 6 of the Paris Agreement. The EU ETS could open itself to projects executed under the 6.4 mechanism and transferred into the EU ETS via 6.2, along with the necessary corresponding adjustments to the counterparty country nationally determined contribution (NDC). I discussed the corresponding adjustment mechanism in my last post of 2021. The transfer provision under 6.2 also provides an opportunity to link with other trading systems, such as the recently created UK ETS.

Making use of Article 6 will be a very different experience to that with the CDM. This is a mechanism that operates between two nationally determined contributions (NDC), each with its own plan to reduce emissions, but each plan must be converted to a carbon budget for the period of the NDC in order to use Article 6. The rules for doing this were thrashed out in Glasgow and can be found in III.B of the decision. When the transfer between NDCs is executed, a corresponding adjustment must be made to the respective carbon budgets. This means that the selling country must make up the amount of the sale through additional actions within their NDC, which ensures that the overall reduction goals of the respective NDCs are maintained. Under the CDM, no such provision existed.

With robust Article 6 accounting standards, the EU can have confidence that environmental integrity is preserved and that real reductions are delivered through the ETS. This was always a concern with the CDM. However, there is a fine balance to be achieved when creating a relief valve in that a sharp fall in the carbon price is not helpful for investment. As such, the EU might initially look to trade with a very limited number of countries, such as those with similar ETS structures. The UK, New Zealand and South Korea could all fall into this category.

By opening up the ETS the EU will promote confidence in international carbon trading, which will become an increasingly important part of the mitigation toolkit as the world gets closer to net-zero emissions. This is because remaining emissions and the availability of sinks to balance won’t always be in the same jurisdiction. But most importantly, a larger trading system will lower overall costs for the same reduction goals or alternatively may promote greater ambition, which is certainly needed and was called for in the Glasgow Climate Pact. This will benefit everyone.

  • Article 6
  • Carbon capture & storage
  • Carbon Dioxide Removal (CDR)

Finally, an EU foot in the removals door

dchone March 6, 2023

As the EU continues to develop and progress legislation around its 2030 and net-zero emissions goals, one key proposal has surfaced that will be with us for decades to come.  It is the EU proposal to create a certification framework for removals – i.e. measuring and certifying the amount of CO2 that is removed from the atmosphere and permanently stored through some anthropogenic activity. Examples might include direct air capture with geological storage (DACCS) or reforesting an otherwise barren land area (nature base solution or NBS). The proposal includes the very clear reason why it is needed;

The European Climate Law provides for the EU to become climate neutral by 2050. This requires that GHG emissions are significantly reduced, and that the unavoidable emissions and removals should be balanced within the European Union at the latest by 2050, with the aim to achieve negative emissions thereafter. To achieve this objective, both natural ecosystems and industrial activities should contribute to removing several hundred million tonnes of CO2 per year from the atmosphere. Today and with current policies, the EU is not on track to deliver these quantities: carbon removals in natural ecosystems have been decreasing in recent years, and no significant industrial carbon removals are currently taking place in the Union.

Readers of my previous posts will know that this is something of a pet subject for me and so it is pleasing to see that the EU if finally recognising the importance of removals. The need for a tradable carbon dioxide removal unit is essential for net-zero emissions, in fact it is the essence of the phrase because of the use of the word ‘net’. However, while a first step is important, time is not on the side of the EU, so they will have to move much faster.

In a 2022 post I noted that the revised EU ETS allowance decline rate built into the Fit for 55 framework would take the system to zero new allowances in 2040, but that would almost certainly be ahead of the point in time at which there would be zero emissions in the covered sectors. As such, some form of new allowance would be needed, with the obvious candidate being a carbon removal unit brought in as an external credit. That would make the EU ETS a vibrant carbon removal trading platform, creating a market for carbon removals and establishing a clear price.

But it would seem that the EU is not yet prepared to take such a step. While the certification proposal is important, it lacks one key element, a business model to encourage businesses to use it. The EU appears to be pinning its hopes on voluntary activities, or companies looking to create or acquire certified removals to use for their net-zero commitments. This will happen to an extent, but mainly at the lower cost end of the spectrum such as soil carbon projects, land use change projects and similar. These do form an important part of the EU Fit for 55 framework, but so does the need for DACCS and bioenergy with CCS (BECCS).

The voluntary market and a certification process are no match for the $180 per tonne CO2 on offer in the USA for DACCS under the Inflation Reduction Act (IRA). In the EU there is the Innovation Fund to help drive technologies such as DACCS, but it isn’t operating on the same scale as the IRA. The Innovation Fund could provide EUR 40 billion of support over 2020-2030 for the commercial demonstration of innovative low-carbon technologies, whereas IRA is around USD 330 billion. And IRA has a specific and clearly defined incentive for carbon dioxide removal, which isn’t the case for the EU Innovation fund, although a DACCS would be considered within the framework. It’s therefore not difficult to guess where the DACCS projects will end up and which country will benefit from the investment. That being said, ETS revenues and other mechanisms could bridge this gap if directed more towards energy technology development and demonstration.

The EU could create demand for DACCS and BECCS on a large scale if it opened the EU ETS up to such units, recognising that they will be needed by 2040, but almost certainly prior to that as the ETS reaches reductions in excess of 80%, a point it will hit around 2035.  That is in 12 years. The EU Commission may well have such a move in their future plans, but history would argue that if they don’t start now, time will defeat them. Major changes in direction for the EU ETS take at least 5-10 years to be developed and bed in. For example, the Market Stability Reserve (MSR) started life in about 2011 with proposals for a set-aside of allowances to remove the post financial crisis surplus, then came backloading and finally the first implementation of the MSR and some tweaks a bit later. In 2023 it operates very well.

Given the need for a clear market price signal, i.e. the €100 per tonne CO2 price now available from the EU ETS, a clear set of implementation rules to support projects, and recognition that a functioning DACCS industry will take at least a decade to establish, if not more, the inclusion of removals within the EU ETS becomes rather urgent. Encouraging the use of Article 6 of the Paris Agreement to facilitate carbon dioxide removal technologies is another area that I have written about and is also relevant to the EU in this context. At the moment, the only signal on offer is an indication of a review of negative emissions and trading in a few years’ time.

  • Education
  • Energy Transition
  • Low carbon economy

Business schools and climate change

dchone February 6, 2023

For quite a few years now I have found myself in front of a class of MBA students at a number of different institutions giving a talk on climate change and the energy transition. Each has their own take on how to tackle the subject. Some leave it up to me but at Harvard University the talk was entitled ‘The Future of Fossil Fuels in the Energy System’ and the session included a presentation from a well placed analyst in the finance sector. One common feature is the high level of interest in the class and the diverse and sometimes difficult range of questions that come my way. As such, the sessions are always enjoyable and something of a highlight of my job.

But another common feature is that my lecture was typically part of a module within the course that is optional and as such often populated by students who may have worked in the energy industry or have a close association with it. At least until recently, I didn’t get the impression that the bulk of the students saw energy and climate as pivotal to their future business success. But that appears to be changing.

In my experience, one of the leading business schools in promoting the climate issue as a much more important component of an MBA course is Tuck School of Business at Dartmouth College in Hanover, New Hampshire. I am particularly fortunate to have spoken there in person a few times, although more recently it has been a Zoom experience for the students.  Professor Anant K. Sundaram leads in this area for Tuck and he and Robert Hansen are to be commended for elevating the subject further, with the publication in January of The Handbook of Business and Climate Change.

The Handbook is a weighty document, some 560 pages long, and covers a swathe of subjects from decarbonising electricity and managing aviation to carbon pricing, green bonds and ESG investing – to name but a few of the many subjects. Sundaram and Hansen haven’t written the book in entirety themselves, but instead sought out numerous authors to write the various chapters. I was honoured when Professor Sundaram asked me to write one of the opening chapters, helping set the scene for the book.

After some thought, I decided to call the chapter ‘The End of Combustion?’, perhaps to challenge the orthodoxy that is emerging around the future role of fossil fuels throughout society. In the chapter I explore the transition pathways that have appeared in recent years and where they may be taking us and the extent to which fossil fuel use might end by 2050. Regular readers of this blog may notice a few extracts from my posts or should at least recognise some regular themes. Perhaps not surprisingly the chapter raises the issue of natural and engineered carbon sinks and the many challenges society faces in creating a vast industry that few seem to actually want yet many recognise we desperately need.

This may not be a book for everyone and as a university textbook it’s unlikely to appear on the New York Times Best Seller list, but as an aide for business school students it should prove invaluable. Accelerating the energy transition will require all of the skills that a good business school seeks to impart on its students and all of the talented people that graduate as well. ‘Energy and climate change’ is no longer an optional module for the interested, but an essential part of a business background. There isn’t a company in the world that doesn’t use energy in one form or another and there’s unlikely to be a company that isn’t impacted by the transition or climate change or both.

Thanks to Tuck and Dartmouth for leading the way. And in case you missed it above, here is the link to the handbook and here is a Chapter 1 teaser link along with the detailed contents.

  • Climate Science
  • Mitigation
  • Net zero emissions

A chat with ChatGPT about emissions mitigation

dchone January 12, 2023

In a recent article from the World Economic Forum the authors made the point that artificial intelligence (AI) systems will be essential for the emissions mitigation task that society faces. In fact they go so far as to say that “without AI, we won’t meet ESG goals and address climate change”. In the article they refer to specific systems now coming into use, with different systems tasked with managing particular tasks within the overall mitigation journey. They conclude by noting;

Corporations that connect all their relevant data within a unified AI platform — not just ESG and financial data streams — will benefit the most. When corporations can see the entire picture and understand all the ESG metrics, only then will we produce goals that provide meaningful change and avoid the worst effects of climate change.

At the societal level, AI platforms are also starting to emerge and they are being designed to tackle a broad range of issues and questions by being introduced to huge amounts of data, such as you and I might come across if we sit all day and trawl through hundreds of internet sites and pages. The skill of the AI platform will be to integrate this data and use it to derive clear answers to questions and offer proposals for change so that progress can be made. Ideally the systems should develop insights that are not obvious to humans looking at the same data, perhaps because of the amount of data presented, which the AI system can easily handle.

Late last year one of the newest versions of such a system was made available for public testing. It is called ChatGPT and can be accessed here. To be fair this is a system that is designed more to engage in a conversation than to solve the world’s problems, but it does still draw on an immense data resource in compiling its responses. As such, I thought it would be interesting to engage with the system over the Christmas break and see what conclusions it might draw from a discussion on emissions mitigation. Note that the answers below are abbreviated, simply to limit the length of the blog post.

I started with posing a simple question;

Q: Atmospheric CO2 is now over 420 ppm. Why is this a problem?

A: Rising temperatures, changing climate, ocean acidification and therefore overall negative impacts on human health. Overall, it is important to reduce our greenhouse gas emissions and limit the concentration of CO2 in the atmosphere in order to mitigate the negative impacts of climate change and protect the health of people and ecosystems.

Q: So how might carbon dioxide emissions be reduced very quickly, say halved by 2030?

A: Increasing the use of renewable energy, improving energy efficiency, planting trees, electrifying transportation and making use of carbon capture and storage: Carbon capture and storage (CCS) is a technology that captures CO2 emissions from power plants and other industrial facilities and stores them underground. CCS has the potential to significantly reduce CO2 emissions from these sources, but it is not yet widely deployed.

So ChatGPT certainly understands the issue and is clear on the direction of travel. It also sees the importance of CCS without any prior reference to the technology by me (other than it may have read my blog posts as part of its learning), so that’s a good start. But getting it to be specific on how quickly these technologies could be scaled and how much difference they might make by 2030 turned out to be much more difficult.

Q: How quickly would these steps need to be scaled to cut emissions in half by 2030?

A: The rate at which these measures would need to be scaled up in order to cut carbon dioxide (CO2) emissions in half by 2030 would depend on the current level of emissions and the specific measures being implemented. For example, transitioning to electric vehicles (EVs) and public transportation could make a significant dent in transportation-related CO2 emissions, but it would require a rapid expansion of charging infrastructure and a significant shift in consumer behavior towards EVs. Improving energy efficiency in buildings and appliances and increasing the use of renewable energy sources could also make a significant impact on CO2 emissions, but again, it would require policy changes, infrastructure investments, and the deployment of new technologies. Planting trees and implementing carbon capture and storage (CCS) could also contribute to reducing CO2 emissions, but these measures alone are unlikely to be sufficient to achieve a 50% reduction by 2030. Overall, reducing CO2 emissions by 50% by 2030 would require a rapid and concerted effort across multiple sectors, including transportation, energy, and industry, and would likely involve significant policy and infrastructure changes, as well as the deployment of new technologies.

From this point the conversation became rather circular, with the system continually rephrasing the answer it had already given in different ways, depending on how I asked the question. More than once it said;

A: However, it is generally understood that the increased deployment of low-carbon technologies, such as EVs, solar PV, and advanced nuclear technologies, can make a significant contribution to reducing CO2 emissions.

A: However, if these technologies were widely deployed and powered by low-carbon energy sources, they could make a significant contribution to reducing CO2 emissions.

But the system was reluctant to offer a numerical assessment even when asked, although eventually it offered a number:

Q: By how much would global emissions fall if EV production, solar PV module production and nuclear power deployment all  quintupled by 2030.

A: It is difficult to estimate by exactly how much global carbon dioxide (CO2) emissions would fall if electric vehicle (EV) production, solar PV module production, and nuclear power deployment all quintupled by 2030, as it would depend on a number of factors, including the current level of emissions, the specific technologies being deployed, and the mix of energy sources used to power these technologies.

Q: Can you make a numerical estimate of the likely reduction in emissions?

A: It is difficult to make a numerical estimate of the likely reduction in carbon dioxide (CO2) emissions that would result from quintupling electric vehicle (EV) production, solar PV module production, and nuclear power deployment by 2030, as it would depend on a number of factors, including the current level of emissions, the specific technologies being deployed, and the mix of energy sources used to power these technologies.

Q: Can’t you make an estimate based on some simple assumptions?

A: It is possible to make a rough estimate of the likely reduction in carbon dioxide (CO2) emissions that could result from quintupling electric vehicle (EV) production, solar PV module production, and nuclear power deployment by 2030 based on some simple assumptions. However, it is important to note that such an estimate would be highly speculative and would not take into account a number of important factors that could affect the actual reduction in CO2 emissions. For example, if we assume that:

  • All EVs are powered by electricity from low-carbon sources and replace gasoline-powered vehicles
  • All solar PV modules are used to displace coal-fired power plants
  • All nuclear power is used to displace coal-fired power plants

. . . . and we further assume that these technologies are able to completely displace the higher-emitting technologies they are replacing, we can estimate the potential reduction in CO2 emissions that could result from these measures. Under these assumptions, if EV production, solar PV module production, and nuclear power deployment were all quintupled by 2030, it is possible that CO2 emissions could be reduced by a rough estimate of around 15-20%. However, it is important to note that this is a highly speculative estimate and the actual reduction in CO2 emissions could be higher or lower depending on a range of factors.

Q: Do you mean 15-20% of total global anthropogenic CO2 emissions?

A: Yes, the estimate of a 15-20% reduction in carbon dioxide (CO2) emissions that I provided is based on total global anthropogenic CO2 emissions, which are emissions that are produced by human activities, such as the burning of fossil fuels and deforestation.

There we have it; after some pushing the AI system was able to determine that quintupling (5x) the current deployment of solar PV, EVs and nuclear power generation would give us a 15-20% reduction in emissions by 2030, although this is still along way from the 45% goal of the Glasgow Climate pact. With that in mind I asked a follow-up question.

Q: So what extra steps would need to be taken to get a 45-50% reduction in global emissions?

A: Increasing the use of renewable energy, improving energy efficiency, planting trees, electrifying transportation and making use of carbon capture and storage: Carbon capture and storage (CCS) is a technology that captures CO2 emissions from power plants and other industrial facilities and stores them underground. CCS has the potential to significantly reduce CO2 emissions from these sources, but it is not yet widely deployed.

I was back in the same loop I had started with in that ChatGPT didn’t want to be specific on the measures. After  some additional pushing I hadn’t progressed out of the loop, but one extra important insight emerged.

A: Implementing carbon pricing: Establishing a price on carbon, through mechanisms such as a carbon tax or cap-and-trade system, can provide incentives for businesses and individuals to reduce their CO2 emissions.

At least as a set of basic insights and discussion points, ChatGPT seems to have a grip on the climate issue, but it is far from making clear recommendations on what needs to happen, when and at what scale. That still seems to be a job for the energy modelling community . . . . . at least for now!!

ChatGPT is an open system to try and use, which is what I have done. This post isn’t meant as a recommendation or a criticism of ChatGPT, but just a look at how AI is developing.

Happy New Year!

  • Carbon budget
  • Carbon capture & storage
  • Carbon Dioxide Removal (CDR)

New business models required

dchone December 6, 2022

With COP27 now behind us and no significant changes to Nationally Determined Contributions (NDC) on offer (e.g. from China), various commentators are now remarking that meeting the goal of 1.5°C may be in doubt. This means passing the 500 Gt carbon budget that the IPCC linked to the 1.5°C goal.

I have discussed this in many earlier posts, for example here and here. However, passing 1.5°C in the short term certainly isn’t the end of the story.

Many recent IPCC scenarios also show 1.5°C being breached, but deploying removals later in the century to draw carbon dioxide out of the atmosphere is then used in the scenario to reverse the balance and at least meet the 1.5°C goal by 2100. In the IPCC Special Report on 1.5°C released in 2018, all four model pathways required some form of future removal, ranging from very little in P1 to significant in P4, depending on the lifestyle and transition pathway the particular scenario embraced and the level of overshoot of 1.5°C. Both nature based and technological removals are required. In the 2018 report technological removals were shown as bioenergy processing with carbon capture and storage (BECCS), but today we could realistically envisage both BECCS and direct air capture with CCS (DACCS) playing a role. The latter has advanced considerably in just five years.

Source: IPCC SR15 Summary for Policy Makers

So as well as requiring CCS to get to net-zero emissions, society will almost certainly have to consider removals as a technology to deliver negative emissions globally, i.e. after the goal of net-zero emissions is achieved. Large scale removals might also offer the much longer-term prospect (i.e. in the 22nd century) of winding the atmospheric carbon dioxide levels back towards pre-industrial levels.

While global net-negative emissions on a scale that shifts the atmospheric concentration of carbon dioxide is technically possible, the contrast with the very limited scale of deployment of BECCS and DACCS today seemingly takes the task into the realms of science fiction. Yet a century ago the scale on which energy is generated now would also have seemed like science fiction, so the task should not be dismissed. Nevertheless, the longer term could require these technologies and changes in land use to scale to many billions of tonnes of carbon dioxide removal per year. The question this poses is not whether it is possible, but how can it be made to happen.

Carbon capture and storage has become a commercially available technology over the past twenty years, yet global deployment remains very limited. The technology itself isn’t the issue, it is the lack of sustainable business models for deployment. There is a carbon price in Europe, but for many years it languished at just a few Euros and other similar systems currently operating throughout the world typically maintain prices at levels well below what is required for CCS and therefore, not surprisingly, well below the levels required for a 1.5°C transition. Bespoke CCS deployment policies are almost non-existent outside the United States. In the USA a specific tax-credit mechanism exists at the Federal level and the California Low Carbon Fuel Standard will allow the use of credits based on DACCS. As a result the USA is the global leader in CCS deployment and the pipeline of projects looks impressive, largely based on the revised tax credit available through the Inflation reduction Act. There are also DACCS projects emerging and a BECCS ethanol facility has operated in Illinois for some time now.

CCS requires a very long term business model, based on some form of market pull. Today the support for CCS comes largely from direct government grants and support mechanisms for early stage technology, but there is always a limit to such incentives. However, with net-zero emissions now becoming a clear goal in most energy system policy frameworks, a more sustainable model is likely to emerge as businesses seek to mitigate their own emissions, either due to direct policy requirements or indirect consumer preference for zero carbon emission goods and services. A balance will be found between the cost of new technologies such as green hydrogen for industry and making use of CCS in industries that continue to use fossil fuels. Society will find ways to absorb these costs over time as net-zero emissions is reached and whether this results in large or small scale deployment of CCS remains to be seen, depending on the relative costs between competing pathways.

But the next stage of the CCS journey, possibly commencing as early as the 2040s for some, will be to deliver net-negative emissions via DACCS and BECCS, i.e. drawdown of carbon dioxide from the atmosphere. While this may seem like a long way off, the history of creating basic CCS business models points to the need for an early start. The journey probably commences at the UNFCCC level, where a framework for net-negative emissions would need to be established including a global goal, some form of burden sharing agreement between nations and a discussion on the role of nature versus the role of technological drawdown solutions. Unfortunately, with history as a guide, this could take some time. But perhaps the bigger challenge will be for national governments to cascade the need into the economy and find ways to spread the cost of net-negative emissions across society within goods and services and even through taxation. This may not be popular given the net cost of the task, yet with no immediate tangible benefit. Imposing deep emission reduction goals is still proving to be a difficult task in some economies today, let alone asking the population to pay for atmospheric drawdown of carbon dioxide. However, the very long term benefit can be measured in practical terms, such as avoiding metres of sea level rise.

With the prospect of a 1.5°C overshoot scenario looking likely, future biological and geological storage of atmospheric carbon dioxide becomes essential. This task may lead to the development of huge industries engaged in such activities, or very little activity at all, depending on the policy frameworks and business models that emerge.

  • Carbon budget
  • Paris Agreement
  • UNFCCC

Revisiting the climate budget maths

dchone November 7, 2022

As COP27 gets underway this week, world leaders will be descending on Egypt with a further round of speeches, promises and pledges to keep 1.5°C alive as a goal to strive for. But as each day passes and global emissions continue at around the rate of 40 gigatonne per year (Gt/y), the simple maths behind the carbon budget gets more and more difficult.

In the IPCC 6th Assessment Report WGI summary the climate scientist authors developed Table SPM.2, shown below, which detailed the remaining carbon budget from 1st January 2020 for a given eventual global warming, relative to 1850-1900. In the case of 1.5°C this is 500 Gt. The permitted budget changes depending on the level of warming and the likelihood of the outcome. So a 2°C outcome with a 67% likelihood offers a budget of 1150 Gt, or over twice that for 1.5°C at 50% likelihood.

Source: IPCC 6th Assessment Report WGI Summary for Policy Makers

While a number measured in hundreds of billions of tonnes (or half a trillion in the case of 1.5°C with 50% likelihood) may seem very large, when set against current annual global emissions of over 40 Gt/y, it is around a dozen years. This means we are knocking on the door of 1.5°C right now. In fact, the 1.5°C carbon budget is being consumed by society at such a pace, that just during the time COP 27 is held, another 1 Gt of the 500 Gt will have been used.

Over time, the consumption of the carbon budget is measured in terms of cumulative emissions, or in a chart of annual emissions vs. time in years it is the area under the line. This then gives us a simple way of looking at the carbon budget and establishing what different trajectories might mean in terms of outcome.

The chart above starts at 2020 and goes through to 2070. In each of 2020, 2021 and 2022 the emissions are either known or almost known, so they are represented in grey as budget consumed. The total is about 120 Gt, with 2020 being the lowest due to the sharp COVID related downturn in March, April and May of that year. With the simplified assumption that emissions won’t be negative at some future time (but of course they may be and undoubtedly will need to be), the linear trajectory for 1.5°C now requires a step down in emissions in 2023 to 40 Gt, then a rapid reduction to 20 Gt in 2030 followed by net-zero emissions in 2047. By contrast, a direct linear reduction from current levels to net-zero emissions in 2050 means a 1.6°C outcome.

Three other combinations are also shown:

  • A plateau in emissions to 2030 then a quick linear descent to net-zero in 2050 results in 1.7°C of warming.
  • A further rise in emissions to 2030, then a fall to net-zero in 2060 gives 1.9°C of warming.
  • If a further rise is followed by net-zero emissions in 2070, then we might expect 2°C of warming.

Given the acceleration of the energy transition in recent years and the new pressures now being placed on fossil fuel use through both price and supply concerns, there are reasons to believe that the transition could accelerate further. It will certainly need to. In the last 15 years the share of coal, oil and natural gas in the primary energy mix has dropped by just 2 percentage points, a trend that would require 600 years to get to zero. By contrast, a 1.6°C outcome requires that rate of change to rise by a factor of 20 to nearly 3 percentage points per year. This is the challenge that leaders at COP 27 need to focus on.

  • Article 6
  • Carbon capture & storage
  • Carbon Dioxide Removal (CDR)

And just like that, zero emissions looms

dchone October 14, 2022

Some time ago I posted a discussion on the allowance decline within EU Emissions Trading System (EU ETS), with no new allowances available after 2058 based on the proposed linear rate of decline of 2.2% each year, but assuming that this would be brought forwards to 2050. Back in early 2020 the EU was in the first stage of laying out its ambition for the 2020s and I noted then;

Based on a continuation of the EU ETS under the current trajectory it won’t reach zero until the late 2050s. . . . Under a revised EU ETS, from January 1st 2050 (or perhaps 2051) there will be no further allocation of allowances, either by auction or freely given. Yet this may not be a time in which there are no emissions – thirty years is possibly insufficient time for the complete turnover of everything in the large emitters system.

A great deal of water has passed under the bridge since then and today as we look at the EU ETS, a radically different picture emerges. The EU has announced its Fit for 55 package and as part of that has also announced a significant change for the EU ETS. Notably, they have said;

In phase 4 of the EU ETS (2021-2030), the cap on emissions continues to decrease annually at an increased annual linear reduction factor of 2.2%. The Union-wide cap for 2021 from stationary installations is fixed at 1,571,583,007 allowances. The annual reduction corresponding to the linear reduction factor is 43,003,515 allowances. . . . . The Commission is proposing a new target to reduce emissions from the EU ETS sectors by 61% by 2030, compared to 2005 levels. This represents an increase of 18 percentage points compared to the -43% target under the existing legislation. To reach this target, the Commission proposes a one-off reduction of the overall emissions cap by 117 million allowances (‘re-basing’), and a steeper annual emissions reduction of 4.2% (instead of 2.2% per year under the current system).

The above is more easily viewed graphically and is shown below. As previously discussed, the original 2.2% line meant that the EU ETS finally reached zero new allowances in the late 2050s, but the changes proposed under Fit for 55 bring that forwards. Note that the rebasing proposal is a one-off reduction of 117 million allowances to bring the cap in line with a pathway that would have materialised if the 4.2% reduction factor would have been applied from 2021 onwards, but the chart below shows the new line as continuous from 2021.

The market doesn’t currently know what the plans are for post 2030 when annual allowance allocation will be around 800 million tonnes, but if the 4.2% linear reduction factor continues, then new allowance allocation will cease in 2041. That would bring the date for zero allocation forwards 17 years from the current 2.2% reduction factor line.

Zero emissions for the ETS sectors (power generation, industry, aviation and soon to include marine) in 2040 is incredibly ambitious and I could argue with some certainty that those same sectors won’t be emissions free in that time. There is no doubt that significant progress will have been made, but the idea that every plane will run on 100% sustainable aviation fuel or a new fuel, e.g. hydrogen, or that every cement plant will incorporate carbon capture and storage in just 18 years is unlikely. As such, the Commission will either have to alter the post 2030 trajectory or plan on a somewhat different outcome.

Altering the post 2030 trajectory such that the system reaches zero allowances in, say, 2050 may seem like the simple solution, but by the late 2020s when this could be under discussion, society may well be facing a situation where Europe both wants and needs to reach net-zero emissions prior to 2050. This would be linked with the global emissions pathway relative to the meagre carbon budget remaining for 1.5°C (now <400 Gt). In short, we will be heading for over-expenditure, which in turn means at least some regions reaching net-zero emissions even earlier than 2050. However, incorporating other sectors into the EU ETS, such as road transport, could also offer some flexibility with regards the decline rate of the cap.

The second approach is one that I have written a great deal about (e.g. here and here), but one that is still not part of the current EU ETS. It is to embrace net-zero and recognise that the ETS will need to become a platform for trading and surrendering carbon removal units against ongoing emissions. Removal units might come from within the EU in the form of units representing Direct Air Capture with geological storage (DACCS) or from outside under Article 6 of the Paris Agreement. The latter could include a much broader range of removals, such as the capture and storage of CO2 from ethanol manufacture in a country such as Brazil. Whatever is included will need to be the subject of extensive consultation, but without it the EU ETS will likely become an infeasible system (meaning that the only option for emitters is to default or shut down) as the zero allowances point is approached. The earlier that zero allowances is set, the more likely is the infeasibility.

Removals are near to becoming essential in Europe and it is important that the Commission accelerates its thinking on incorporating them within the EU ETS. Removals need to form part of the system within the 2020s, such that during the 2030s the mechanisms to create them can flourish and deliver.

  • Australia
  • India
  • Mitigation

Refreshed climate ambition from two key countries

dchone September 23, 2022

In recent months, two key countries have sent revised nationally determined contributions (NDC) to the UNFCCC, notably my home country Australia and India. An NDC is a national submission to the UNFCCC outlining what steps that country will take in the near term (5-10 years) towards meeting the goals of the Paris Agreement. Australia might not seem important in the grand scheme of things, given its small population, but the new NDC seeks to change the national discussion on climate by setting an aggressively ambitious goal for 2030. This matters because Australia has often been cast as a laggard on reducing emissions, with the pace of change in that country having broader international implications politically than just domestic emissions at home. India is of course critical given it’s population and potential for significant use of fossil fuels to grow its economy over the coming decades.

  • In the case of Australia, the government has pledged to reduce national emissions by 43% by 2030 against a 2005 baseline. This target is building towards a goal of net-zero emissions by 2050. The previous 2030 goal was a 26-28% reduction.
  • In the case of India, the government has pledged to reduce Emissions Intensity of its GDP by 45 percent by 2030, from the 2005 level and to achieve about 50 percent cumulative electric power installed capacity from non-fossil fuel-based energy resources by 2030, with the help of transfer of technology and low-cost international finance including from Green Climate Fund (GCF). Both these elements of the NDC represent increases of some 10% points over the previous NDC. This represents the first major steps by India towards its goal of net-zero emissions in 2070, as Prime Minister Modi announce at COP26 in Glasgow.

These new NDCs are very welcome news, but how do they look when compared to an overall global decarbonisation scenario that limits warming to 1.5°C? Last year the Shell scenario team launched the Energy Transformation Scenarios, within which the Sky 1.5 scenario meets the Paris goal. The scenario includes data for Australia and India which provides an interesting comparison to the revised NDC announcements.

For Australia in Sky 1.5, the period from the late 2020s to 2035 is the inflection point for a rapid fall in emissions, but the actual scenario reduction in 2030 (23% fall), relative to 2005, does not match the ambition of the new Australian goal (43% fall). However by 2035 Sky 1.5 exceeds the revised 2030 goal (45%), hence the description of this period being an inflection point. It would appear that the government has matched the stretching ambition of COP26 in Glasgow with a similar stretching goal for Australia, which is commendable. However, even at 23% in 2030, significant change is required. For example, when comparing Sky 1.5 in 2030 to 2020, there is nearly five times the solar energy generated and over triple the electricity coming from wind. In Sky 1.5 electric passenger vehicles (EV) deliver over a quarter of the kilometres driven in 2030, which implies that by the late 2020s most sales in Australia are EV. Australia has long been a leader in managing land use towards greater carbon uptake using carbon markets, but even in this domain it will have its work cut out. By the late 2040s in Sky 1.5 it is land use change that delivers net-zero emissions overall, with fossil fuel emissions taking two decades more to reach net-zero in combination with carbon capture and storage.

The shift in primary energy required in Australia to underpin such a change is profound. Solar PV becomes the dominant source.

For India, the new NDC pledges represent an important first step towards their journey to net-zero emissions in 2070. Sky 1.5 also achieves this goal in 2070, but India needs to make large scale use of carbon capture and storage to do so.

In terms of emissions as a function of GDP, the chart above translates to a reduction of 36% in CO2 per GDP by 2030 and 43% by 2035, which places India’s revised goal of 45% as quite stretching for which they should be thanked. This is based on the GDP assumptions underpinning Sky 1.5 and an analysis of potential land use change opportunities in India, so it may also be the case that the revised India NDC is assuming a higher GDP growth than Sky 1.5. Nevertheless, to achieve such an outcome India needs to continue its economic growth while introducing large scale change in the power sector. In Sky 1.5 the share of non-fossil generating capacity in 2030 is above 50% and over 60% in 2035, which is in the same range as the revised India goal. That compares with 21% in 2020.

In these times of uncertainty with regards energy security and energy costs, it is commendable that nations are building on the commitments made at COP26 in Glasgow with real action and therefore taking steps to increase the ambition of their NDCs.

  • Electric Vehicles
  • Energy Transition
  • Europe

Can the energy transition help EU energy needs?

dchone August 11, 2022

As the EU grapples with the challenge of displacing Russian oil and gas and meeting immediate needs as Russian supplies are cut, the question of the scale and speed of the energy transition emerges. How fast can Russian supplies be displaced by the transition itself?

The two charts below show the current situation. Prior to the Russian invasion of Ukraine, oil and gas supplies from Russia and into Europe contributed to about 40% of overall European demand, with local production making up much of the balance in the case of gas, but just about half the balance in the case of oil. In the case of gas, the flow to Europe is about a quarter of Russian supply, but for crude oil and oil products it’s nearly half.

Both charts show that European production has declined over twenty years and in the case of oil reached an apparent plateau around 2012. It’s unlikely that local production increases could make up for the cut in Russian supplies, so that leaves three immediate options;

  • Immediately cut overall energy demand, which in turn could translate to a reduced need for Russian supply.
  • Find supplies elsewhere.
  • Accelerate the energy transition to reduce the overall need for oil and gas in the energy mix.

While it’s clear from recent announcements that the EU strategy will embrace all three options in the short term, the longer term strategy will almost certainly rest with the transition itself. But such a transition could well take all of this decade, and probably longer, to complete.

Gas supply is perhaps the more problematic issue, as supply is less flexible globally than oil due to pipeline constraints, LNG capacity (the availability of shipping, liquefaction and regassification facilities) and long term storage. While gas has become a flexible commodity in the 21st century, it still remains easier to reorganise, redirect and store oil. However, gas may be faster to displace than oil from an energy transition perspective.

The gas chart above also shows how the rapid deployment of wind energy across Europe could be used to offset Russian gas requirements, but it’s a journey that takes the best part of a decade. This assumes a compounding growth rate in wind deployment of 10% per year, slightly above current levels of 8%, but equivalent to the growth rate from 2010 to 2017. However, with a much larger installed base, 10% growth in 2029-2030 means installing some 50 GW of wind in that year versus the 15 GW installed in 2017 and again in 2021. So the annual installation rate has to at least triple. Of course wind isn’t the only technology, there is solar PV as well, at least for the southern latitudes of Europe.

Further to the above, if rapid growth in renewables is focussed entirely on displacing Russian gas or filling the void left by the absence of Russian gas, less progress will be made in displacing the current use of coal in the EU. This could make meeting the EU 55% by 2030 emissions reduction goal more challenging, as eliminating coal for a given electricity production can deliver twice the emissions reduction versus the same shift for gas.

By contrast, displacement of Russian oil through the energy transition looks to be a slower process, although it may turn out to be less necessary. Oil is a more flexible commodity in terms of source and destination, although there could still be pinch points in the system, for example inland east European refineries tied to Russian crude via pipelines. The largest portion of EU oil demand is for transport and within that the capacity for replacement in the 2020s sits with electrification of passenger vehicles, vans and city buses. Alternatives for larger trucks, ships, barges and planes are not yet mature enough for fast large scale deployment.

If we assume a very rapid deployment of electric vehicles (EV), to the extent that all new sales are electric by late in the 2020s (a rate faster than the current goal of 2035 for all EV sales), only about 50 million tonnes per year of oil is displaced by 2030, or about a fifth of the oil that comes from Russia. This is because of the time it takes to turnover the exiting stock of vehicles. Within Europe there are some 250 million passenger cars (Source: Eurostat), but new car sales are in the range 12-16 million vehicles per year, so in eight years only about half the total stock will be replaced anyway. With EVs currently comprising about 10% of new sales, albeit that share growing rapidly, replacing even half the total vehicle stock with EVs will take longer.

In the end, a rapid energy transition can contribute significantly to the EU weaning itself off Russian oil and gas, but this won’t happen in the next few years. By the end of the decade significant progress can be made, especially for gas, but it will likely be well into the 2030s before the same is achieved for oil.

  • Battery storage
  • Carbon budget
  • Electric Vehicles

Could the transition drive emissions up?

dchone July 12, 2022

One question that comes up quite regularly about the energy transition is the amount of energy, and therefore emissions, required for the transition itself. This is the energy required for making solar PV modules, wind turbines, batteries and so on. Further up the supply chain there is also the energy required for the additional minerals, such as the lithium, nickel, cobalt and copper found in an electric vehicle (EV). These not only have to be mined, but also go through extensive industrial transformation and refining processes to make the actual materials required for the end use. Today, most of these processes use oil, coal and gas for energy, giving rise to carbon dioxide emissions.

Perhaps the most energy intensive part of the energy transition is the manufacture of lithium-ion batteries, now being widely deployed in EVs. Some commentators have even questioned the effectiveness of the EV as a mitigation route, particularly when the battery is made in China (currently a heavy reliance on coal for energy) and the vehicle is driven in a country with a high electricity emissions intensity (e.g. a country like Poland still largely dependent on coal fired power stations). The problem with this argument is that transitioning in a series of steps (e.g. first decarbonise the electricity supply, then start deploying electric cars) would take decades longer than transitioning in parallel steps (i.e. decarbonising the electricity supply at the same time EVs are deployed). Nevertheless, the parallel approach could drive up emissions in the short term, the question is by how much?

The manufacture of batteries for EVs provides a good example of the problem. In a recent article, MIT report that the Tesla Model 3 holds an 80 kWh lithium-ion battery and the CO2 emissions for manufacturing that battery would range between 3120 kg (about 3 tons) and 15,680 kg (about 16 tons), depending on the manufacturing location. The article notes that the vast majority of lithium-ion batteries—about 77% of the world’s supply—are manufactured in China, where coal is the primary energy source. That means most batteries are currently made with CO2 emissions at the higher end of the range, although as battery factories spring up across the world and particularly in the EU and US, that picture will change.

Bringing together a few assumptions about battery manufacture, EV deployment and embedded CO2 in both manufacture of EV batteries and driving EV cars, it is possible to get a back-of-the-envelope view of the scale of the issue. I will assume the following;

  • EV production rises from current levels (some 7 million vehicles per year) to all EV production globally by the mid-2030s (i.e. no more internal combustion engine cars are built after that time). This is an aggressive transition, but probably the minimum that is required for a 1.5°C goal.
  • Higher CO2 emission battery manufacture is currently at 77%, but the share declines to 40% by 2060 and the higher CO2 emissions also fall by 75% over the same timeframe as the manufacturing system decarbonises.
  • Lower CO2 emissions manufacture is therefore 23% now, but rises to 60% by 2060 and the manufacturing CO2 emissions fall to zero by 2050. Decarbonising industry to such an extent will require a variety of technologies, with carbon capture and storage playing a critical role.
  • The 80 kWh battery delivers 300 miles of range and the average vehicle travels 10,000 miles per year.
  • The electricity supply which EVs use is on average 0.4 tonnes CO2 per MWh now, falling to zero by 2060. The actual global average grid intensity is higher than 0.4 today, but EVs tend to be driven in lower intensity regions at the moment, e.g. the EU, California etc.
  • An EV produced today has a 15 year life.
  • The EV mitigates emissions from internal combustion engine vehicles at a rate of 120 gms/km. As a simplification, this doesn’t change throughout the calculation. It assumes that smaller cars are replaced earlier and that the average fleet efficiency of internal combustion vehicles improves over time.
  • The battery represents a net increase in car manufacturing emissions with other emissions in the manufacturing process about the same for both EVs and internal combustion vehicles.

The calculation is for net-emissions, which is;

[Battery manufacturing emissions] + [Indirect EV emissions during driving] – [Gasoline / Diesel emissions backed out by EVs] = Net Emissions

What we see from the charts below is that global passenger car emissions rise before they start falling when net-emissions cross the zero line. This happens in 2035. Clearly the year in which this happens depends on the assumptions made, with the CO2 from internal combustion vehicles not being used being a key determinant. For example, if this is raised to 180 gm CO2/km, the crossover point is around 2030.

The outcome certainly points to the longer term benefit of the EV transition, with global cumulative emissions over 25 Gt lower in 2060 than they would otherwise be. This is a material reduction when thinking about a 500 Gt carbon budget for 1.5°C. However, it also highlights an issue with the current global goal to reduce emissions by 45% by 2030 relative to 2010, as set out in the Glasgow Climate Pact; the EV revolution that we are currently in the midst of is unlikely to contribute to that reduction. If anything, it could make the task even more difficult.

In a post some time back I noted that the only real opportunities for change which could make a material difference to global CO2 emissions by 2030 are where replacement technologies are already being manufactured at scale or where governments are prepared to create social change. This quickly reduces the options to only three major opportunities: 

  • Significantly curtailing coal-fired power generation through replacement with renewables; 
  • Replacing internal combustion engine vehicles with electric vehicles; and 
  • Ending deforestation. 

Passenger vehicle emissions account for 4 Gt, or 10%, of global CO2 emissions today. If change in this sector can’t deliver any net reductions by 2030 and potentially adds to global emissions, then it calls into question any possibility of a 45% reduction in 8 years. Almost perversely, if EV production could be ramped up in the short term, the problem for 2030 gets worse while the longer term net global cumulative emissions picture gets better.

None of the above is to meant to argue against an EV transition, it is clearly the right way to go. But like many other aspects of the energy transition, it is more complex than it looks.

  • Article 6
  • Carbon capture & storage
  • Carbon Dioxide Removal (CDR)

Article 6 and 1.5°C

dchone June 20, 2022

The 56th session of the UNFCCC’s Subsidiary Body for Scientific and Technological Advice took place in Bonn over the past two weeks and one of the features of the session was further progress in operationalising Article 6 of the Paris Agreement, particularly after completion of the rule-book at COP 26 in Glasgow. But like many other aspects of the Paris Agreement and the global effort to significantly reduce emissions, Article 6 is making good progress but not rapid progress, yet it is rapid progress that is needed. My colleague, Malek Al-Chalabi, was in Bonn for SBSTA 56 and together we thought it would be useful to reflect yet again on the critical importance of this somewhat overlooked corner of the Paris Agreement. Article 6 was the last piece of the Agreement to fall into place in December 2015 and the last part to have its rule-book agreed, taking three years longer than every other part of the Agreement (but addmitedly not helped by COVID-19).

The importance of Article 6 stems from the clear message delivered by WGIII of the recent IPCC 6th Assessment Report; that carbon dioxide removals (CDR) are vital if the world is to achieve 1.5°C, the more ambitious goal of the UN Paris Agreement. This includes direct air carbon capture and storage (DACCS), afforestation (NBS or nature-based solutions), and bio-energy with carbon capture and storage (BECCS).

Arguably, there is no net-zero emissions without Article 6. Not all countries will have the same geographic and geological ability to harness or deploy CDR options or reduce emissions at the same rate, and the majority of countries cannot expect to reduce emissions to zero such that CDR is not needed. This is where trade is relevant.

Trade underpins economic activity and offers society the flexibility to provide the wide range of goods and services that we all benefit from. Trade is often the underpinning reason for foreign direct investment. It encourages the business sector to engage in projects and activities outside their traditional base with a view to bringing goods and services into that base. Cooperation between nation states is often pursued through some form of trading arrangement.

Article 6 of the Paris Agreement is a tailored and comprehensive policy that can enable cost reductions for lowering emissions via trade between nations. It allows countries to work together via ‘cooperative approaches’ through its voluntary nature. An International Emissions Trading Association (IETA), University of Maryland, and Carbon Pricing Leadership Coalition (CPLC) study has shown that cost reductions from cooperative implementation under Article 6 can be achieved through improved economic efficiency over independent implementation of countries’ nationally determined contributions (NDCs). According to the trade models used by the University of Maryland, the potential benefit is up to ~$250 billion per year in 2030.

In addition to the direct commercial benefit, it is the ‘net’ of ‘net-zero emissions’ that Article 6 unlocks. Large scale cross border investment that would otherwise not take place can result from the development and trading of carbon removal units. This is why Article 6 is so important – it helps all sectors and Parties to the Paris Agreement reach net-zero emissions. This can be illustrated with a simple example shown below. The country and the aviation sector both have a target of zero emissions, but neither is able to realise that goal through direct reductions. A regional partner has untapped carbon removal potential, but no need to use it as emissions are already at zero. By cooperating through the trading provisions of Article 6, the end result is that net emissions of 200 units CO2 across the three are brought to net-zero emissions.

While removals such as afforestation are well known, DACCS and BECCS have growing but still limited experience. That is why further international cooperation is needed alongside Article 6. In order to bring technologies like DACCS and BECCS to scale at an economic price and to further afforestation, cross border capacity building, joint research and development opportunities to pilot CDR options, and integrated policies and funding will also be required. This can make CDR more economically viable.

There are encouraging signs of international cooperation taking place, including countries agreeing to pilots and agreements using Article 6. However, these agreements are few and at the moment not used at scale. In order to maximize the use of Article 6, IETA has identified the following elements for governments to consider (see the full IETA paper here):

  • Announce whether and how the country will authorize Article 6 credits and/or accept towards the achievement of its NDC.
  • Provide a clear strategy and stable guidelines on which sectors, activities and vintages will be eligible for Article 6 credits.
  • Articulate how the use of Article 6 will help achieve the goals of the Paris Agreement.
  • Elaborate what policy framework the host country will adopt and how it will interact with the receiving country.
  • Establish an effective interaction between compliance instruments and the voluntary carbon market (VCM).
  • Support the emergence of a widely accessible traded market for carbon credits.
  • Ensure a suitable digital registry or other infrastructure for GHG accounting and reporting is in place.
  • Address key risks in the activity cycle and identify mechanisms to reduce them.
  • Emphasize the areas where capacity building is required and the role of international organizations.

Article 6 remains an innovative and new policy framework which has not been globally tested and used and it is understandable why some countries and regions may look to meet their own NDCs targets domestically instead of internationally. There are many areas to align, including how to formalize reporting mechanisms and ensuring that the deals that are made between countries (either directly or through business-to-business transactions) are set at prices and in frameworks that are transparent and benefit both.

However, if countries are to reach their NDCs independently of one another, it will be more expensive than working together and net-zero emissions will become an elusive goal. Article 6 has the potential to improve economic efficiency while helping reduce emissions across countries and sectors and provide access to opportunities only possible through cooperation. The opportunity exists to use it – and hopefully that can be maximized.

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