Category: Carbon Dioxide Removal (CDR)

When might fossil fuel phase out happen?

dchone November 27, 2023

In the run-up to COP28 and at the conference itself, a key call by some nations and many observers is to include language in the COP decisions to signal the phase out of fossil fuels. While there is no question that the carbon dioxide emissions from the use of fossil fuels and any leakage of natural gas (primarily methane) to the atmosphere is the main cause of the rising global average surface temperature, is it premature for such a call and should phase-out be the all-consuming drive at this stage of the transition? It is of course the obvious answer to the problem of limiting carbon dioxide emissions to a finite amount, but obvious answers aren’t always the right ones.

Given time, there is little doubt that society will move on from thermal combustion as a source of energy, even though it has been the only large-scale source of energy for millennia. Once that happens there will be little need for fossil fuels. We are in an era of rapid technological change and exciting developments in multiple fields of science, with energy production now tending to move into the quantum realm, as information technology has been doing over the past 70 years. Come back in a century or so and the energy world will likely be very different. But that doesn’t help the immediate problem of emissions mitigation.

To better understand the challenge today, Shell uses scenarios to look at nearer term trends and The Energy Security Scenarios released earlier in 2023 are the perfect tool to shed light on the question of fossil fuel phase out. But first, it is important to look at the reality of where we are today. We still live in a society that is utterly dependent on fossil fuels for the delivery of most energy services, such as lighting, heat, mobility, information transfer and powering rotational equipment (pumps, compressors etc.). The production of most goods either includes fossil carbon directly (e.g. plastics, bitumen, cosmetics, medicines etc.) or requires fossil fuels in the production chain. The transition is under way, but the percentage of fossil fuels in the global energy mix has remained at around 80%, even after a quarter century of sustained effort to shift that dependency. However, the pace of change is accelerating. The current global emissions picture for a world powered mainly by fossil fuels is illustrated below.

Phasing out fossil fuels means finding a substitute for the delivery of every single energy service or manufactured item that exists today. Therein lies the problem – the substitutes don’t exist yet, at least not at a scale that matches the delivery potential of fossil fuels. This starts with very humble items, such as the pencil, which I discussed in a recent blog post but extends through to the entire electricity grid. Solar and wind are here to stay, but the complete set of technologies required to power cities with them all the time, overcoming the inherent intermittency of these energy sources, are still in the early stages of development. Similarly, the technologies to make green hydrogen, green ammonia, sustainable aviation fuels, synthetic hydrocarbons using atmospheric carbon dioxide and green hydrogen all exist but operate on a small or in some cases even pilot scale, whereas global oil production alone fills two 330-metre-long super-tankers every hour.

At a recent refinery technology conference I attended, there was real interest in processes to make sustainable aviation fuels, from relatively straightforward hydrotreating of waste oil to complete synthesis of jet fuel from carbon dioxide and hydrogen. Refiners want to do this, and aviation companies are starting to look for these fuels, but the industry is at the beginning of a long-haul development process to completely replace fossil-based aviation fuel. And if our thoughts then turn to electric or even hydrogen powered planes, these are still on the drawing board. Development and widespread deployment of new energy technologies on a global scale is measured in decades, not in years.

When the Shell scenario team developed The Energy Security Scenarios we thought hard about these timelines for change and considerable research went into understanding when technologies might emerge at scale. Two transition scenarios are presented, Sky 2050 which is largely devoid of headwinds and builds on global mutual interest, and Archipelagos which sees national self interest prevail and act as a drag on the energy transition when compared to Sky 2050. In Sky 2050 which achieves net-zero emissions globally by 2050, fossil fuel use is still commonplace in that year, albeit reduced by nearly two-thirds when compared to today. Substitutes are being found and alternative services delivered, but not fast enough to phase out fossil fuels on a timeline that matches the need for net-zero emissions.

The short answer is that net-zero emissions should take precedence over fossil fuel phase out because it can be achieved more readily and in a shorter time frame. But even net-zero emissions in the shorter term, such as by 2050, will require not just considerable fossil fuel substitution effort but also considerable use of every available carbon removal mechanism. In the Sky 2050 illustration below, remaining emissions (fossil energy and cement) of 8.4 Gt per year in 2050, even after the direct use of carbon capture and storage (CCS), is balanced by carbon removals delivered mainly through land use change, some direct air capture with geological storage (DACCS) and bioenergy production linked with geological storage (BECCS). But as noted, there has been considerable substitution away from fossil fuels as an energy source when compared to now.

A strategy that builds on the notion that all fossil fuel use can be ended by 2050 is likely to fail, whereas one that focuses on net-zero and embraces the seeming ambiguity and apparent messiness of such a solution can succeed. But it is just an interim step towards a world where fossil fuel use has largely ended. By late in the century in Sky 2050, fossil fuel use is a tiny fraction of today and most of that remaining use is as a ready source of carbon for making things, like plastic products. The fossil fuel use for combustion processes is in limited legacy applications where facilities that were built years earlier with CCS are still operating. But direct use of CCS has declined considerably compared to 2050 as industrial concerns use hydrogen, bioenergy and electricity to power their facilities.

Fossil fuel phase-out is a handy catch phrase that attracts interest and seemingly presents a solution to rising global temperatures, but it may not be the best immediate solution. A focus on net-zero and the development of policy instruments to encourage a balance between remaining emissions and various sink technologies and land use practices is where we need to be, but such a framework is proving hard to realize. Nevertheless, the USA is doing it now with a pioneering incentive scheme aimed at both new energy technologies and carbon emissions management; perhaps a trillion US dollars will flow into this full range of transition technologies. And in Australia a carbon farming initiative (CFI) has been running for some years which incentivizes farmers to maximize land carbon stock as an important output from their agricultural activities, such as growing wheat and raising cattle.

As COP28 gets underway, the fossil fuel phase out discussion may get very heated, and while it is an important discussion to be had, it should not become a distraction to the shorter-term goal of net-zero emissions, which will require a major emphasis on the development of carbon removal practices and technologies.

Note: Shell Scenarios are not predictions or expectations of what will happen, or what will probably happen. They are not expressions of Shell’s strategy, and they are not Shell’s business plan; they are one of the many inputs used by Shell to stretch thinking whilst making decisions. Read more in the Definitions and Cautionary note. Scenarios are informed by data, constructed using models and contain insights from leading experts in the relevant fields. Ultimately, for all readers, scenarios are intended as an aid to making better decisions. They stretch minds, broaden horizons and explore assumptions.

Green Dream or Innovation Wins?

dchone November 15, 2023

I recently attended an emission trading conference in Paris and like many such events in the EU now, one of the first items on the agenda (and in this case it was the first) was a presentation and discussion on the US Inflation Reduction Act (IRA). The fact that the IRA isn’t an emissions trading system didn’t matter. The IRA has upended the climate discussion in the EU in that projects are happening in the US, and change is underway, while a key green technology sector like the EU wind industry is facing headwinds.

After years of attempting to implement carbon pricing but finding it to be politically impossible to do so, the USA has taken a very different track to the EU where the flagship policy is the EU Emissions Trading System (EU ETS) and its carbon price, currently around €80 per tonne CO₂. The IRA offers tax credits across a range of technologies, from electric vehicles to direct air capture (DAC), with the benefits for the latter of up to $180 per tonne CO₂ when geological storage is involved (DACCS). Earlier this year Goldman Sachs estimated that the IRA could deliver as much as $1.2 trillion of incentives by 2032 and spur $2.9 trillion of cumulative investment opportunity across sectors for the re-invention of U.S. energy system. Little wonder the IRA features at the top of a climate change conference agenda in the EU.

Meanwhile, presentations about the EU ETS at the same conference pointed to a system with growing ideological constraints. Top of the list is the near absence of a carbon removals framework such that this key set of technologies can start featuring in EU ETS driven investment decisions. Rather, it almost felt as if the EU is just expecting emissions to fall to zero by the early 2040s, thus avoiding any major need for removals. It isn’t clear how this might happen in practice and certainly none of the scenario work done in Shell points to anything even close to such an outcome. Even in our most ambitious scenario, Sky 2050, the global energy system will remain bound to fossil fuel use right through the middle of the century and beyond, albeit sharply decreasing, with the end of the fossil fuel era not even in sight until the 2080s. As such, carbon removal technologies like direct air capture with storage (DACCS) need momentum today, which is happening in the US under the IRA, but the equivalent investment in Europe is essentially zero.

The different approaches in the EU and USA are highlighted in our Energy Security Scenarios, released a few months ago, through the use of behavioural archetypes. The EU is a Green Dream region, meaning that they are ideologically attached to removing fossil fuels from the energy system as fast as possible. By contrast, the USA, along with other major resource countries, are characterised by the tagline Innovation Wins, which means that they will tackle the issues in the energy system through innovation, but with pragmatism prevailing. If that means using fossil fuels in some applications and developing DACCS to manage emissions, then so be it. No ideology, just money and science.

One of the strengths of the World Energy Model (WEM) that sits behind our scenarios is the ability to drill down into single countries, technologies in countries or sectors in countries. And I have done just that for the USA with the WEM to illustrate the pathways for our two new scenarios, Sky 2050 and Archipelagos. These are stories that are full of technology and innovation, with rapid change resulting.

Firstly, just a reminder of the two scenarios:

Archipelagos depicts a global narrative of shifting political winds driving the transition away from fossil fuels. Despite encountering challenges, the pace of the transition accelerates due to heightened security concerns and competition. This scenario envisions a world where energy security takes precedence over emission management.
Sky 2050 explores a world in which long-term climate security is the primary anchor. Society rapidly moves towards net-zero emissions but doing so requires major interventions from policymakers in the energy system.

The scenario timeline for the USA through to 2060 is shown below, built by extracting multiple different views of the US energy system from the WEM database.

A defining feature is that even in the slower transition, Archipelagos, the USA is closing in on net-zero emissions by 2060, years before other countries. This is linked in part to the IRA today, which establishes momentum behind both transformative energy technologies and CCS, although in the case of the latter not on the scale seen in Sky 2050. One key difference between the scenarios is the complete disappearance of the DAC industry in Archipelagos, whereas it booms in Sky 2050 once high initial costs come down. The emergence of DAC in Sky 2050 also gives rise to a synthetic fuel industry in the USA, which tempers hydrogen use for aviation later in the century compared to Archipelagos.

In Sky 2050 net-zero emissions is reached in the late 2040s in the USA, before the current 2050 goal.

But both scenarios for the USA see an all-electric passenger car market, hydrogen road freight, electric airplanes, expanding biofuel production, hydrogen jet travel (not shown above for Archipelagos but from 2050), solar and wind expansion and of course falling emissions.

In the USA, at least, innovation does win!

Note: Shell Scenarios are not predictions or expectations of what will happen, or what will probably happen. They are not expressions of Shell’s strategy, and they are not Shell’s business plan; they are one of the many inputs used by Shell to stretch thinking whilst making decisions. Read more in the Definitions and Cautionary note. Scenarios are informed by data, constructed using models and contain insights from leading experts in the relevant fields. Ultimately, for all readers, scenarios are intended as an aid to making better decisions. They stretch minds, broaden horizons and explore assumptions.

Direct Air Capture is coming fast, sort of!

dchone August 16, 2023

For the people in a scenario team, it’s always exciting when something that you have discussed in your work suddenly starts to appear. It’s even more exciting when it happens in the company that you work for. So it is with direct air capture (DAC). Last week Shell announced it has taken the decision to build a DAC industrial-scale demonstration unit at the Shell Technology Center Houston (STCH), in the USA. With a targeted start-up in 2025, the company aims to prove the technical viability of its in-house developed solid sorbent technology.

Shell’s Direct Air Capture technology discussed

The Shell announcement is but one of several DAC announcements in recent months, with many of the projects in the USA where the Inflation Reduction Act (IRA) is pumping over a billion dollars into this nascent technology. Also last week The U.S. Department of Energy (DOE) announced that DAC projects in Texas and Louisiana to remove more than 2 million tonnes of carbon dioxide per year from the atmosphere will get over $1 billion in federal grants. Two major projects the DOE selected are Project Cypress in Louisiana, run by Battelle, Climeworks Corporation and Heirloom Carbon Technologies; and the South Texas DAC Hub in Kleberg County, Texas, proposed by Occidental Petroleum’s subsidiary 1PointFive and partners Carbon Engineering Ltd (whom Oxy have subsequently announced they are acquiring) and Worley.

I have written about DAC in several posts, but it’s worth revisiting this in the context of these announcements and through the lens of The Energy Security Scenarios. Two scenario stories are presented, Sky 2050 and Archipelagos. They explore the tension that now exists between what world leaders promise on climate change at events such as COP26 in Glasgow and the reality those same leaders face when near term energy system disruption occurs, and immediate decisions must be taken to address the situation.

Archipelagos depicts a global narrative of shifting political winds driving the transition away from fossil fuels. Despite encountering challenges, the pace of the transition accelerates due to heightened security concerns and competition. This scenario envisions a world where energy security takes precedence over emission management.
Sky 2050 explores a world in which long-term climate security is the primary anchor. Society rapidly moves towards net-zero emissions but doing so requires major interventions from policymakers in the energy system.

In the Archipelagos story there is no DAC, at least not until the tail end of the century when it just starts to emerge. This is a story where current efforts come to nothing as other issues take priority – although not without consequence. But in Sky 2050 the technology flourishes and by 2100 it has made a material difference to the temperature outcome. However, it’s not a simple journey. Today there is a lot of discussion around DAC, but it remains a nascent and relatively expensive technology with capture costs of several hundred dollars per tonne of CO₂, although estimates and statements of cost vary widely. The goal is to progressively bring down the cost, perhaps to around $100 per tonne CO₂, but it is nowhere near this level today. So in Sky 2050, even though DAC emerges, nothing truly material happens until 2040, still over 15 years away. This is because new technologies in the energy sector typically take a generation (20+ years) to mature before material change is visible. DAC first appeared at least a decade ago, if not more, and is now only just being turned into the first larger scale projects. Compare this to solar PV, it first appeared in the late 1950s, with the first commercial power generation installation (6 MW) in 1983. In 2022 solar PV produced about 5% of global electricity, 40 years after the first project.

In Sky 2050 the first material appearance of DAC (5 million tonnes per annum globally) is in 2040 and this is for fuel synthesis, not for geological storage and therefore permanent removal. Presumably this is where the business model lies, despite the economic pull from the IRA. Airlines are likely to create early demand for sustainable synthetic hydrocarbon fuel (replacing crude oil derived Jet A-1) due to their need to transition towards net-zero emissions by 2050, but without a replacement propulsion technology. But by the mid-2040s DAC with geological storage (DACCS) has appeared and by 2050 is triple that for synthesis, with the two combined at over 500 million tonnes per annum. While the scale of DAC by 2050 is important at 500 million tonnes, this isn’t the technology that delivers NZE in 2050. It just isn’t big enough by then. NZE in 2050 comes through multiple other channels, with conventional CCS and land use change being the two big differentiators in a world that still uses considerable amounts of fossil fuel (albeit reduced by nearly two thirds from current levels).

Nevertheless, the scale up of CCS will be invaluable for DACCS, laying the groundwork by building the infrastructure for the transport and storage of CO₂. At the moment, the focus is understandably on the capture side of DACCS, but it would be a major lost opportunity if the transport and storage infrastructure was not ready to take advantage of large scale DACCS when it does arrive.

Where DACCS has a major role to play is in the second half of the century. By 2100 this is an industry that has grown from nothing today to 6.6 billion tonnes of CO₂ per year. In gas volume terms that’s like 2.2 billion tonnes of natural gas, which means that the CO₂ gas handling infrastructure for DACCS in 2100 is getting towards the scale of global natural gas infrastructure today. From 2050 to 2100 the DACCS industry removes over 150 Gt of CO₂ from the atmosphere, equivalent to 0.1°C of warming. This is an important contributor to the reduction in warming in Sky 2050 from 1.67°C (peak) to 1.22°C (in 2100).

And with 5.4 Gt of DACCS capacity in place, warming could conceivably be reduced by about another 0.15°C every 50 years after 2100. Direct air capture (and its combination with geological storage) is a technology for the longer term future, even though it will begin to bring more immediate benefits in the fuel synthesis industry in the shorter to medium term. But to build an industry that eventually handles CO₂ on the scale we imagine in Sky 2050 by the end of this century, means starting now. While detractors have been quick to criticise DAC, in part because of a view that resources need to be focussed elsewhere today, fully addressing the climate issue means adopting a range of technologies and pursuing them relentlessly. The emissions problem we have is only partly solved by renewable energy, with the full solution coming when we can combine new energy sources with the management of CO₂ from legacy energy sources. That is where DAC plays a critical role.

Note: Shell Scenarios are not predictions or expectations of what will happen, or what will probably happen. They are not expressions of Shell’s strategy, and they are not Shell’s business plan; they are one of the many inputs used by Shell to stretch thinking whilst making decisions. Read more in the Definitions and Cautionary note. Scenarios are informed by data, constructed using models and contain insights from leading experts in the relevant fields. Ultimately, for all readers, scenarios are intended as an aid to making better decisions. They stretch minds, broaden horizons and explore assumptions.

A rush to renewables isn’t enough; managing fossil fuel emissions is essential as well

dchone June 26, 2023

A guest post by my scenarios team colleague Richard Baker – Senior Energy Adviser

There is widespread consensus that a marked decline in the use of all oil and gas over the coming decades is required if the world is to meet the goals of the Paris climate accord. Any discussion of technology that is perceived as prolonging investment in their usage is invariably greeted with condemnation. Recently, in the run-up to COP28 in the UAE, the incoming COP President, Sultan Ahmed Al-Jaber, was criticized in some sections of the media for stating that the world needs to focus on tackling emissions from fossil fuels rather than simply eliminating their use.¹

But technologies that reduce emissions from oil and gas play a critical role in a transition to net zero and the incoming COP President was correct to address this. To understand why, Shell’s recently published Sky 2050 scenario provides a useful framework. In this scenario, net-zero emissions (NZE) is reached in 2050. Although the temperatures in the scenario rise to 1.7ºC, as modeled by MIT, negative emissions in the second half of the century result in a temperature rise of 1.2ºC above the pre-industrial average in 2100.

Sky 2050 does not make unrealistic assumptions about near-term oil and gas production or a rapid decline in demand for oil and gas. Global demand is yet to start declining and it is difficult to envisage upstream projects already operating or currently under development being paused or canceled. To that end, the Sky 2050 scenario sees demand mostly plateau this decade, but then rapidly decline in the 2030s and 2040s, with oil at 45 mb/d (million barrels per day) and natural gas at 1.9 Tcm (trillion cubic meters) by 2050, which are both slightly less than half of today’s levels. A demand led trend towards zero oil and gas by 2050 isn’t realistic as we are still far from having a complete set of technologies to replace all the uses for oil and gas.

In fact in Sky 2050 it isn’t until 2100 when the world has largely left the era of fossil fuel energy behind, although even then oil and gas are still used for making things, from solvents to plastic water bottles.

While Sky 2050 in 2050 clearly shows a reduction from today, this is nowhere near zero. Instead, Sky 2050 relies on significant use of industrial carbon capture and storage and negative emissions that use a combination of technological and natural sinks to reach net-zero emissions. The technological storage of carbon dioxide is significant by 2050 and beyond; in Sky 2050, the size of the carbon capture utilization and storage (CCUS) industry is ultimately bigger than the natural gas industry today in terms of the volumes of gas handled and direct air capture (DAC) plays an ever more prominent role in the second half of the century.

Yet moves to capture and store carbon dioxide emissions are not universally popular. Some argue that it gives the industry carte blanche to carry on producing at today’s levels. But continuing to invest in the industry, including emission reducing technologies, is not the same as maintaining or growing production.

Reservoir decline rates are hard to quantify as they are rarely left without any intervention to simply decline. Rates of 4-5% are often quoted, but this usually includes drilling additional wells or installing pumping equipment, and the true rate is probably higher. But even using a 4-5% decline rate from now would give production levels of 23-30 mb/d in 2050 for oil and 0.9-1.2 Tcm for gas, significantly below the demand levels modelled in Sky 2050.

This gap will need to be filled by ongoing investment. Objections to new projects often raise the International Energy Agency’s (IEA) landmark Net Zero study as evidence, but the report is usually misquoted. The report does not say that no investment in oil and gas is required, but instead states that “no new oil and gas fields are required beyond those that have already been approved for development” and the required investment levels reported, which average $500 billion per year this decade, are more or less what the industry is currently spending. Even in the 2030’s, the IEA calculation of required spending levels of $300 bln per year is considerable. And the context behind the IEA statement is almost never included. The scenario from which the statement emerges not only requires a huge investment in new energy systems but very importantly, a world making significant efforts to reduce overall energy demand, through important changes in behaviour (e.g. cycling more, not flying etc.), extreme efficiency measures in the built environment and even some energy austerity. Most of that isn’t happening or at best, isn’t happening fast enough or in a sustained way.

Whether the required oil and gas investment could be focused only on existing fields, or if new developments are required, is a matter of debate. A cursory glance around the world today would find no shortage of oil and gas assets with large resources that are struggling to maintain production, even when incentivized by the recent uptick in oil prices. For many countries, geopolitical and local factors are restricting investment, and in some cases the technical expertise previously provided by international oil companies is lacking.

So how is the industry responding? There are two pathways playing out.

The first is that existing fields are attracting investment to maintain production, but there is also some new field development underway. The IEA report also goes on to say that ‘minimizing emissions from core oil and gas operations should be a first-order priority for all oil and gas companies’. Many operators are doing just that, seeking ways to reduce their own production emissions, including the electrification of facilities (and generating that electricity from renewable sources) and aiming to eliminate flaring, amongst others. And there is widespread effort underway to clamp down on fugitive methane emissions with techniques such as drone technology, but particularly from aging infrastructure where such initiatives are helping to identify the worst culprits. The counter argument is that for oil, where 85-90% of most emissions come at the point of combustion in a car, plane, or ship’s engine, reducing intensity in the upstream has a relatively small impact on reducing total emissions. But given that Sky 2050 sees 250 Gt of CO₂e emissions from oil use in the next 27 years, addressing 10-15% of the issue still adds up to 25-40 Gt, equivalent to global emissions from a single year.

The second pathway is the focus on developing carbon capture and storage for the so-called Scope 3 emissions, or the emissions from the actual use of oil and gas. Many such projects are in the pipeline but there is also real innovation emerging. For instance, Occidental plan to inject CO₂ captured directly from the air into reservoirs in a technique known as Enhanced Oil Recovery. The company claims that more CO₂ is injected than is subsequently released when the fuel is combusted, and regulators agree; oil produced via this method will qualify for the low-carbon (45Q) tax credit. For now, it’s the only project under development, but if successful, it may provide a blueprint for others to follow. For gas, where combustion tends to be more concentrated in a power plant or industrial unit, there is significant scope for point source capture and there are many projects in development, although not yet on a par with the scale in Sky 2050.

It’s often said that CCUS is an unproven technology when, in fact, the capture and re-injection of CO₂ have both been practiced for decades. According to the IEA, of the 40 Mt captured in 2021, around 75% was captured from oil and gas operations. The question is whether commercial drivers, including carbon taxes, can help deliver the scale envisaged in Sky 2050. The issue with carbon capture and storage has never been the technology, but always the business model to support the investment.

While in Sky 2050 there will be reduced demand for oil and gas in sectors that can be electrified, like transport, by mid-century there will still be sectors of the economy that are using oil and gas because the alternatives are not deploying at sufficient scale. The demand from these sectors is greater than natural decline alone would allow, requiring further oil and gas investment.

Dr Al-Jaber was right to point out that the production that remains will need to be as low carbon as achievable, while a global negative emissions industry needs to be built. These two parts of a burgeoning carbon management industry will require continuous investment as well as policy support. The challenge for the upstream oil and gas sector is to deliver both and that could even mean a combined production and carbon capture sector that is bigger in the second half of the century than the stand-alone oil and gas production sector today.

^[1] https://www.nytimes.com/2023/05/03/climate/un-climate-oil-uae-al-jaber.html

Without Article 6 there may be no 1.5°C (or even 2°C)

dchone May 30, 2023

The 58th session of the UNFCCC’s Subsidiary Body for Scientific and Technological Advice will take place in Bonn from June 5-15 and one of the features of the session is further progress in operationalising Article 6 of the Paris Agreement. My colleague, Malek Al-Chalabi, and I thought it would be useful to reflect yet again on the critical importance of this somewhat overlooked corner of the Paris Agreement.

Article 6 of the Paris Agreement is the section that formally promotes cooperative approaches between the Parties, but is widely recognised and is being negotiated as a carbon trading mechanism. The thinking behind Article 6 is profound, but the reality of a working mechanism is taking too long to appear in practice. Article 6 was the apparently the last piece of the Agreement to be completed in December 2015 and we all know that the completion of the so-called Paris ‘rule book’ was extended by two COPs (from Katowice in 2018 to Glasgow in 2021) because of Article 6. Now the fine detail of the mechanisms is trying to find a landing point.

One area that is really struggling, weighed down by constant challenge, is the incorporation of carbon dioxide removals (CDR) within Article 6.4, the project based mechanism under Article 6. A recent information note released by the UNFCCC seems to lean heavily towards land based removals (reforestation, ecosystem restoration, carbon farming etc.) but is particularly scathing on the prospect of engineered removals (direct air capture with geological storage or DACCS and bioenergy production and use with geological storage or BECCS), with statements such as;

Engineering-based removal activities are technologically and economically unproven, especially at scale, and pose unknown environmental and social risks. Currently these activities account for removals equivalent to 0.01 MtCO₂ per year (P15:a) compared to 2,000 MtCO₂ per year removed by land-based activities.
These activities do not contribute to sustainable development, are not suitable for implementation in the developing countries and do not contribute to reducing the global mitigation costs, and therefore do not serve any of the objectives of the Article 6.4 mechanism.

In any thorough analysis of net-zero emissions during this century, such as in the IPCC 6^th Assessment Report, both land carbon management and engineered removals are critical for achieving the net-zero goal, so to simply dismiss engineered removals now because they have yet to scale can only be seen as short sighted. In the recently released Shell scenario Sky 2050, the role of both in 2050 is very clear, as shown below. In 2050 the use of fossil fuels is far from over, so balancing remaining emissions against sinks via various removal mechanisms is critical.

While land-based removals are larger in 2050 than engineered removals, the longer term mechanism for correcting overshoot and addressing atmospheric CO₂ levels is engineered removals. By 2100 fossil fuel use is largely done with so the balancing of 2050 is not really required, but a robust business model will be needed to support ongoing negative emissions through engineered removals as a means of reducing atmospheric CO₂ levels. This will also require a trading mechanism.

Further to the above, there is an almost certain dependency on the structure of Article 6 in the delivery of large scale removals. This is because the countries and sectors that find themselves in the situation of needing removals to balance ongoing emissions or to finance long term negative emissions may not have local access to them, perhaps for reasons of geography. This was highlighted in the Shell Scenario Singapore Sketch released last year. Without Article 6 Singapore cannot reach it’s goal of zero CO₂ emissions, but with Article 6 in place net-zero emissions is achieved. Arguably the very essence and purpose of Article 6 is embraced within the word ‘net’ in net-zero. Eventually, removals become the only type of unit traded under Article 6 or created through the 6.4 mechanism.

The same clear message was also delivered in the IPCC AR6 Synthesis Report where CDR is shown to be vital if the world is to achieve 1.5°C, the more ambitious goal of the UN Paris Agreement. And similar to the case for Singapore described above, 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.

In a previous blog post, we illustrated the importance of trade and how countries and sectors can work together in Article 6. This message can also be found in publication from a variety of organizations, including the International Chamber of Commerce, the International Emissions Trading Association (IETA), the International Energy Agency, and others.

There have been numerous examples that show how trade helps countries contribute to economic growth. This includes the trade of automobiles, medicines, clothing, electronics, and a variety of other goods. Not all countries will be automobile hubs, medicine hubs, clothing hubs, or electronic hubs. Trading allows countries to specialize in certain segments of the economy and trade with others that have other expertise in other goods – and it is a win-win for both countries. There have also been an equally abundant examples of how isolation or trade disputes can disrupt economic growth and progress.

Trading of carbon is a win-win – for economic growth and for decarbonization – and Article 6 has the potential to catalyse both elements. As such, 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

But more recently, IETA and several other observers have called for the Article 6.4 Supervisory Body to take a more balanced approach to the assessment of removals. The IETA submission can be found here.

Carbon markets have the opportunity to contribute to decarbonization and economic growth. A recent example of this was highlighted at COP27, where the governments of Switzerland and Ghana agreed to the first government to government bilateral carbon trade. More signs of this are taking place, with Japan signing over 25 MOUs and other countries showing a keen interest, like the UAE, Sweden, and others. Further information on how carbon markets can assist decarbonization efforts can be found on a recent episode of the Energy Podcast (Season 5).

With the global stock take taking place in Dubai later this year, Bonn provides an opportunity for policy makers and governments to continue to encourage the use of Article 6 and embrace the role of removals, in all forms, within the 6.4 mechanism. Further government to government trade of carbon will be one of the cornerstones to limiting warming to 1.5°C.

How quickly can a synthetic aviation fuel industry emerge?

dchone May 15, 2023

In late April, the European Parliament and EU Member States reached agreement on new mandates for sustainable aviation fuels through to 2050. Under the final agreement, the percentage of sustainable aviation fuel (SAF) that must be blended with kerosene will start at 2% by 2025, moving to 6% by 2030, 20% by 2035, 34% by 2040, and reaching 70% by 2050. A dedicated sub-target for synthetic fuels derived from green hydrogen will also come into force from 2030. Although the final wording and requirements for these mandates have yet to be released, the headline numbers are clear even if the detail isn’t – starting at 1.2%, the synthetic fuel requirement will be scaled up to 5% by 2035, reaching 35% by 2050.

SAF is going to require a huge effort and should rightly be the immediate focus of attention, largely because of the state of technology and the amount of effort that has gone into preparing the groundwork for a SAF industry. But while the overall SAF target is challenging, given the small quantities produced today, the synthetic fuel mandate looks daunting. In EU parlance, synthetic fuels are renewable liquid and gaseous transport fuels of non-biological origin, meaning liquid or gaseous fuels which are used in the transport sector other than biofuels or biogas, the energy content of which is derived from renewable sources other than biomass. In the aviation industry this presumably means two types of fuel;

Hydrogen as a direct fuel derived from renewable energy sources.
Synthetic kerosene (also known as an e-fuel), produced by combining hydrogen derived from renewable energy sources (via electrolysis of water) and carbon from the atmosphere (via direct air capture or DAC), with the energy required for the capture and final synthesis also coming from renewable sources such as wind and solar PV.

For 2030, hydrogen as a direct fuel is a non-starter given that the planes don’t yet exist and probably won’t do so until 2040 at the earliest, although we might see some small commuter versions before that. So for 2030 and probably 2035, this mandate is really only about e-fuels. The synthesis of such a fuel is discussed in detail in a paper by Kraan et al., An Energy Transition That Relies Only on Technology Leads to a Bet on Solar Fuels, Joule (2019), with the energy schematic they developed shown below. This is to produce one barrel of fuel (5.5 GJ solar fuel on the right of the schematic).

The illustration above presumes feasibility and the availability of a wide range of thechnologies at large scale. In reality, that isn’t the case today. Clearly solar PV and synthesis technologies exist at scale, but Direct Air Capture (DAC) is still to be demonstrated at scale (i.e. 1 million tonnes per annum or more) and hydrogen electrolysis is only just reaching the sort of scale required for synthetic fuel production. As such, the discussion below should be viewed in that context and not just be a question of quickly building the necessary facilities.

In 2023 we can expect EU aviation fuel consumption to be somewhere around 1 million barrels per day, which includes both internal EU demand and international aviation bunkers for flights departing from the EU, for passenger and freight movements. So a 1.2% synthetic fuel mandate means the production of at least 12,000 barrels per day of e-fuel within seven years, or over 4 million barrels (600 kt) produced in 2030.

Jet fuel is mainly carbon in terms of weight, so 600 kt is about 500 kt carbon and 100 kt of hydrogen. This amount of hydrogen (but in practice more is needed) will require multiple 200 MW electrolyser projects, each similar to the project recently announced by Shell in Rotterdam that will produce 60,000 kg per day of green hydrogen, currently Europe’s largest such project. The Shell project will begin operation in 2025 after two years of construction, along with offshore wind capacity built in the Hollandse Kust Noord area.

The 500 kt carbon equates to nearly 2 million tonnes of atmospheric carbon dioxide capture in 2030, which is a scale of capture that doesn’t currently exist in the world. However, Occidental and its subsidiary 1PointFive announced in late 2022 they plan to begin detailed engineering and early site construction for their first large-scale DAC facility with start-up expected in late 2024. Upon completion, the DAC plant will be the world’s largest of its kind and is expected to capture up to 500,000 metric tons of carbon dioxide per year.

However, the provisions of the EU Directive on these types of fuels allows for other sources of CO₂ to be used, but in some cases for a limited time period. Up until 2041 it will be possible to use CO₂ from sources such as industry where allowances have already been surrendered against such emissions. It is also permissible to use the captured CO₂ from the production or the combustion of biofuels, bioliquids or biomass fuels. These provisions mean that an immediate relaince on DAC as a source of carbon for synthetic fuels isn’t required.

Producing sufficient hydrogen and capturing enough carbon dioxide is energy intensive and is just the start. These then must be combined to make the synthetic fuel, which takes even more energy and more hydrogen than the molecular weight of jet fuel points to. For example, a hydrogen based reaction is required to convert the carbon dioxide to carbon monoxide, which is required for the subsequent synthesis reaction. If the facilities designed to do this make use of Fischer-Tropsch technology, jet fuel won’t be the only product. Its yield might be as much as 67% (with the other 33% being lighter and heavier hydrocarbons, but this will require an optimised catalyst), which means that for the above jet fuel requirement the picture becomes more complex and bigger. The required production of synthetic fuels rises to 18,000 barrels per day, of which 12,000 is jet fuel.

The synthesis plants are not simple projects either, although the underlying technology is tried and tested in facilities such as the Shell gas-to-liquids synthesis plant in Qatar. That unit takes natural gas and breaks it down into hydrogen and carbon monoxide (synthesis gas) before recombining these into longer chain hydrocarbon molecules such as for jet fuel. That facility operates on a very large scale, producing some 150,000 barrels per day of product (of which some is suitable for jet fuel use). Building smaller versions is possible, although even the first Shell synthesis pilot plant, built 30 years ago in Malaysia and still operating today, produces 14,700 barrels of oil product per day. Even smaller scale gas-to-liquids is also possible, with Petrobras operating such a unit in a remote location as a pilot for the conversion of associated gas from oil production into useful liquids.

Given the rapid scale up of the synthetic fuel mandate (4x from 2030 to 2035), the sensible approach will be for the EU to build reasonably large from the start. A first facility might be the size of the Shell Malaysia unit (the illustration shows an 18,000 b/d unit but this is still small by global refining standards), but would also require about 3 GW of green hydrogen capacity and three million tonnes per annum of DAC. Apart from the synthesis unit which is arguably smaller than the desirable scale for modern refining, the hydrogen and DAC units are unprecedented in size. However, both hydrogen and DAC are scalable technologies, with the latter currently deployed on a modular basis, and as noted above DAC isn’t an immediate requirement.

Building an 18,000 b/d synthesis facility, 3 GW of hydrogen electrolyser capacity and 3 MT per annum of DAC combined with large scale renewable energy production (say 6 GW of offshore wind) is a formidable project, costing many billion euros and taking years in terms of planning, approvals, financing and construction. Such a project will also stretch the available technologies, given that DAC in particular doesn’t yet operate at scale anywhere. But the EU needs to start at least five such projects over the coming 2-5 years, not just to meet the synthetic fuel mandate of 2030, but also with an eye on the 2035 mandate and beyond.

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.

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.

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.

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.