Category: Nature Based Solutions

Blockchain, carbon emissions and NFTs

dchone May 16, 2022

At a recent emissions trading workshop, there was a great deal of discussion about the new kid on the block, carbon trading and non-fungible tokens (NFT). I should say up front that this is not a particular area of expertise for me, so this post represents my observations on the subject, however blockchain is becoming a tool to support the energy transition.

According to Wikipedia, an NFT is a non-interchangeable unit of data stored on a blockchain, a form of digital ledger, that can be sold and traded. The NFT can be associated with a particular digital or physical asset including but not limited to, art, songs, and sport highlights and a license to use the asset for a specified purpose. In the case of the voluntary carbon market, the NFT represents a carbon removal or carbon reduction. So it might represent the storage of carbon in a tree, or in a geological formation. NFT ledgers claim to provide a public certificate of authenticity or proof of ownership and a license to use the asset for a specified purpose. That use could be as an offset against emissions generated by the holder of the NFT.

There is no doubt that carbon markets, be they regulatory or voluntary, require a mechanism of some description to track creation, ownership and surrender of emission reduction units, credits and trading system allowances. This normally emerges as a transaction log and in the case of regulatory systems such as the EU Emissions Trading System, is centrally managed by government and also contributes to the compliance process where units must be surrendered against some obligation. Within the Kyoto Protocol architecture which spanned multiple countries and regulatory systems, an international transaction log (ITL) was created by the UNFCCC and it was used to track all cross border transfers of units available within that system (AAU, CER, ERU, RMU) and therefore effectively link the national registries. On their website the UNFCCC states that the International Transaction Log (ITL) connects registries and secretariat systems that are involved in the emissions trading mechanism defined under the Kyoto Protocol and its Doha amendment. One of the key mandates of the ITL is to ensure an accurate accounting and verification of transactions proposed by registries in order to support the review and compliance process of the Kyoto Protocol.

Within the voluntary carbon markets there is no such global registry, but rather a series of registries that align with the particular voluntary market platform used to create the credit. These are summarised here. For example, the Verra Registry was launched in April 2020 and is the cornerstone for the implementation of Verra’s standards and programs. It facilitates the transparent listing of information on certified projects, issued and retired units, and enables the trading of units. It is the central repository for all information and documentation relating to Verra projects and credits. The Verra Registry also ensures the uniqueness of projects and credits in the system.

So along comes blockchain and NFTs, which by all accounts at the workshop, can certainly do the job of tracking carbon units and ensuring integrity – but the current systems also do this and have been doing it satisfactorily for some time. It feels like the new kids on the block are a solution looking for a problem, but at least as far as unit tracking goes, there isn’t a particular problem. That isn’t to say that the current system is perfect, it isn’t, or that NFTs won’t be an improvement on the current processes, in fact they may well be more suited to the task.

But the problem that does exist is perhaps one that blockchain and its associated tools could solve, yet it is highly complex. It’s the core of the climate issue – the carbon budget. The carbon budget for a certain rise in global average surface temperature is the limit on the cumulative carbon dioxide release, less removal of carbon dioxide from the atmosphere, prior to the point of net-zero emissions. In August last year the Intergovernmental Panel on Climate Change (IPCC) informed readers of its 6^th Assessment Report that the carbon budget for 1.5°C of warming was now only 500 GT, based on cumulative emissions from 1.1.2020. Today, that will have reduced to about 400 GT. For 2°C of warming it is now about 1340 GT of carbon dioxide from now.

The risk associated with carbon markets based on a variety of different baselines, credit standards, allowance allocation mechanisms and even basic structure is that they don’t add up to anything close to the carbon budget available, so we collectively overspend the budget and therefore overshoot the temperature goal, even with supposed broad use of carbon units. In an extreme hypothetical scenario, we could end up with more voluntary market carbon credits than emissions, but with atmospheric CO₂ still rising. That risk doesn’t change simply by applying NFTs to the credits that are created. The risk also exists with the current Nationally Determined Contribution (NDC) process of the Paris Agreement, where each country has effectively determined their own carbon budget, their own national baseline year and their own pathway forward. The sum of the NDC carbon budgets does not currently equate to the task at hand. The Global Stocktake process that is now underway will highlight the mismatch, but the Paris process has no tools at its disposal to solve the problem other than peer pressure and diplomacy.

An alternate way for the global voluntary carbon market to evolve would be to use the tools associated with blockchain to tokenise the carbon budget, rather than tokenise the current credit system. A single global ledger would also resolve the current problem of having fragmented carbon registries. The carbon budget tokens would then act like allowances in an emissions trading system, with a surrender process linked to emissions taking them out of the market permanently. The value of a unit in a market is a function of its availability (or scarcity) and we know that the carbon budget has a defined limit in this regard. That immediately delivers scarcity and this scarcity is then enforced using blockchain which ensures that each unit of the carbon budget can only be claimed once. While the carbon budget can be expanded via removals, considerable effort is required to do this, with an associated cost. Two possibilities (and doubtless there are many others) for NFTs and carbon budgets are as follows:

Target the global carbon budget, effectively turning the budget into a global cap and trade system. But this is inherently difficult as there is no current mechanism to distribute the carbon budget between nations, companies or even people. However, fractionalized ownership of carbon credits could be an enabler for bringing more liquidity into the market. The further challenge with such an approach for the global carbon budget is the initial creation and distribution of the tokens. There will be a finite number, but no one party should benefit from the creation of the tokens; after all the carbon budget is a global commons problem. Further, there can’t be an agency such as the UN or UNFCCC selling the initial tokens as that would require a transfer of funds that many governments wouldn’t tolerate or is simply not feasible constitutionally. What if the global budget was tokenised by DAOs (Decentralized Autonomous Organization) on a piecemeal basis, with NFTs existing and available to use by those who chose? The DAOs might be companies, cities, states or even whole countries on a voluntary basis, with NFTs granted in return for the entity adopting a carbon budget.
Tokenise the implied carbon budget under an NDC, even though the sum of the current NDCs is leading to the global 1.5°C carbon budget being overdrawn. This approach could add considerable value to the voluntary market. A current issue in the voluntary world is the question of who owns and makes use of a carbon credit. Clearly if a project is launched in a particular country the emissions profile of that country will change, which in turn will be reflected in the reporting of its own emissions for the purposes of showing delivery of its NDC under the Paris Agreement. But if the reduction is contributing to a Paris Agreement objective, how can it also be made available to the voluntary market and in what context should the voluntary market use it? I discussed this issue in an earlier posting, but irrespective of how this matter is settled, a reduction unit is really only of value if more is known about the context of the reduction. This is why an allowance in an emissions trading systems has value – the market fully understands the context within which the unit was created and the scarcity associated with it. This is not the case with voluntary units extracted from a project that might represent a tiny part of the emissions of an economy, where information on total emissions is hard to come by. But if the project sat within an NDC and the emissions associated with the NDC sat in a clear accounting framework, then the reduction units would have context and the use of them either within the country or outside the country could be clearly understood by the market and priced accordingly.

None of the above would be simple to implement and option 1 might be impossibly difficult. But remaining within a carbon budget is entirely the purpose of emissions management and therefore the world needs some collective effort to achieve this. Management requires good accounting and transparency but today there is still very little management of carbon budgets, with systems like the EU ETS being the exception rather than the rule. While the workshop I attended was entirely about NFTs associated with voluntary reduction units, this feels like a rather simple problem for a sophisticated 21^st century digital mechanism to target. The much harder application would be carbon budget management and the benefit to society would shift from modest to immense.

The simple climate maths the IPCC didn’t fully explain

dchone August 19, 2021

When I first started delving into the issue of climate change about 20 years ago, the clarion call of the day was to reduce emissions by 50% by 2050. Today, as we all know, the call is for net-zero emissions by 2050. Last week we also heard again from the Intergovernmental Panel on Climate Change (IPCC) with the release of the first part of the 6^th Assessment Report (AR6), which the United Nations Secretary General called a ‘code-red for humanity’. But both the call in 2001 and again in 2021 are entirely consistent. It’s not the climate science that has changed, just the carbon maths associated with it.

As the IPCC clearly state in Part D of the Summary for Policymakers of AR6-WG I;

This Report reaffirms with high confidence the AR5 finding that there is a near-linear relationship between cumulative anthropogenic CO₂ emissions and the global warming they cause. Each 1000 GtCO₂ of cumulative CO₂ emissions is assessed to likely cause a 0.27°C to 0.63°C increase in global surface temperature with a best estimate of 0.45°C. This is a narrower range compared to AR5 and SR1.5. This quantity is referred to as the transient climate response to cumulative CO₂ emissions (TCRE). This relationship implies that reaching net zero anthropogenic CO₂ emissions is a requirement to stabilize human-induced global temperature increase at any level, but that limiting global temperature increase to a specific level would imply limiting cumulative CO₂ emissions to within a carbon budget.

While the biggest difference between now and 2001 is the shift in the goal from below 2°C to 1.5°C which in turn has contributed to the change in required emissions trajectory, this is not enough to explain the shift in the required outcome by 2050. That change is more a function of the cumulative carbon math associated with any level of warming.

To limit the temperature rise to 1.5°C, the notional carbon budget based on the above best estimate of TCRE is 1.5/0.45*1000 = 3330 Gt CO₂ and for 2°C it is 4440 Gt. This is effectively targeting the central estimate in a range and is a calculation you might do before emissions start. However, we already know from IPCC AR6 that cumulative emissions of 2390 Gt correspond to a 1.07°C temperature rise in 2010-2019 vs. 1850-1900. They also indicate that the remaining carbon budget from 1.1.2020 for 1.5°C is 400 Gt and 2°C is 700 Gt for a 67% likelihood, which implies an overall carbon budget of 2790 Gt for 1.5°C and 3090 for 2°C with a good degree of certainty.

In the following calculations and accompanying charts I will work on the basis of a simple linear reduction in emissions to net-zero from a particular point in time to calculate the overall cumulative emissions. Returning to 2001, the annual CO₂ emissions (from energy, cement and land use) were approximately 30 Gt, the cumulative emissions from 1850 at that time were about 1700 Gt and a linear reduction pathway from 2001 for 2790 Gt final cumulative emissions (1.5°C) means net-zero emissions in about 2073. This is illustrated in the chart below.

As noted for 2001, cumulative carbon dioxide emissions since 1850 were at 1715 Gt (Source: Our World in Data), which means net-zero emissions in 2073 for 1.5°C and 2123 for 2°C. Back in 2001 the focus was more on 2°C, so targeting well below 2°C, to completely avoid the 2°C threshold, would mean net-zero emissions around 2100 and therefore a 50% reduction in emissions by 2050 assuming a linear decline.

But twenty years later the story is very different. At the time of the IPCC Special report on 1.5°C cumulative carbon dioxide emissions had reached 2300 Gt, so a linear reduction to net-zero had a target date of 2040. For 2°C it was 2077. In fact the IPCC opted for scenarios with a steeper early reduction pathway, and therefore targeted 2050 for net-zero emissions, but that means a very steep early reduction of over 50% by 2030 to balance the longer tail to 2050. With twenty further years of rising emissions, a considerable portion of the 2001 carbon budget had been consumed and therefore the date for net-zero emissions had moved forward in time dramatically.

In fact, for each year that emissions don’t reduce, the requirement for net-zero emissions comes towards us by a year, effectively narrowing the gap for action by two years. The IPCC Special Report on 1.5°C was baselined from 1.1.2018, so another four years has passed (or will soon pass). Even the recent IPCC AR6 is two years out of date now in terms of its carbon budget baseline. This rapidly shifting picture is shown below. In 2015 the target year for 1.5°C is shown to be 2042, a gap of 27 years, but by 2019 the target year is 2038, a gap of only 19 years.

Should carbon dioxide emissions remain at 40 Gt (below the pre-COVID high) for the coming few years, the available carbon budget for 1.5°C is rapidly consumed, as illustrated in the chart below. By 2025 net-zero emissions would be required by about 2033 and by 2029 net-zero emissions would be required before 2030, in other words the available carbon budget will have been consumed.

All the above presupposes that emissions cannot go below zero in the future, thereby drawing carbon dioxide out of the atmosphere and eventually correcting any overshoot of the carbon budget and its associated temperature goal. But negative emissions are a possibility, through the implementation of large scale air capture systems with geological storage (BECCS or DACCS) and enhancement of natural carbon uptake in the biosphere via programmes such as those that increase global forest cover and improve soil carbon management in agriculture.

Today, the carbon budget is still a rather arcane subject, well understood by a few but not widely appreciated in terms of relevance to managing surface temperature. That understanding will need to improve rapidly so policymakers can develop better mechanisms to manage it, also ensuring large scale deployment of atmospheric drawdown practices and technologies.

A ten year reduction challenge for the USA

dchone May 4, 2021

In April, at the opening of the White House Climate Summit, President Biden announced the United States Nationally Determined Contribution (NDC) for the period up to 2030, encompassing a target of greenhouse gas reductions 50-52% below 2005 levels. The US Greenhouse Gas inventory is available on the US EPA website and is summarised in the table below.

Sector and gases(Mt CO₂e)	2005	Latest data for 2019

CO₂ Fossil Fuel Combustion	5753.5	4856.7
CO₂ Non-Energy & Industrial	381	399.1
CH₄ from all sources	686.1	659.7
N₂O from all sources	455.8	457.1
HFCs, PFCs, SF₆, NF₃ from various industries	146.5	185.6
Total Emissions (Sources)	7423	6558.3

LULUCF Emissions	16.8	23.5
LULUCF Carbon Stock Change	(804.8)	(812.7)

Net Emissions (Sources & Sinks)	6635.0	5769.1

Given a baseline of 6635 Mt CO₂e, a 50% reduction in 2030 would require US emissions to be 3318 Mt or lower in that year. The 2019 data represents a reduction of 13% over 2005, so the reduction in the next 10 years must be nearly triple that of the last 15 years. The reduction seen to date from fossil fuel combustion is running slightly ahead of the overall improvement, with a reduction from 2005 to 2019 of nearly 16%.

The goal that President Biden put forward is aligned with a strategy that is designed to achieve a goal of net-zero emissions for the US in 2050. Recently, the Shell Scenario team released a US Sketch outlining one possible pathway to such an outcome. The Sketch is illustrated below (N.B. 2020 figures are a pre-pandemic view of US emissions which the US is approaching again as the recovery gains momentum).

The Sketch provides the opportunity to look at the nature of the transition required in the 2020s for the NDC. The Sketch energy system emissions in 2030 are 3440 Mt against a 2005 baseline of 6030 Mt (small differences in baselines result from different categorizations of emissions), or a reduction of 43%. While this isn’t exactly aligned with the NDC, it could be in that the NDC makes specific reference to a major expansion of sink capacity through enhanced soil carbon uptake in the agricultural sector.

Key elements of the journey to 2030 outlined for the US in the Sketch are as follows;

In 2020 (pre-COVID calculation) the US generated 3970 TWh of electricity, with 80% from coal, gas and nuclear. Solar and wind made up less than 10% of the total. By 2030 in the Sketch, the generation mix has shifted to natural gas and solar each making up about 25% of the total, with wind, nuclear and coal combined at around 40%. Notably, total electricity generation has increased to 5720 TWh, or 43% over 2020. This is in a pathway that still sees electricity system emissions at 600 Mt in 2035, the year President Biden has targeted for a zero emission system. His goal is about 5 years ahead of the Sketch.
The increase in electricity consumption comes from an increasing proportion of electricity in final energy, displacing gasoline in cars, natural gas in homes and coal in industry. Electrification is a major lever for decarbonisation. The proportion of electricity as final energy rises in a decade from 22% to 35%, breaking a near century long trend which if continued, would otherwise see it rise to 25% at most.
Over the 2020s, solar generation of electricity grows fastest, increasing by a factor of nearly 12 in a decade. The U.S. installed 19.2 gigawatts (GWdc) of solar PV capacity in 2020 to reach 97.7 GWdc of total installed capacity. With a utilisation factor of 15-20%, this could be expected to generate around 150 TWh of electricity, although the Energy Information Agency reported a total of 130 TWh (perhaps because the capacity at the start of the year was 79 GWdc). In any case, capacity by 2030 will need to grow to at least 1 TWdc, assuming some efficiency improvement in new installations compared to existing facilities. With a year-on-year installation growth of 30%, the US could be installing some 260 GWdc per year by 2030, bringing the total installed capacity to 1.2 TW by the end of that year. Very large scale energy storage will also have to deploy to support solar.
The Sketch also shows a three-fold increase in wind generation throughout the 2020s and importantly, no decline in nuclear generation. The latter becomes increasingly important as other non-intermittent generation sources decline in use.
Electric vehicle (EV) deployment is an important part of the trend towards electrification and it emerges rapidly in the Sketch. By 2030 the US will need to see 20% of all passenger vehicle use as electric, with hydrogen fuel cell vehicles rapidly appearing in the large SUV sector. At the moment, there are about 1.5 million EVs on the road, out of a total US passenger vehicle fleet of some 280 million. To reach a level of 20% EVs in terms of use, sales will need to climb rapidly from some 400,000 vehicles per year now, to over 13 million in 2030, or nearly 80% of all sales. This represents a year-on-year growth rate in EV sales of 42% through the decade.
Road freight makes less use of electricity, although it does impact the lighter end of the freight market. For larger, longer haul freight trucks, hydrogen emerges during the 2020s, with some 200,000 trucks on the road by end of the decade. This is still relatively small, but the sector is non-existent today. In the second half of the century in the Sketch, hydrogen becomes the dominant fuel for heavy road freight.
Natural gas, propane and oil are used widely in the US for cooking and/or heating in homes. Although the majority use electricity for cooking, heating is provided mostly by gaseous hydrocarbon fuels. In the US Sketch, heating and cooking in residences shifts from 13% electricity to 42% electricity in just a decade. Of all the transition tasks ahead, this may be the most challenging in that it involves convincing millions of households, individual consumers and landlords to change their behaviour, refit existing properties, invest money for the change and in some instances make use of a less preferred energy option.
While electricity already plays a significant role in light industry, this is not the case for heavy industry where very high temperatures and high thermal loads are often required for conversion processes. Heavy industry energy use in the US is currently three-quarters gas, coal and biomass and one quarter electricity. This begins to shift rapidly and by 2030 in the Sketch, 40% of energy demand for heavy industry is supplied by electricity. In addition, hydrogen is emerging, with the first industrial installations making commercial use of this fuel. While the amount is small in 2030 it could mean significant development, design and engineering of new processes in a limited amount of time. Alternatively, the amount could point to natural gas being topped up with hydrogen as a mixed fuel for industrial furnaces, prior to converting whole processes over to hydrogen based fuels.
The many changes across the energy landscape result in steep decline in the use of fossil fuels in the Sketch, with coal falling fastest. By 2030 there is a 40% reduction in coal use, a 14% reduction in natural gas and a 25% reduction in oil within the economy, compared to 2020 (pre-COVID) use.
But even by 2050 in the Sketch, natural gas and oil still play an important but significantly diminished role in the US economy. That points to the need for carbon capture and storage (CCS), both directly linked to facilities and indirectly as an atmosphere removal mechanism (e.g. BECCS). The US already has the most mature CCS industry in the world, underpinned by years of enhanced oil recovery using carbon dioxide. But an order of magnitude change is required here as well during the 2020s, with a shift from some 30 mtpa carbon dioxide stored to some 300 mtpa.

While the Sketch does not require nature based solutions (NBS) for the US energy system to reach net-zero emissions by 2050, natural carbon sinks do provide an additional lever to support the transition and the NDC also discusses this aspect of emissions mitigation. In the US, national forests cover 193 million acres, an area larger than Texas. Apart from their significant bioenergy potential, forests act as natural carbon sinks. The US could reduce CO₂ emissions by up to 300 million tons a year by 2050 through afforestation – the planting of new trees where there were none before. While new forests represent significant additional sinks, there is also potential to expand areas such as wetlands and mangrove swamps, and perhaps most importantly to encourage farmers to adopt practices that enhance soil carbon. The US NDC references this opportunity.

The rates of change outlined above are substantial, with year-on-year growth rates for several new energy technologies of 20-50%, depending on the sector. While growth at this level can be sustained when a sector is very small and this has been observed for renewable energy deployment, it becomes increasingly difficult as the sector grows and absolute levels of deployment become very large. Many of the sectors mentioned will face this issue during the 2020s. Nevertheless, the Sketch was designed to show what is possible given the right policy levers for innovation and deployment, sufficient and targeted financing and overall transition design.

Note: Scenarios don’t describe what will happen, or what should happen, rather they explore what could happen. Scenarios are not predictions, strategies or business plans. Please read the full Disclaimer here.

The importance of sinks

dchone March 2, 2021

A review of the 2018 IPCC Special Report on 1.5°C shows that all four archetype scenarios (P1, P2, P3 and P4) make use of sinks – or the ability to remove carbon dioxide from the atmosphere and store it geologically or retain it within the land. The reasons for needing to do this fall into two categories;

The point at which net-zero emissions is required (i.e. 2050) comes before all anthropogenic emissions can be stopped, so remaining emissions have to be balanced with sinks to remove the same amount of carbon dioxide from the atmosphere as added by remaining sources.
By the time net-zero emissions is reached, the carbon dioxide load in the atmosphere has exceeded that associated with 1.5°C of warming, so sinks are required to lower atmospheric levels at a faster rate than natural decline, ensuring a 1.5°C or lower outcome by the end of the century.

The four scenarios are shown below.

Diagram

Description automatically generated — Source: IPCC SR15

In the P1 scenario sink use is minimal, highlighted by an end to land based anthropogenic emissions and the subsequent development of the land as an enhanced sink from mid-century on, at about 5 Gt per annum drawdown of carbon dioxide. P1 makes no use of geological storage. By contrast, the P4 scenario makes very extensive use of geological sinks with BECCS playing a substantial role even as land based emissions are eventually reigned in. But why is there such a difference in sink use between these scenarios?

A deeper dive into the four stories reveals an interesting trend – an almost linear relationship linking cumulative sink capacity to 2100 with the growth in final energy demand (measured as the increase in 2050 demand over 2010 demand).

This trend points to two aspects of the energy transition which are in turn related to the two reasons for needing sinks outlined above;

As energy demand increases and emissions rise from sectors of the economy where no large scale mitigation solutions currently exist, perhaps a sector like aviation, greater and greater sink capacity will be required.
With energy demand rising quickly and a starting dependency on fossil fuels to meet that demand, the carbon budget that equates to 1.5°C is exceeded well before the point of net-zero emissions, which then means extensive sink capacity is required to remove this carbon from the atmosphere and meet 1.5°C later in the century.

That then brings into focus the question of energy demand. In the Energy Transformation Scenarios released recently by Shell, all three scenarios show rising energy demand through the century, although in the Sky 1.5 story this is curtailed from the 2070s onwards due mainly to efficiency practices and rapid electrification (which can also lead to greater efficiency).

Energy demand growth across all three Shell scenarios contrasts with the IPCC range, where the P1 archetype imagines a fall in energy demand. But a fall in energy demand over the next thirty years is in sharp contrast with history, where energy demand has only ever risen, even as very significant efficiency gains have spread throughout society.

For comparison, over the last 30 years (to 2019), world total primary energy grew by 68%. This derives from GDP growth of 180%, and a Shell assessment of total energy service growth of 130%. In a discussion on energy growth, it is important to focus on non-OECD countries, because that is where the relationship of GDP growth to energy service growth is strongest. OECD countries are not far from the point where energy service growth is matched by energy service efficiency improvement and hence energy demand stays flat. In the last 30 years, non-OECD primary energy growth was over 80% of the global total and in the next 30 years we may see non-OECD growth making up almost all of the global energy demand increase. But this is the portion of the word where population increase continues in many countries and where access to energy is growing at a rapid rate. This in turn creates new demand for energy services. In short, we are more likely to underestimate energy demand than overestimate it.

There are also other reasons for continued energy demand growth.

Efficiency rebound on a macro scale is widespread and often not recognised. For example, when I was growing up in Australia in the 1960s, air conditioned cars hardly existed. I still remember when we lived outside the country in an American community (in SE Asia) in 1967 and I got in my first air conditioned car; I really couldn’t believe such a thing was possible. Today, you can’t buy a car without air conditioning. So in the 1960s we had maybe 50 million upscale cars globally with expensive inefficient air conditioners, but now we have over one billion cars with cheap efficient air conditioners. That’s lots more energy than the 1960s.
Society continues to find and adopt new and interesting ways to consume energy. When energy is available, it gets used. Think how much more energy intensive our life is compared to our parents or grandparents. One example – millions of people around the world are starting to adopt and make use of Bitcoin, but the media recently reported that Bitcoin ‘mining’ at various sites around the world collectively consumes more electricity than the Netherlands.
Adoption of new technologies can lead to explosive growth in energy services. The internet and all the servers and devices connected to it is one such example. It didn’t really exist thirty years ago, at least not as a consumer service.

Even with significant energy efficiency improvement over time, the Sky 1.5 scenario which is comparable with IPCC P1 to P4 in terms of temperature rise (i.e. 1.5°C), sees final energy demand increasing by 49% in 2050 relative to 2010. The scenario also employs significant sink capacity globally to achieve an outcome of 1.5°C in 2100. The cumulative total across nature based and manmade carbon dioxide removal to 2100 is around 1,000 Gt for Sky 1.5. Plotting this on the chart above, we see that although Sky 1.5 has a similar, but slightly higher final energy demand than P4, it makes less use of sink capacity by about 20%.

Both Sky 1.5 and IPCC P4 demonstrate the considerable sink capacity required for a 1.5°C outcome, unless energy demand can be significantly curtailed in the near term and rapid solutions found and deployed for current hard-to-abate sectors.

Exploring the energy future

dchone February 10, 2021

Three scenarios, Waves, Islands and Sky 1.5 explore the energy landscape out to 2100 and reveal very different possible pathways forward. All three are transformational in nature, with net-zero emissions now within sight, albeit on quite different timescales.

Carbon sinks and reform of the EU ETS

dchone November 19, 2020

On Wednesday morning of this week, POLITICO held a virtual event: “Energy Visions: Carbon removal and natural sinks in reaching climate neutrality by 2050”.

I was fortunate to have the opportunity to open the event with a few minutes of remarks to set the scene. This was followed by a discussion between the POLITICO moderator and Tina Bru, Norway’s Minister of Petroleum and Energy and then a panel session with;

MEP Bas Eickhout, Vice Chair of the Parliament’s Environment Committee and spokesperson for the Greens political group
Mauro Petriccione, European Commission Director General for Climate Action
Jannicke Gerner Bjerkås, CCS Director at Fortum
Gert-Jan Nabuurs, professor European Forest Resources, Wageningen University and Research IPCC Co-ordinating Lead Author

Although the panel couldn’t agree on how to handle the introduction of sinks into the EU as an emissions balancing mechanism, for me at least it is clear that the EU Emissions Trading System offers the simplest route forward. I have also written about this previously. See below for my opening remarks at the POLITICO event.

Good morning.
I want you to imagine for a moment that it is 2050, perhaps your autonomous electric car is already waiting in the driveway to shuttle you to the railway station, and as you step outside the house system shuts off most indoor electricity consumption. On your way to work you start thinking about an event your company had participated in a few days earlier; the last allowance auction under the EU Emissions Trading System. Now that the EU has reached net-zero emissions there would be no further allocation or auctions, in fact no more allowances.
But there is the familiar sound of planes at the nearby airport as the 787 and A350 departures continue, seemingly without pause. Although the first hydrogen fueled Boeing 808 and Airbus A500 planes can now be seen in the skies, a good proportion of air traffic still runs on jet fuel produced from crude oil. Biojet makes up the difference.
The railway station you use is in an industrial part of the city and the cement plant that was constructed there in 2030 using the most efficient process design of the day continues to operate, running on natural gas. It was built to supply concrete foundations for the gigantic 20 MW turbines in the burgeoning wind energy market.
These planes and industrial facilities are part of the 2050 EU landscape and continue to operate but do so in the absence of allowances under the EU Emissions Trading System. How will that be possible?
It is important to recognize that net-zero emissions in 2050 does not represent a point in time when there is no fossil fuel use and therefore no emissions. Today we are 70% dependent on fossil fuels for energy in the EU and although that number is clearly falling, it won’t be zero in 2050. In some cases the technologies required to remove dependence on fossil fuels don’t yet exist or are only at the earliest stages of their development. While some facilities using fossil energy should have carbon capture and storage operating by 2050, that won’t be true in all cases. Planes cannot do this and there will be regions within the EU where local at source carbon capture and storage either isn’t practical or cannot be implemented.
Rather, net-zero represents a balance between remaining emissions and the remote removal of carbon dioxide from the atmosphere. This can be achieved by 2050 in the EU, but we need the policy tools to guide us towards such an outcome. The EU Emissions Trading System is an excellent candidate for change.
Today the Emissions Trading System operates by surrendering allowances against emissions, but when the system ceases to have allowances in 2050, what happens? The Emissions Trading System needs to progress from an allowance-based system to one that manages net-zero emissions by requiring the surrender of sink based units against annual emissions. A sink unit wouldn’t be issued in the way an allowance is but would be created through projects that captured carbon dioxide from the atmosphere and permanently stored it. There are broadly three ways to do this;
One – through industrial projects that strip carbon dioxide from the atmosphere and store it geologically or use it in a way that offers near permanence, such as in making building materials.
Two – through the use of biomass to create energy but capturing and storing the carbon dioxide released in the process, which originated from the atmosphere as the biomass was grown. There is a bio-ethanol plant doing this today in the United States.
And three – by engaging in natural based projects such as rewilding and reforestation, or encouraging farmers to employ different grazing and cultivation techniques which help build soil carbon stocks.
Verified removal units from these types of projects will need to be part of the Emissions Trading System so that some parts of industry and various energy system services can continue operating past 2050. But the change to the trading system needs to be well before 2050, ensuring that enough capacity can be created by incentivising sink activity. A very early milestone would be establishing the certification process for removals within the EU.
Earlier this year Shell released a scenario Sketch illustrating a pathway forward for the EU to reach net-zero emissions by 2050. In that analysis, industrial bioenergy facilities with carbon capture and storage start to operate in the EU by 2035, which points to market signals emerging in the 2020s for project activity to start. We also showed that a gap between what can be achieved and what needs to be achieved for net-zero by 2050 also starts to emerge in 2035. This gap could be filled with nature-based sinks, at least until industrial capacity can catch up, but once again this will require a commercial carbon sink mechanism to incentivise action.
We shouldn’t forget about the period after 2050, at which point the world may require progressive regions such as the EU to extend their reductions into negative territory, in other words having more sinks than emissions. Trading of sinks could be a valuable export opportunity for the EU.
The EU Emissions Trading System is the right commercial lever to drive sink activity forwards, partly because of its carbon pricing structure but also because it must evolve to become a sinks and sources balancing system by 2050. As part of the current rethink of the trading system in preparation for 2030 and beyond, a sink mechanism should be included. Initially this could simply be the recognition of sink units from projects within the EU but should eventually be extended to global recognition of units. These would be transferred under Article 6 of the Paris Agreement along with the necessary safeguards to guarantee environmental integrity and the adjustment of trading partner carbon registries.
Without action in the 2020s to incentivise carbon sinks and subsequent follow-up in the 2030s, the EU may find itself unable to meet its net-zero emissions goal in 2050.
Thank you

Shining a light on carbon dioxide removal

dchone July 13, 2020

An important research paper emerged recently from the German Institute for International and Security Affairs (Stiftung Wissenschaft und Politik, SWP), raising the profile of carbon dioxide removal (CDR) from the atmosphere. CDR covers a set of technologies and practices that result in carbon dioxide already in the atmosphere being captured and stored, effectively removing it from the system where it is leading to surface temperature warming. This might be done for one of two reasons;

To balance emissions from an ongoing source of carbon dioxide, so there is no net effect on atmospheric carbon dioxide levels and therefore no warming associated with that source. This is basis for the term net-zero emissions.
To reduce the level of carbon dioxide in the atmosphere in an attempt to lower surface temperature warming. This might be necessary if warming has exceeded a particular goal, such as 1.5°C, and there is a need to bring the temperature back down again.

There are two categories of CDR and within each of them a subset of approaches. These are;

Natural solutions, which come from increasing the total carbon held within the natural biosphere. Examples include;
- Reforestation and afforestation.
- Various farming practices to increase soil carbon.
- Wetland restoration and expansion.
- Sustainable harvesting of timber plantations to build structures such as houses, where the carbon is locked away for decades or longer.
Technical solutions linked with geological storage of carbon dioxide. Examples include;
- Direct air capture of carbon dioxide paired with geological storage (DACCS). This happens today on a very small scale in Iceland [Link], but is likely some years away from a first large scale demonstration.
- Pairing traditional carbon capture and geological sequestration (CCS) with an energy facility using biomass as the feedstock (BECCS). This is indirect air capture in that the carbon dioxide is removed from the atmosphere when the biomass is grown. This is a scalable technology today and a major facility exists in the USA. Bioethanol production is widespread in the USA, with the fermentation step producing significant amounts of pure carbon dioxide. At such a facility in Illinois around one million tonnes per year of this carbon dioxide is captured and geologically stored, effectively removing carbon dioxide from the atmosphere. An example discussed in the EU Commission’s Hydrogen Strategy released recently notes the possibility of negative emissions from clean hydrogen production (bio-gas +CCS).

Carbon capture and storage is a version of (2) above, but the capture is directly associated with the generation of carbon dioxide, such that it is never emitted. As such, there is no removal from the atmosphere, but the geological storage step remains the same.

The paper gives a good summary of the approaches for CDR (both natural and technology based) and picks apart the various reasons for an almost complete lack of action so far. It also makes the case for why CDR is important and notes the lack of progress so far. Two key findings are given below;

If the EU truly wants to meet its own climate policy goals, it will not be able to avoid pursuing the unconventional mitigation approach of CO2 removal from the atmosphere – in addition to far-reaching conventional emission reduction measures.

Although the European Parliament is one of the more progressive players in EU climate policy, it has so far made little progress on the issue of CDR. During the negotiations on the Regulation on the Governance System for the Energy Union, which was concluded in 2018, it was the EP which succeeded in getting the Council to explicitly mention the long-term option of a European net negative emissions pathway. However, this did not result in any noticeable action on the part of the EP with regard to CDR. In its own-initiative reports, CO2 removal has not been given priority to date. Nor has a firm CDR approach played any role in recent legislative procedures – for example, in the amendments to the Emissions Trading Directive, the Effort Sharing Regulation, and the revision of the LULUCF Regulation during the last legislative period. Currently, there is no solid evidence of how the EP in its current composition will position itself on CDR. The first indication will be the EP’s negotiation position on the EU Climate Law.

Nevertheless, the EU Commission has recognised the role of CDR in its strategic long-term vision for a prosperous, modern, competitive and climate neutral economy in 2050. They include within the report the image shown below.

Some weeks ago, Shell released a Scenario Sketch which illustrates how the EU might achieve its goal of net-zero emissions in 2050. The Sketch made maximum use of available and expected technologies, including CCS on various industrial facilities, but a gap still remained with emissions of some 700 million tonnes per annum. This gap was filled with CDR, both nature based and artificial. In 2020 (pre-COVID 19), the EU energy system emission flows can be represented as shown below (all numbers in million of tonnes CO2 per year);

For the most part, energy needs are met with fossil fuels, with some portion of that (~160 Mt per year) ending up in finished products such as plastics. Net emissions of carbon dioxide exceed 3 billion tonnes per annum. The use of bioenergy in the EU is also shown, but is effectively emission neutral. A much smaller portion of the energy system is non-emitting, from sources such as wind, solar and nuclear.

By 2050, the picture looks very different. The non-emitting sector has grown substantially and net emissions are zero. However, actual emissions from the continued use of fossil fuels is 670 million tonnes per year and the total potential emissions from fossil fuel use is 1.13 billion tonnes per year.

Several factors are contributing to the overall net-zero outcome;

Some fossil fuel is use for making products such as plastics, as is the case today.
A bioplastics industry has emerged, with 50 million tonnes per year of atmospheric carbon dioxide ending up in finished products.
There is large scale use (240 million tonnes per year) of CCS in industry, such as in smelters and petrochemical plants.
There is 620 million tonnes per year of CDR, in two categories;
- 350 million tonnes of BECCS.
- 270 million tonnes of nature based solutions.

While the use of CDR may well decline in the ensuing decades after 2050 and might have vanished completely by the 22^nd century as further substitution for fossil fuels permits, the 2050 situation is one of very large scale deployment of technologies and practices that are either non-existent in the EU today or hardly visible. The level of deployment is such that a major commercial solution needs to emerge, driving the business sector to invest in CDR.

That solution could come from within the EU ETS as I discussed in a recent post, or a new mechanism could emerge that forces deployment of CDR through mandate or encourages it through a feed-in tariff. Both have been used successfully to get the renewable energy industry going. Whatever the approach for activating a commercial response, it needs to start soon. Building an industry on the scale shown will take many years and time is in very short supply.

The SWP paper comes to the same conclusion, i.e. start now, but it is already proposing upper deployment limits for individual sectors and overall use of CDR so as to maximise direct mitigation and the shift away from fossil fuels. This is hardly the way to unleash a commercial engine. Those who invest in CDR need to be assured that there isn’t some artificial limit put in place that may in turn limit the return on their investment, particularly if they are early adopters who take on additional commercial risk. In any case, CDR isn’t an inexpensive option that is easy to do – even large scale reforestation in the EU will be a challenge in terms of land use, maintenance, protection and longevity. The case for investing in CDR may well be a hard won battle in the boardroom, with many companies preferring to find direct mitigation options anyway.

The time for turning our minds towards CDR is now, as the EU rolls out its Green Deal and sets the rules for engagement that may well prevail to 2050 and beyond. Although the subject of CDR has been broached and by 2023 the EU Commission wants to put forward a carbon removal certification framework, CDR needs to be a priority within the immediate policy framework that emerges from the European Parliament.

A Climate-Neutral EU by 2050

dchone May 5, 2020

As the EU works to reset its emission reduction goals to align more closely with the 1.5°C goal of the Paris Agreement, a question arises around the scale and scope of the energy transition required. What will it look like? How fast should it proceed? Which technologies need to be accelerated to achieve the desired outcome? To help answer these and provide a perspective on the transition, my colleagues in the Shell Scenario team have produced a scenario sketch of the journey forward, arriving in 2050 with a net-zero emissions energy system (NB: The pathway was formulated in late 2019 prior to the COVID-19 pandemic and therefore does not include the energy system disruption being seen in 2020).

From a policy perspective, the EU has been addressing the climate issue for at least 15 years, with the EU Emissions Trading System in place since 2005. The 2020 energy situation arises from the 2007 climate and energy package, which included three key targets:

20% cut in greenhouse gas emissions (from 1990 levels)
20% of EU energy from renewables
20% improvement in energy efficiency

The targets were set by EU leaders in 2007 and enacted in legislation in 2009. They are also headline targets of the Europe 2020 strategy for smart, sustainable and inclusive growth. Within this, the EU Emissions Trading System is the EU’s key tool for cutting greenhouse gas emissions from large-scale facilities in the power and industry sectors, as well as the aviation sector. The ETS covers around 45% of the EU’s greenhouse gas emissions. In 2020, the target is for the emissions from these sectors to be 21% lower than in 2005.

The year 2020 represents a halfway point from 1990 to 2050, during which 20% of the hard deployment work has been done, but with a number of key technologies available at scale that hardly existed or didn’t exist around the turn of the century. Solar PV and Electric Vehicles are two examples (although solar PV did exist in 2000, it was expensive and small scale). That leaves just 30 years for the remaining 80% reduction, which must also include bringing to scale several other technologies which are yet to be deployed in the EU. This is a tall order and the scenario sketch illustrates how extraordinarily stretching it will be.

The additional key technologies that must move quickly to scaled deployment are as follows;

Clean hydrogen production via electrolysis of water or removing and storing the carbon from natural gas;
Hydrogen fuel cell road transport for heavy goods (see chart below).
Carbon capture and storage in various industrial settings – e.g. steel, cement, petrochemicals.
Biomass power plants fitted with carbon capture and storage (as a negative emissions technology).
Air transport that utilizes hydrogen as a fuel – in the sketch first flights are imagined in the mid-2030s.
Advanced biofuels for planes, ships and heavy road transport (see chart below).
Grid scale electricity storage.
Electrification of light and heavy industry processes.
Use of hydrogen in homes for heating and cooking.
Some technologies that appear late in the sketch will need intensive development over the medium term. Hydrogen as a fuel for industrial facilities, but particularly iron ore smelting, is a good example.

On the assumption that development and demonstration of all the above proceeds rapidly, deployment kicks in for most during the 2030s. But in the 2020s the energy technologies that have been nurtured over the last twenty years must be accelerated. For example, by 2030 solar must be quadruple current deployment, wind nearly triple current deployment and nuclear must be growing again, not declining.

In the 2030s the really hard work starts, with carbon capture and storage moving from first demonstration in the EU by 2025 to 40 medium sized facilities (one million tonnes CO2 stored per annum) by 2030 and over 100 by 2035. New technologies such as hydrogen fuel cell trucks must become ubiquitous during the 2030s, with at least 600,000 vehicles on the road by the end of that decade.

All of the above will require both technology development incentives and deployment policies. The analysis assumes a rising carbon pricing mechanism – whether explicit or implicit – to more than €200 per tonne of CO2 equivalent by 2050 to deliver and sustain the emission cuts and CO2 management necessary for the EU to reach climate neutrality. But even the EU ETS will need to change, as I discussed in a recent post.

While carbon pricing is an efficient lever for reallocating resources and driving behavioural change, it will not be enough on its own. A sectoral approach to policy which brings clean technologies, fuels and products to market, as well as their deployment and diffusion at scale, must urgently be developed. It is essential that policy should help provide consumers and businesses with low-carbon alternatives to adopt.

In the sketch, 2050 marks a point of climate neutrality for Europe, helped by the development of large scale carbon sinks through reforestation. But this isn’t the end of the transition, merely a point of significance. The hydrogen economy will continue to grow, electrification of industry will expand and efficiency gains will continue to be made. As was illustrated in the Sky Scenario, Europe will likely shift to become a net-negative emission economy during the second half of the century, a necessary requirement to ensure global net zero emissions and a 1.5°C limit on warming.

Download the EU Sketch here.

What to make of Article 6 at COP25?

dchone December 18, 2019

I spent a week at COP25 in Madrid, with great hope that the negotiators would land the Article 6 text and complete the so-called Paris ‘rule book’. Unfortunately it wasn’t to be the case and the longest COP to date was closed with little to show for the immense amount of effort that was put into it, from the Chilean Presidency, the Spanish hosts and the thousands of attendees. But the COP didn’t end with nothing, in that we do have near completed text for Article 6, albeit entirely bracketed, reflecting the lack of final agreement. Brackets are normally used to surround individual words or short passages of text that remain contentious, but in this case they surrounded the Article 6 guidance in its entirety.

In a world where there is increasing pressure (and need) to get to an effective state of zero emissions, the ability to use the market to deliver such outcomes by “trading” emission reductions and sinks between countries and sectors, becomes critical. I illustrated this in a recent post which stepped through the transition illustrated below.

Despite a goal of zero, 300 units of CO2 emissions still remain in hard to abate sectors.

Article 6 delivers an overall reduction, with a net-zero emissions outcome.

The final Madrid text reflects a great deal of effort by the Parties, albeit many of the same issues resurfaced during the discussions and highlighted the differing perspectives, and understanding, of Parties on the role and application of Article 6. This will require all Parties to work hard to bridge differences to see an agreement in 2020.

The entirely bracketed Article 6.2 text looks very good in that it covers the key requirements for a transfer. The definition of the internationally transferred mitigation outcome (ITMO) is sound and importantly includes removals, a clear requirement over the longer term and a necessity for net-zero emissions (see above illustration). The guidance on corresponding adjustments adopts a carbon budget approach to the methodology, which provides the highest standard for environmental integrity of the transfer. The text also provides for Article 6.4 emissions reduction units (6.4ERs) to be transferred via this process.

The 6.2 guidance asks participating Parties to cancel some ITMOs to ensure overall mitigation in global emissions, but importantly this is not a requirement for use of the process. In some instances it may be practical for participating Parties to agree on such a step, but in others it is unlikely to happen. For example, the net flow of allowances between two linked emission trading systems (e.g. Switzerland and the EU) will be an ITMO relative to the respective Nationally Determined Contributions (NDC) within which the trading systems sit, but deciding which allowances to remove from the system when hundreds or even thousands of private entities might be involved is both impractical and self-defeating for the link, in that if there is a penalty for trading with a cross-border entity against a domestic entity, then domestic trades will prevail and the synergy of the link will be lost.

Despite the big brackets and the meeting of the Parties to the Paris Agreement (CMA) only noting the guidance on Article 6, it is very likely that the 6.2 text will be used by Parties as it currently stands. Switzerland and the EU may well be the first Parties to do so as they link their respective trading systems from 1.1.2020. Use of the current 6.2 text may also help legitimize it in the case of the CMA never actually agreeing it.

While the 6.2 guidance was largely (but not completely) without contentious points within the bracketed text, this was not the case for 6.4, where many of the issues going into the COP remained unresolved as it finally closed on Sunday, resulting in the big brackets around everything – remember, in UN parlance, nothing is agreed until everything is agreed. Unlike 6.2 transfers where Parties can simply start using the text on a bilateral basis, this cannot be the case for 6.4 because it is a centrally administered mechanism with a supervisory body, which cannot exist until all Parties agree to the text. So while there is text that looks to be complete, we are still some distance away from it being agreed and the mechanism beginning to function. This means that some countries looking for foreign direct investment through the mechanism as a means of achieving mitigation will have to wait. It may also mean that they pursue other energy infrastructure projects which could lead to lock-in of a higher emitting system. Nobody wins through such a delay.

Some of the points that remain to be agreed in 6.4 are also issues that shouldn’t really be open for debate; not in a world looking for a successful implementation of the Paris Agreement.

The issue of actions taking place outside the bounds of the NDC is one, when in reality the NDCs need to quickly shift to cover all emitting activities. This should be the first requirement for the agreement that was reached in Madrid that all NDCs are resubmitted next year. As such, there would be no actions taking place outside the bounds of the NDC, which makes the provision entirely superfluous.
A second issue is related to the transition of remaining units (CERs and AAUs) from the mechanisms of the Kyoto Protocol, with the request from some Parties that they can be utilized and transferred under the Paris mechanism. For existing projects with future issuance, this shouldn’t be an issue in that any use of the units will be balanced by the necessary corresponding adjustments required under the transfer process of 6.2, although some Parties argued that these projects are outside the scope of current NDCs, to the extent that corresponding adjustments wouldn’t be required. But for vintage units there is a clear reason not to allow future use which sits in the IPCC Special Report on 1.5°C. That report established the current level of warming and reset the carbon budgets for various levels of future warming, with a 1.1.2018 baseline. For example, limiting warming to 1.5°C with a 67% chance has a carbon budget of 420 Gt from 1.1.2018. The Paris Agreement is increasingly being formulated around the finding of the report. As such, events prior to that date are now irrelevant, including any units that may have been created.

There was still no agreement on a share of proceeds from the use of Article 6.4 or on how an overall mitigation in global emissions is determined, key issues for some Parties that reflects the importance of demonstrating the potential of trade to deliver emissions reductions. A simple analysis of the use of Article 6 shows that it alone delivers mitigation that wouldn’t otherwise occur, as I illustrated in the recent post referenced above. Unfortunately, some negotiators didn’t see this point and the call for surrender of units continued, with a minimum haircut of 2% appearing in the bracketed text. Penalties such as this will do nothing to promote the use of the mechanism, but only deter investment.

So there we have it, a fortnight of negotiation that very nearly resulted in a good Article 6 ‘rule-book’. But it didn’t and that is unfortunate for all concerned, but particularly for the successful implementation of the Paris Agreement. Let’s hope that Parties can quickly reconvene around the final Madrid text and bring it to a conclusion, perhaps even before COP26 in Glasgow, in that the formulation of mid-century development strategies and more ambitious NDCs for that COP is in part dependent on the availability of Article 6 transfers.

An Article 6 Case Study: Brazil

dchone November 14, 2019

In a recent post I illustrated how Article 6 of the Paris Agreement might work in practice, using a small set of archetype countries as shown below. While there are many ‘Country A’ examples, it is more difficult to think about what sort of economies come close to ‘Country B’. Brazil could well be such an example.

Brazil is rich in renewable energy, it has a mature biofuel industry that could doubtless move towards new biofuel processes as they emerge and it certainly has vast potential for developing carbon dioxide sinks through reforestation and afforestation in the Amazon area of the country. Although it isn’t at zero emissions as illustrated in the diagram, the major current use of fossil fuels is oil for transport, which could diminish significantly through electrification, leaving a near zero emissions economy. In Brazil, industry makes considerable use of biomass for energy.

One would therefore imagine that Brazil could make considerable use of Article 6 of the Paris Agreement and generate real benefit for the domestic economy. But just how significant might this be for Brazil?

A recent analysis by the University of Maryland, underwritten by the International Emissions Trading Association (IETA) and the Carbon Pricing Leadership Coalition (CPLC), models the impact of Article 6 on the global implementation of the Paris Agreement. The study finds that the potential benefits through cooperation under Article 6 in achieving the Nationally Determined Contributions (NDC) are considerable and all parties could benefit. Potential cost reductions over independent implementation of countries’ NDCs total about $250 billion per year in 2030, although this number rises to $320 billion when Article 6 includes trade in carbon units related to land use change. This would appear as the sale of carbon removal units (or sinks) as a result of forestry and other land use change activities. Cost reductions from cooperative implementation are achieved through improved global economic efficiency and effective sourcing of the lowest cost mitigation opportunities. It should also be noted that the cost and benefit number produced are model outputs, which should be obtainable under perfect economic conditions akin to the model parameters, but otherwise are representative of the direction and scale of change that will be seen for the scenarios they represent.

2030 Potential Article 6 Reduction in Cost (Billions 2015 USD/year)
	Reduction in Cost	Increased Ambition
Fossil Fuels Only	$250 billion	5 Gt CO₂ per year
Land Use Only	$70 billion	4 Gt CO₂ per year
Combined Impact	$320 billion	9 Gt CO₂ per year

Modelling results show that land use policies are important for the cost-effectiveness of climate change mitigation. The comprehensive approach of integrating terrestrial and energy systems could further lower the cost of meeting the same mitigation target, consistent with findings of other studies. Meanwhile, the potential sellers and buyers in the virtual carbon market change depending on whether land-use mitigation measures are included or not.

Within the analysis there is the opportunity to look at a country such as Brazil and get some indication of the benefits for that country should Article 6 be fully implemented and then used to its maximum potential. With the inclusion of nature based solutions, Brazil, along with countries in similar latitudes in Africa, becomes one of the largest sellers of carbon units through to 2050, with China flipping to become a buyer.

The table below, extracted from the University of Maryland study, explores in more detail the implications of the inclusion of land-use mitigation measures for Brazil and the use of them under Article 6. In the fossil fuels and industry only scenario, Brazil is shown to be a marginal seller until 2025 and then switches to become a buyer after 2030. The inclusion of land-use mitigation measures under Article 6 contrasts sharply with this scenario. Brazil takes on the role of a prominent seller in the international carbon markets, which increases over time (as opposed to the decreasing trend in the fossil fuels and industry only scenario). Associated financial gains are also significantly larger and increase over time, as shown in the table.

International trade for Brazil through Article 6 (positive = seller; negative = buyer)
	2020	2025	2030	Units
Fossil Fuels Only	0.05	0.017	-0.049	Gt CO₂
Fossil Fuels Only	0.66	0.49	-1.88	US$ Billion (2015)
Fossil Fuels and Land Use	0.582	0.823	0.932	Gt CO₂
Fossil Fuels and Land Use	1.62	8.46	18.41	US$ Billion (2015)

The financial benefits associated with Article 6 cooperation, especially with the inclusion of land-use mitigation measures, are reflected in the GDP gains showed in table below.

Net GDP change for Brazil through use of Article 6 **
	2020	2025	2030	Units
Fossil Fuels Only	0.38	0.22	0.42	US$ Billion (2015)
Fossil Fuels and Land Use	1.61	8.27	17.66	US$ Billion (2015)

** Note that here are always gains in GDP growth as a result of Article 6 cooperation on NDC achievement but gain for Brazil are expected to be much larger as a result of the inclusion of nature based solutions under Article 6.

The University of Maryland analysis clearly shows the benefits of Article 6, but importantly it brings into context the scale of change that emerges for some countries when nature based solutions are incorporated within the carbon markets that will operate under Article 6. In the case of Brazil and the potential it has to develop these natural carbon sinks, the benefits rise towards US$20 billion per year by 2030, which could bring considerable economic growth to the Amazon region and encourage landholders to look at reforestation options. However, that potential can only be unleashed if Article 6 is designed to incorporate nature based solutions when the national negotiators sit down at COP25 in Madrid to finalize the rule book.