Category: Net zero emissions

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

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.

Reflecting on the IPCC Synthesis Report through new Shell scenarios

dchone March 23, 2023

After a year of work, with a few hints along the way offered via this blog, the Shell scenarios team launched The Energy Security Scenarios this week. This is the team I am proud to be a member of and our new scenarios offer a very different perspective on the world in a time of challenging circumstances. With an almost identical release date, the IPCC 6^th Assessment Synthesis Report also landed this week. The scenarios also offer a new lens through which to view the IPCC findings.

The Energy Security Scenarios are built on the foundation of a world in which a security mindset is becoming pervasive, be it national security based on military threats, energy security following a year of supply disruption and price volatility, economic security as we watch the banking system being challenged by some defaults or climate security as the global average surface temperature continues to rise and impacts are becoming more visible. How countries respond to energy price volatility and supply disruption is highly variable, but nevertheless a pattern has emerged that ties together disparate responses such as India buying Russian crude oil and the USA pumping billions of dollars into direct air capture. These behaviours form part of an archetype framework that underpins our new scenarios. This foundation also offers some colour to the energy story we tell, with our archetypes classified as Innovation Wins, Green Dream, Surfers and Great Wall of Change.

Two key drivers shape the stories that we explore, notably the call at COP26 in Glasgow to deliver net-zero emissions globally by 2050 and deep cuts in emissions by 2030 and the response to the Russian invasion of Ukraine which has stressed the global energy system over the past twelve months. As a result, two new scenarios emerge which embrace both drivers, but prioritise them differently as the world moves forwards. We look out not just to 2030 or 2050, but all the way to 2100 and even draw one surprising conclusion about what the 22^nd century has to offer. These are stories that describe a world locked in an energy transition not only driven by cooperative change as called for by many, but instead trending towards a world of more intense competition as countries seek to shore up their energy system for the 21^st century. The scenarios are Sky 2050 and Archipelagos. Both scenarios see the energy transition accelerating, but at different paces. In Sky 2050 climate security is the priority, whereas in Archipelagos there is more attention to ongoing energy security.

Highlighting the increasing pace of the transition is the recognition of an inflection point in this decade as fossil fuels begin to lose market share in primary energy, finally shifting away from the 80% role they have played for many decades. The pace in Sky 2050 is about twice that of Archipelagos, but both represent a trend break.

Meanwhile, the IPCC is very focussed on the diminishing carbon budget and the rapidly narrowing opportunities for limiting warming to 1.5°C. In the Synthesis Report they broadly conclude that action will be insufficient to contain warming below 1.5°C in the near term, which points to an overshoot outcome and therefore the need to recover the situation later in the century. This is similar to the pathway visible in Sky 2050, which does see global emissions start to fall in the 2020s and net-zero emissions reached in 2050, but nevertheless the surface temperature rises above 1.5°C in the mid-2030s. However, a burgeoning new direct air capture industry, borne out of initiatives such as the Inflation Reduction Act in the USA, appears in Sky 2050. It grows to such an extent than in combination with extensive change in land management practices, from forestry to farming, as much carbon dioxide is removed from the atmosphere between 2050 and 2100 as has been added from now to 2050. The result is that by 2100 surface temperature warming in Sky 2050 has returned to today’s levels, with the potential for climate restoration during the 22^nd century.

The IPCC make the case that only a drastic reduction in near term emissions can avoid passing 1.5°C, with CO2 emissions needing to fall by 48% by 2030 relative to 2019 levels. These numbers will become higher with each passing day that emissions do not reduce. The table below comes from the Synthesis Report released on Monday and outlines what must happen in the seven years to 2030, then to 2035, 2040 and 2050.

Source: IPCC 6th Assessment Report – Synthesis

In The Energy Security Scenarios we do not see the scope for such large near term action reductions, with Sky 2050 achieving a reduction of around 12% by 2030. In Archipelagos emissions are higher in 2030 than in 2019. Although the Synthesis Report calls for immediate reductions, the IPCC note that of their modelled scenarios, only a small number of the most ambitious global modelled pathways limit global warming to 1.5°C by 2100 without exceeding this level temporarily. The IPCC state the following:

Global warming will continue to increase in the near term (2021-2040) mainly due to increased cumulative CO2 emissions in nearly all considered scenarios and modelled pathways. In the near term, global warming is more likely than not to reach 1.5°C even under the very low GHG emission scenario (SSP1-1.9) and likely or very likely to exceed 1.5°C under higher emissions scenarios. In the considered scenarios and modelled pathways, the best estimates of the time when the level of global warming of 1.5°C is reached lie in the near term.

In the case of overshoot, i.e. temporarily exceeding 1.5°C, they also note that the application of large scale carbon dioxide removal (CDR) technologies and practices is required to progressively reverse the overshoot situation. However, they also note that any overshoot brings with it the added risk of long term irreversible changes in the global ecosystem.

In short, the Synthesis Report paints a concerning picture of the world exceeding 1.5°C and taking on the associated climate risks. While the report makes every attempt to say that the possibility of not doing so still exists, there is little solid content to argue that this is achievable, a finding backed up by the analysis presented in The Energy Security Scenarios. The temperature outcomes for Sky 2050 and Archipelagos are presented below. The assessments were made by the MIT Joint Program using their climate model and also reported with the release of the Shell scenarios. You can also explore the scenario data here.

The Energy Security Scenarios complement the IPCC Synthesis Report well in that Sky 2050 sets out a very clear and unambiguous pathway to 2100, that both recognises the near term prospect of overshoot and the steps to take to more than redress the situation. By contrast, Archipelagos sets out a plausible pathway forward based on current tensions, but also shows that even under trying circumstances the world may find that 2.2°C is now the upper maximum for warming. While 2.2° is not considered safe territory by IPCC, the Archipelagos outcome is well positioned at the lower end of the range of outcomes that IPCC consider, which exceed 4°C in the worst case. Archipelagos is a story of global political headwinds buffeting the transition, but not to the extent that it slows in comparison with today. Quite the opposite – the pace increases as security concerns and competition drive the system away from fossil fuels.

You can find more on The Energy Security Scenarios here, which I would encourage readers to explore. But if you don’t have the time right now, this short video introduction may be of interest.

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.

A chat with ChatGPT about emissions mitigation

dchone January 12, 2023

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

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

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

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

I started with posing a simple question;

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Happy New Year!

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.

Refreshed climate ambition from two key countries

dchone September 23, 2022

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

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

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

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

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

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

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

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

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.

Article 6: The importance of the corresponding adjustment

dchone December 13, 2021

With COP26 behind us and the Article 6 rule book complete, attention should turn to operationalising Article 6 and particularly the transfer process that is detailed in 6.2 but applies to 6.4 units when they are created. There is real enthusiasm for getting 6.4 up and running, but there is also concern about the environmental integrity and inherent ambition associated with the units created. The ambition discussion emerged at the time of the Paris Agreement and is embodied in 6.4(d) which requires delivery of an overall mitigation in global emissions. That in turn has resulted in an automatic 2% retirement of all 6.4 units that are created.

With a focus on ambition, we therefore might expect greater scrutiny over the selection of projects, the baselines chosen and the verification process. Certainly these were important aspects of the process surrounding the Clean Development Mechanism of the Kyoto Protocol (CDM). But Article 6 functions differently to the CDM, with one critical extra requirement – the corresponding adjustment. I have described this in several earlier blogs, but in short it functions as shown in the chart below;

In the example country A attracts inward investment for an avoided emissions wind project and exports 100 units to country B, which needs to reach net-zero emissions but has no further local abatement opportunities to call on. Under the transfer provisions of 6.2 country A adjusts its nationally determined contribution (NDC) accounts by 100 units as a corresponding adjustment for the sale, but then must take enhanced domestic action to maintain its net zero emissions NDC goal. In the example this comes in the form of additional natural sinks for which it has abundant potential. The difference with the CDM is that the last step would not have taken place.

The important action here, other than the investment that delivers energy infrastructure to country A, is the corresponding adjustment and the subsequent domestic actions it triggers. It is perhaps more important than a focus on the project itself.

Project verification leading to the issuance of emission reduction units (ERU) focuses on numerous factors, but the stringency of the chosen baseline was always important in the CDM. A generous baseline, for example arguing that the national alternative to wind was coal when in fact natural gas was the more likely outcome, would mean more reduction units being issued and a potentially larger carbon trading income for the project. But it also meant more units being sold into the international market, possibly undermining global ambition.

In the Article 6 process, a generous project baseline may result in an ‘own goal’ of sorts. When a project is set up under Article 6.4 it creates an economic incentive for the project in the form of carbon unit income, but at the same time it creates an economic liability for the host country due to the additional domestic actions that must be taken to balance the NDC. How governments ultimately deal with this liability remains to be seen, but allowing excessive credit issuance will likely be a non-starter as this will simply deepen the national liability to balance the sale made.

For quantified NDCs the corresponding adjustment rule is as follows;

Each participating Party with an NDC measured in t CO₂ eq shall apply corresponding adjustments pursuant to paragraph 7 above, resulting in an emissions balance as referred to in decision 18/CMA.1, annex, paragraph 77(d)(ii) of the annex to decision 18/CMA.1, reported pursuant to paragraph 23 of this guidance, for each year, by applying corresponding adjustments in the following manner to the anthropogenic emissions by sources and removals by sinks from the sectors and GHGs covered by its NDC consistently with this chapter and relevant future decisions of the CMA:

Adding the quantity of ITMOs authorized and first transferred, for the calendar year in which the mitigation outcomes occurred pursuant to paragraph 7 above;
Subtracting the quantity of ITMOs used pursuant to paragraph 7 above for the calendar year in which the mitigation outcomes are used towards the implementation and achievement of the NDC, ensuring that the mitigation outcomes are used within the same NDC implementation period as when they occurred.

The above offers a very transparent approach to the adjustment, but of course not every country will have a quantified NDC. Where the basis of an NDC is policies and measures, then the rule shifts;

. . . to the anthropogenic emissions by sources and removals by sinks for those emission or sink categories affected by the implementation of the cooperative approach and its mitigation activities and by those policies and measures that include the implementation of the cooperative approach and its mitigation activities . . . .

Adding the quantity of ITMOs authorized and first transferred, for the calendar year in which the mitigation outcomes occurred, pursuant to paragraph 7 above;
Subtracting the quantity of ITMOs used pursuant to paragraph 7 above for the calendar year in which the mitigation outcomes are used towards the implementation and achievement of the NDC, ensuring that the mitigation outcomes are used within the same NDC implementation period as when they occurred.

Emissions accounting and corresponding adjustments on the above basis is more challenging than via explicit carbon budgets and may not be purely quantitative in nature in that a qualitive decision will need to be made in defining the scope of the categories and activities affected. Over time we may see Article 6 being a catalyst for change in NDC structure, with countries that wish to attract project investment and engage in ERU export shifting to quantified NDC and the transparency that they bring. This gives greater certainty to receiving countries that the transaction has not somehow increased global emissions. Ultimately that puts the world on course for more rigorous carbon budget management, which is where we need to be to meet the goals of the Paris Agreement.

Arguably the environmental integrity of Article 6 sits more with the corresponding adjustment than with the project itself and its verification. Provided the adjustment is transparent and the change is balanced by other actions by the host country, then the integrity of the project is less important than would otherwise be the case. It may transpire that receiving countries accept units more on the basis of how the corresponding adjustment is executed than on the precise baseline and emission reductions achieved by the project. It also means that verifiers may need to shift their approach from local analysis of a project to a broader look at the NDC, its reporting and the way in which the host country counts emissions.