Carbon capture and storage (CCS) involves capturing carbon dioxide (CO₂) and storing it underground in geological formations, preventing its release into the atmosphere. It is crucial to significantly reduce atmospheric CO2 levels and meet the Paris Agreement's objectives. This article will look into the future of carbon capture and storage technology in carbon markets in light of the IEAGHG technical report 2023.
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Carbon Capture and Storage and its Role in Carbon Markets
Carbon capture and storage technology produces carbon credits by capturing carbon dioxide from power plants and industrial processes and storing it underground to decrease emissions. Each carbon credit is equivalent to one ton of carbon dioxide or an equivalent amount of another greenhouse gas that has been reduced, avoided or sequestered.
Carbon markets are platforms where companies can gain revenue or achieve their emission reduction goals by purchasing or selling these carbon credits.
Types of carbon markets
Carbon markets are categorized into two types: compliance and voluntary markets.
Compliance markets are established in response to international, national, or regional policies or regulatory mandates. On the other hand, voluntary carbon markets, international and national, involve the issuance, purchase, and sale of carbon credits voluntarily.
Voluntary carbon credits are primarily generated by governments or private companies that develop carbon programs leading to emission removal or reductions. Demand for these credits is mainly from private individuals looking to offset their carbon footprints, organizations with sustainability goals, and other stakeholders looking to profit by trading credits at a higher price.
The emissions trading system (ETS) is a typical example of a compliance market where businesses or countries, such as the European Union, are regulated and issued permits for their emissions or pollution. The system works on a cap-and-trade principle, where polluters who exceed their permitted emissions must purchase additional permits from the carbon market.
Another well-known example of a global compliance market is the clean development mechanism (CDM), implemented as part of the Kyoto Protocol in 1997. Carbon credits from emission-reduction initiatives in developing nations under the CDM have been used by developed nations to partially achieve their emission-reduction targets.
Carbon Capture and Storage and International Cooperation
The Paris Agreement is an international treaty that aims to keep global warming below 2 °C and preferably to 1.5 °C. It also strives to enhance each country's capacity to deal with the consequences of climate change while functioning as a support system to help achieve national objectives.
Article 6 of the Paris Agreement enables countries to work together to achieve global emissions reduction goals by employing international carbon markets. It permits the transfer of emission reductions between countries and establishes a framework for the worldwide balancing of greenhouse gas emissions.
Implementing various low-carbon technologies, such as carbon capture and storage, must be accelerated to achieve the Paris Agreement goals. Although carbon capture and storage technology has been widely recognized as a significant climate technology for the past two decades and heavily featured in Paris-aligned global mitigation strategies, it has yet to achieve the expected scale-up.
The Paris Agreement's initiation presents an opportunity to reevaluate the available incentives and financing for the technology and implement innovative solutions that could influence a renewed global push to deploy carbon capture and storage technology in the coming years.
Approaches to Integrate Carbon Capture and Storage in Carbon Markets and International Cooperation under Paris Agreement
Different approaches to international cooperation under Article 6 can support the deployment of carbon capture and storage technology, such as carbon crediting or emission trading in voluntary carbon markets, compliance markets, collaboration with fossil fuel suppliers and producers or government-to-government transfers of mitigation outcomes outside of market-based mechanisms.
There have been suggestions for carbon capture and storage-specific strategies, such as implementing a carbon storage unit (CSU) as a transferable mitigation outcome and an offsetting supply-side strategy.
A carbon storage unit would reflect the amount of carbon dioxide stored instead of being measured as emission or emission reductions. It could serve as the foundation for targeted international collaboration on geological storage.
The creation of two types of units, carbon reduction/removal units (CRRUs) and carbon storage units (CSUs), can supplement carbon pricing in the conventional carbon market. In addition, this approach can help to establish two points of compliance and encourage trades in carbon storage units.
Proposed Models for Carbon Capture and Storage Cooperation
Model 1: Linked carbon pricing policies between countries
The model involves trading carbon reduction/removal units earned by companies that capture carbon dioxide or reduce emissions, which can be traded between governments or companies for compliance or voluntary purposes.
Model 2: Voluntary system of storage targets for fossil fuel producers
This model employs an offsetting supply-side approach where leading independent energy companies voluntarily pledge to support carbon capture and storage. National carbon storage policies in certain countries could reinforce this.
It uses carbon storage units to encourage corporations and countries to voluntarily support carbon capture and storage deployment. Energy companies with net-zero ambitions would use carbon storage units to track progress and demonstrate zero emissions on the supply side.
A voluntary record would track carbon produced and deposited in the geosphere by acquiring and retiring carbon storage units.
Model 3: Multilateral "CCS club" of parties to the Paris Agreement
This model employs an offsetting supply-side approach where countries pledge to promote carbon capture and storage.
The focus is on countries making top-down pledges to store CO2 geologically. The implementation could start with financial transactions involving carbon storage unit transfers among a select group of countries.
This could evolve into Article 6 carbon storage unit transfers between members with specific carbon storage targets in their nationally determined contributions (NDCs).
Evaluating Carbon Capture and Storage Cooperation Models
The IEAGHG conducted a comparative assessment of the three models based on various criteria: effectiveness, financial and commercial viability, environmental integrity, policy performance, and progress. These criteria reflect the objectives of international cooperation and the challenges associated with carbon capture and storage implementation.
Supply-side offsetting strategies based on carbon storage units running concurrently with traditional carbon markets could successfully promote coordinated measures for the long-term carbon capture and storage of CO2.
A quantitative analysis of the pledges made by significant independent energy companies indicates that this strategy may result in over 1 GtCO2 being stored in 2050 (Model 2). In addition, a country-led approach could increase this number to almost 4 GtCO2 (Model 3).
While these estimates are lower than the projected carbon storage tonnages in 2050 for net-zero scenarios (7.2 GtCO2), they provide a more promising basis for progress in this direction than the current state of global carbon markets (Model 1).
Without targeted measures to promote carbon storage, it is uncertain if carbon capture and storage will be widely adopted through traditional carbon markets until at least 2030. As a result, the supply of credit market units could continue to be dominated by activities that reduce emissions and conserve sinks, such as waste management, renewable energy deployment, and energy efficiency.
Nationally determined contributions (NDCs) pledges that deviate from business-as-usual emissions levels could generate large volumes of tradeable outcomes based on avoided emissions rather than removals or storage.
Lastly, offsetting supply-side strategies can resolve NDC progression issues, address commercial carbon capture and storage challenges, and ensure strong sectoral alignment in policy design.
Concluding Remarks and Future Outlooks of CCS
The report examined three models for international cooperation under the Paris Agreement to determine the effectiveness of carbon capture and storage in carbon markets. The first model represents the common climate policy approach, while the other two are newer ideas that are gaining attention from various stakeholders but have not yet been implemented.
It is unclear if market-based processes without technology dependence could provide considerable CO2 geological storage (Model 1). Moreover, evidence suggests that such mechanisms are ineffective in implementing expensive climate change mitigation technology, such as carbon capture and storage.
The evaluation of Model 1 shows high levels of uncertainty, even though carbon prices are expected to rise over time and encourage investment in carbon capture and storage technology. However, carbon markets could promote the deployment of lower-cost carbon capture and storage projects in the short term, but environmental integrity concerns may exist in crediting such activities. In addition, addressing integrity concerns with certain adjustments may not be effective if the NDC is not ambitious enough.
Carbon storage unit-based policies under Models 2 or 3 can supplement efforts to ensure CO2 is stored geologically via carbon capture and storage technology. The evaluation suggests that a top-down, country-led approach (Model 3) could be more effective because it involves national energy companies instead of Model 2.
Adopting storage targets across multiple countries under Model 3 could be challenging, while Model 2, supported by a few leading nations putting supportive policies into place, may be easier to accomplish.
It is unclear whether a CSU mechanism will be implemented; some may see it as unnecessary or a way to continue using fossil fuels. This is due to knowledge gaps and a limited understanding of various carbon capture and storage technologies. Enhancing knowledge and experience would reduce uncertainty and facilitate decision-making about carbon capture and storage deployment for climate change mitigation.
The Paris Agreement's Article 6 lays forth a framework for international collaboration, including using carbon markets to help developing nations achieve their emission-reduction goals. This offers an opportunity to expedite the deployment of carbon capture and storage technology and enhance its commercial viability.
Implementing carbon capture and storage technology is crucial in reducing greenhouse gas emissions for achieving the Paris Agreement's objectives and net zero by 2050. However, with increased usage of alternative energy sources, the requirement for such a system would gradually decline.
Continue Reading: What is the Paris Agreement and Why is it Important?
References and Further Reading
Neades, S. (2023). New IEAGHG Technical Report: 2023-01 Integrating CCS in International Cooperation and Carbon Markets under Article 6 of the Paris Agreement. [Online]. IEA Greenhouse Gas R&D Programme. Available at: https://ieaghg.org/ccs-resources/blog/new-ieaghg-technical-report-2023-01-integrating-ccs-in-international-cooperation-and-carbon-markets-under-article-6-of-the-paris-agreement (Accessed on 18 February 2023)