ImpactAlpha, Nov. 3 – ‘Keep it in the ground’ has long been a rallying cry for climate activists. A new company is creating an economic incentive for oil and gas producers to permanently shut down their wells.
“The most valuable barrels may be those that are never extracted,” said Martijn Dekker of ZeroSix, which is launching today.
The company is creating carbon credits backed by such shuttered oil and gas wells and aims to reduce emissions from fossil fuel production by a gigaton each year. (The name combines net-zero with the six protons that make up the nucleus of a carbon atom.)
As a senior executive at Shell in Houston, Dekker was responsible for the oil major’s digitalization, carbon offsets, carbon capture and hydrogen efforts. He teamed up with colleagues spearheading Shell’s blockchain efforts. Together, they saw an opportunity to satisfy demand for high-quality credits in the voluntary carbon markets while giving fossil fuel producers a reason to phase out production.
“People have been saying for a long time we need to stop producing oil and gas, but it hasn’t happened,” said Dekker. “So we said, ‘Let’s create a mechanism to make it happen.’”
ZeroSix will only issue carbon credits for proven reserves and producing wells that would have otherwise resulted in extracting, refining, and burning of the oil or gas. Dekker is mindful of the greenwashing charges surrounding some carbon credits: ZeroSix’s credits can claim to have the much-coveted “additionality.”
The credits will be independently verified and tracked and certified on the Energy Web Chain, a public blockchain created by the energy industry. ZeroSix, which will take a 15% cut of carbon offset sales, plans to debut its technology platform by year end.
Burning the world’s reserves of fossil fuels would generate more than 3.5 trillion tons of greenhouse gas emissions, seven times more than the remaining carbon budget to keep warming below 1.5 degrees Celsius – and more than all emissions produced since the industrial revolution, according to the Global Registry of Fossil Fuels.
At least 60% of those reserves would become “stranded assets” under any effective global climate policy. But the energy-supply crisis gripping the globe has spurred an increase in oil, gas and coal production.
The vast majority of the more than 900,000 hydrocarbon-producing wells across the U.S. are low-quality, inefficient and produce small amounts of oil. These wells contribute just 0.2% of oil and 0.4% of gas production, yet account for a disproportionate 11% of annual oil and gas methane emissions. Their early retirement could avoid one gigaton of CO2 equivalent per year, more than the annual emissions of Germany, says ZeroSix.
These smaller wells are often not well maintained, and many states do not require them to flare or capture their emissions, making them among the most polluting. Well operators often keep them going to avoid the expense of capping them, which can cost $20,000 or more. These smaller operators are ZeroSix’s first target.
“A lot of people keep producing, even though they are barely economic, just to defer the abandonment liability,” says Dekker.
The carbon credit revenue generated by permanently shutting their wells, which Dekker estimates will fetch $10 to $20 per ton of CO2, could provide small producers the impetus they need to take action. ZeroSix is working on pilot projects with producers in Colorado and California to demonstrate the concept, and is looking to introduce more producers and offset buyers to the idea.
And what about big oil producers like Exxon, or Dekker’s old company, Shell?
Many of the big producers have already sold off their low-performing assets, often to private companies that operate without public scrutiny.
“Selling it to another operator actually doesn’t solve the problem. It just makes your books look better,” says Dekker. “If they’re really serious about it, they should think about following our protocol, actually retiring them and putting their credits to good use.”
“But we’re not there yet,” he says, before pausing. “Or, they’re not there yet.”