The COP26 global climate summit wrapping up this week in Glasgow has called attention to how close we are to a climate tipping point that could devastate the planet. The attention – plus a call for standardized rules to govern global carbon markets – will generate a flurry of demand for carbon credits, which allow companies to offset their emissions by paying other organizations to reduce emissions and eliminate carbon from the atmosphere.
It will also make obvious the demand and supply challenges carbon markets are facing.
In the voluntary carbon markets, demand-side challenges include a lack of clarity as to what constitutes carbon removal versus reduction or avoidance offsets. It’s common to talk about voluntary carbon offsets as a homogenous lot, but this is misleading. Though each offset type has its place, there are big differences between offsets that reward reductions or avoidance of emissions, and those that reward net removal of CO2 from the atmosphere – what’s known as negative emissions.
For instance, when a company buys a reduction or avoidance offset, a ton of CO2 is not emitted somewhere, but the buyer will still emit a ton. That results in a positive emission overall. With carbon removal, when one ton of CO2 is emitted, one ton is removed completely from the atmosphere. Removals tend to be more expensive, as there is less availability and projects require a lot more upfront investment. Reduction or avoidance offset prices presently stand at $3-5 per ton of CO2, while removals fetch from $20 to $600 per ton.
There are further distinctions to be made within the carbon removal category, which is comprised of three distinct types:
· nature-based offsets, such as afforestation and soil carbon
· engineered removal, such as direct air capture of carbon which is then stored in geological structures
· biomass-based engineered removal, where biomass is processed and the captured carbon is stabilized into some form of durable storage, such as biochar, wooden building elements, soil amendments and BECCS (bio-energy carbon capture and storage).
Attributes such as durability and carbon net-negativity must be made clear so we can compare apples with apples. This valuable work is currently being carried out by carbon standard setting organizations, such as Puro.earth, which create science-based methodologies for specific carbon removal types. At Puro.earth, we have created the CO2 Removal Certificate, or CORC, a verified carbon removal credit that represents a ton of CO2 removed.
Corporate and institutional buyers also need easy access to the right carbon credits if they are to reach net zero. A more fluid market for carbon removal, where buyers can easily find credits and reliable project information in marketplaces and exchanges, needs to be further developed.
Carbon offsets are already in high demand and that will only increase after COP26. But the supply of mature carbon-negative projects is not ready to meet it. One reason: carbon removal projects often struggle to access the upfront funding they need to get started. Many are entrepreneurial activities that need demand signals for their carbon removals, in the form of contracted long-term offtake commitments, before they can be built or increase capacity. Strong demand signals from the buy-side can help carbon removal offset suppliers secure the funding to start their projects and increase supply of quality credits.
Corporations should commit to buy future carbon removal just as they make early commitments to green energy producers to secure a future supply of renewable energy. Of course, projects may also need support in the form of equity investment and debt finance, but for investors and banks, future carbon credit revenue is a key variable in their decision.
In addition to our marketplace, Puro.earth has just launched an initiative to remedy these demand and supply challenges. The Pre-CORC Framework is a service to match early-stage high-quality carbon removal projects with corporate offtakers who want to secure their supply of negative emissions.
Carbon removal projects can now get commitments for the future CORCs generated by new facilities and sites, or expansion of existing ones. That gives them visibility into future revenue, which can help in raising equity and debt. Buyers get to hedge price volatility and manage risk in their offsetting and removal portfolios. Most importantly, we hope to accelerate the pace of the voluntary carbon removal market and provide corporate and institutional buyers a way to secure a future supply of negative emissions to fulfill net zero pledges.
The Pre-CORC launch includes 13 projects in nine countries. Together, they are projected to remove 300,000 tons of CO2 via four methodologies, including biochar and carbon stored in wooden building elements. The platform is open to new projects.
In an ideal world, as COP26 wraps up, we would be ready to remove emissions forever via permanent storage. We are not yet there. What we do have, however, is more solutions than ever with great potential to be accelerated.
ESG and sustainability managers rethink every building block of their business models, starting from their main value propositions, channels, resources, cost structure, etc. with an eye towards cutting emissions. As they do so, they can build a parallel portfolio of carbon removals to get the projects started now. By sending a clear demand signal, institutional buyers can accelerate carbon removal projects that can help the world reach net zero.
Elba Horta is Head of Communications at Puro.earth, the leading B2B marketplace, standard and registry focused solely on carbon removals. We help voluntary corporate buyers mobilize carbon removal at an industrial scale, so the world can reach the potential of removing 10 Gigatons of CO2 a year by 2050. Puro.earth provides carbon removal as a service, by identifying projects, verifying them, issuing CO2 Removal Certificates (CORCs) and partnering with buyers to create a long-term procurement portfolio to reach net zero. Aiming at climate and economic impact, Puro.earth is driving forward a global market of carbon negative industries, enabling a new revenue stream to help them scale rapidly. Nasdaq has acquired a majority stake in Puro.earth.