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Carbon markets: Which role does biomass play?

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Although compliance and voluntary carbon markets vary in scope, mechanisms and participants, biomass occupies a unique place. In compliance carbon markets such as the EU ETS, participants are obliged to monitor and report their emissions and ultimately pay for them. Using biomass in industrial facilities can allow for reduced financial burdens. Regulators set rules around biomass use and sustainability criteria to comply with. A large part of voluntary carbon market credits is generated by nature-based solutions, including forestry and other biomass-related projects. These projects are however under intense scrutiny due to issues regarding transparency and associated climate claims. Novel carbon removal solutions with biomass as feedstock show promising development and renewed regulatory oversight could restore trust.

Which CO2 and which carbon markets?

To assess the relevance of carbon markets for biomass and vice versa, requires an understanding of different types of emissions and how carbon markets account for them. The sources of CO2 emissions and their final sink can be categorized into four main pathways (Figure 1).

  • Unabated carbon emissions from fossil sources add emissions to the atmosphere (grey and black)
  • Abated emissions from fossil sources through carbon capture and storage (CCS) with long-term storage might not add additional GHG emissions to the atmosphere (purple)
  • Negative emissions through nature-based or technological carbon dioxide removal (CDR) solutions taking CO2 out of the atmosphere and storing it durably (green)
  • Utilisation of CO2 through carbon capture and utilisation (CCU) technologies, where the ultimate source of the CO2 (atmospheric or fossil) and the final product into which the CO2-molecules has been transformed determine the climate impact (blue)

Detailed analysis of the technological pathways, supply-chain emissions, and substitution effects is required to establish emission reduction potentials of these solutions.

Figure 1: Different pathways of CO2: fossil emission, CCS, CCU and carbon dioxide removal. Source: carboneer

Compliance and voluntary carbon markets both incentivise emission reduction or carbon removal, however each from a different angle. Compliance carbon markets aim to fulfill national or regional climate targets. By putting a price tag on emissions and they incentivise compliant actors to reduce their emissions in a cost-efficient way. The mechanics of voluntary carbon markets (VCM) aim at financially supporting projects that either reduce emissions or provide negative emissions through CDR. Private actors can purchase carbon credits from project developers to offset or neutralise their corporate emissions.

The EU ETS: zero rating for biomass

The EU ETS is one of the largest and most mature compliance carbon markets. Since its inception in 2005, the EU ETS has been a cornerstone of EU climate policy, covering 35-40% of the region’s emissions. Large industrial facilities, such as steel mills, chemical plants, cement kilns, and power plants as well as aviation and maritime transport operators need to monitor and report their annual emissions. For each ton of CO2-eq emitted, the compliant entity must surrender an emission allowance. The price of this allowance is determined at the market. Currently, many industrial facilities still receive free allowances. To prevent carbon-leakage while facing out this free allocation, the Carbon Border Adjustment Mechanism (CBAM) requires importers of certain goods from non-EU countries to report the embedded carbon emissions in imports and from 2026 onwards also to pay the same carbon price as EU-based industry. Most emissions from buildings and road transport in the EU are not yet subject to a carbon price. This changes with the new EU ETS 2 covering another 35-40% of the EU’s GHG emissions. Since 2024, suppliers of liquid, gaseous or solid fuels are required to monitor and report emissions released by their fuels at the end-user. Pricing in the EU ETS 2 starts in 2027.

Carbon in biomass ultimately comes from the atmosphere. When combusted, only CO2 stored in the biomass is released back to the atmosphere. However, for a comprehensive life cycle assessment, factors such as land-use emissions due to biomass harvesting or emissions along the value chain need to be considered. According to current regulations, emissions from biomass and biofuels in the EU ETS 1, CBAM and EU ETS 2 can generally be counted as zero, thus reducing the number of allowances to be purchased by compliant entities and reducing their costs (Figure 2). Depending on the type of biomass and its utilisation, compliance with the Renewable Energy Directive for sustainability or GHG saving criteria needs to be achieved.

Figure 2: Criteria for biomass utilisation in the EU ETS 1. Source: carboneer

VCM: Carbon removal with biomass

Forests, mangroves, biochar kilns and waste-to-energy plants with CCS all have in common that they are examples of biomass-based project on the VCM. Private entities purchase carbon credits from project developers to offset or neutralise their (hard-to-abate) emissions. These projects either reduce emissions or remove CO2 from the atmosphere and must follow certain standards and methodologies for project set-up and emission calculation. Third-party verification of the projects’ climate effects is needed to create trust and transparency in voluntary carbon markets where regulatory oversight is only rudimentary.

While a wide range of VCM methodologies and projects exist, biomass-based projects are ubiquitous and particularly divers. Many biomass VCM projects potentially create negative emissions (to stay within the targets of the Paris Agreement, estimates for the required global carbon removal capacity range from 5-10 Gt/year or 5-20% of today’s total emissions). While trees might store atmospheric carbon for decades, technological solutions, such as pyrolysis with biochar or bioenergy with CCS remove carbon for hundreds or thousands of years. Project developers and buyers of credits on the VCM need to navigate complexities arising from cost considerations, project types and quality, and applicable methodologies and standards (Figure 3).

Figure 3: Carbon removal solutions and considerations for VCM projects. Source: carboneer

To reduce the lack of credibility that has plagued the VCM and associated climate claims of credit buyers, the EU currently develops its own methodologies under the Carbon Removal Certification Framework. As corporates are increasingly under pressure to develop credible climate strategies, carbon removal solutions utilising biomass have their role to play. Several announcements of large-scale credit purchases by corporates from biochar and bioenergy with CCS project developers underscores that point.

Biomass and carbon markets: the take-aways

CO2 is not CO2: The ultimate origin of the molecule matters. Compliance and voluntary carbon markets assess emissions from different perspectives and objectives. Due to the wide array of biomass applications, rules on eligibility as well as on emission accounting in compliance and voluntary carbon market differ. Biomass use in the ETS can reduce costs for industrials and allow for decarbonisation at the same time. Biomass enables carbon removal solutions, but stakeholders need to navigate the murky waters of voluntary carbon markets. Finally, interactions between the EU ETS and the VCM might be restored against the backdrop of industrial carbon management policies, the need to scale carbon removal and to provide market stability in the ETS. Complexities abound when biomass meets carbon markets.

This article appeared first in Bioenergy International No 1-2024

Carbon Removal going mainstream? The EU carbon removal certification framework

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What is it and why is it needed?

In December 2021, the EU Commission published its Sustainable Carbon Cycles Communication in which it outlined the EU’s plan to capture and store carbon dioxide from different sources in order to reach climate neutrality by 2050. Core elements are:

  • Developing an industrial carbon usage registry;
  • Setting a carbon removal target through technological solutions;
  • Strengthening carbon farming to sequester CO2 in soils to contribute to the net removal target in the land sector of 310 million tonnes of CO2-eq by 2030.

To expand the implementation of carbon removal solutions, it is essential to establish a regulatory framework for the certification of carbon removals. Therefore, the European Commission has released additional information on the proposed voluntary and EU-wide framework in the end of 2022. It is known as the EU Carbon Removal Certification Framework (CRCF) and includes several outstanding issues to be addressed. The CRCF aims to promote carbon removal solutions, encourage carbon farming approaches, and to prevent greenwashing by establishing trust through the implementation of standards and certification procedures. Therefore the EU’s ability to measure, monitor and verify carbon removals needs to be ensured, while stimulating financing options from public and private sources.

Under the proposed framework, carbon removal projects may take a nature-based or technological approach. The certification of carbon storage in long-lasting products or materials is also possible. Figure 1 provides an overview of different carbon removal methods, their concrete implementation, and the final storage medium.

Figure 1: Taxonomy for carbon removal (source: IPCC)

Importantly, carbon removal projects under EU certification have to comply with the QU.A.L.ITY criteria and need to:

  • be QUantifiable and QUantified;
  • Additional to existing climate benefits;
  • strive for Long-term storage;
  • contribute to sustainabilITY.

Given the frequent criticisms leveled at the methodologies and practices of the voluntary carbon market, establishing a regulatory framework for carbon removal activities is crucial. The criticism relates to the lack of oversight, transparency, trustworthiness, and climate impact (additionality) of the projects and certificates on this market. All of these can create significant problems for entities relying on voluntary carbon credits to offset or neutralise their emissions as part of their climate strategy, as highlighted in a recent investigation. A regulated market can restore confidence and ensure that all projects conform to the same rules regarding accounting, monitoring, reporting, and verification.

How would the EU certification framework work?

The certification framework will be based on criteria and certification methodologies to be developed by the EU Commission with the support of an expert group. The Commission then recognises private or public certification schemes that register carbon removal activities, control audits and certificates, maintain public registries, and also issue the carbon removal units. The operators of carbon removal activities, such as farmers, biochar producers or BECCS power plant operators need to be audited against the certification methodologies by accredited private certification bodies. Only after a successful audit and recognition by the certification scheme, would the operator’s carbon removal activities be certified by the certification scheme (compare Figure 2).

Figure 2: Working principle of the certification system (adopted by author from EU Commission)

The current proposal allows the EU Commission to adopt secondary regulations, such as delegated acts, to establish the different technical certification methodologies and to harmonise rules for certification and recognition of certification schemes. Given that carbon removal is a new and evolving field, new certification methodologies certainly need to be developed over time.

Next steps for developing the methodologies

As mentioned above, the EU Commission has not developed detailed carbon removal methodologies or criteria yet. During the coming months the external expert group will develop tailored certification methodologies for different carbon removal activities. For reasons of transparency, related documents are being published and the first meeting took place on 7 March 2023, while carbon farming methodologies will be the topic of the next meeting on 21 and 22 June 2023. The timeline for the upcoming meetings of the expert group is depicted in Figure 3 (source: EU Commission).

Figure 3: Upcoming meetings of the expert group on carbon removal (source: EU Commission)

The Commission’s proposal also needs to be adopted by the European Parliament and the Council in a normal legislative procedure. At the end of April 2023, the responsible committee of the European Parliament published their first response with proposed changes to the Commission’s CRFC. Improving monitoring, liability and transparency mechanisms and a focus on long-term carbon removal are a priority for the Parliament to prevent low-quality removals. The report also calls for allowing permanent carbon storage outside of the EU Member states, if the carbon is captured in the EU and stored under similar rules to the EU. This would open the way to account for geological storage in countries such as Norway or Iceland.

Our assessment and issues to be solved

The proposal for the EU CRCF is commendable for being among the first globally to address the need for removals in climate policy and for stringent, transparent regulatory oversight on certification of removal activities. However, several issues still need to be resolved to ensure that the climate effect of the removal activities under the CRCF can become a reality: Removal activities through nature-based solutions could be short-lived and thus the climate impact could be reversed quickly. Furthermore, it is unclear how differing risks for reversals depending on the removal solutions will be dealt with and which actor will ultimately be (financially) responsible.

As there is currently a lack of details on the methodologies for the different removal activities and the certification schemes, the EU Commission, together with the expert group, needs to develop tailored rules for different removal activities. Especially the issues of reversal and liability mechanisms have to be addressed as well. It is essential that these rules are developed in a transparent and collaborative manner with input from stakeholders across the carbon removal industry to ensure that they are effective in promoting long-lasting carbon removal solutions while also providing clear guidelines on liability and risk management.

Reach out if you would like to learn more about the proposed regulation and understand how it impacts your business model or offsetting strategy.

Carbon Management and CCU/S in Germany

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The German government is currently developing a Carbon Management Strategy for CO2 storage and utilisation. Because, one thing is indisputable: Without the capture, use and storage of CO2 from industrial processes (CCU/S) and the atmosphere, Germany can hardly become climate neutral by 2045. The basis for the Carbon Management Strategy is the new evaluation report on the Carbon Dioxide Storage Act. In this article, we explain the key points and principles of such a strategy.  

The CCU/S nomenclature

For the purposes of consistent nomenclature, we use the term carbon management below as an umbrella term for carbon management that includes CO2 capture, transport, and use (CCU) or storage (CCS) from fossil as well as biological or atmospheric sources as negative emissions or carbon dioxide removal (BECCS and DACCS). Likewise, dealing with other nature-based solutions to remove and reduce greenhouse gas emissions from the atmosphere is part of carbon management (see Figure 1).

Diagram Description automatically generated
Figure 1: Sources and sinks of CO2 emissions of the different components of carbon management (source: carboneer).

The impact on the climate and the technical and economic details of the different technologies and options are complex and require detailed analysis. Feel free to contact us for more information.

Carbon management necessary for climate neutrality

In early January 2023, German Economics Minister Robert Habeck travelled to Norway to explore further cooperation in the field of energy and climate. Among other things, the topic of CO2 capture, transport and storage is to become an important part of the cooperation with Norway. With tightening climate targets at EU and German level, it is becoming increasingly clear that greenhouse gas or climate neutrality by mid-century will not be achieved without large-scale capture, utilisation and, above all, long-term storage of CO2. 

At the same time, the German Federal Ministry of Economics and Climate Protection (BMWK) published the German government’s evaluation report on the Carbon Dioxide Storage Act (KSpG) in December 2022. The KSpG came into force in August 2012 and was intended to test the first demonstration projects for the long-term storage of CO2 in the ground in Germany. Acceptance of CO2 storage in Germany has always been very low in the past, especially as the discourse was strongly linked to the use of CO2 capture at coal-fired power plants and the continued operation of coal power plants. However, by the end of the application deadline for approval of new underground CO2 storage facilities (end of 2016), only one demonstration project had been applied for and been built in Germany. Since no new applications can be submitted after the end of 2016, underground CO2 storage is de facto not possible throughout Germany.

CO2 capture for residual emissions in industry

In the future, the use of CCS at coal-fired power plants in Germany is not expected to play a role due to the planned phase-out of coal. Capture, utilisation or storage of CO2 will however be needed primarily for a climate-neutral industry. Even after the use of renewable energies or electrification, large quantities of process-related CO2 emissions will still be produced, for example in the lime and cement industries or in the steel industry. Carbon is also the starting point for many other important products in the chemical industry and is therefore also needed as a raw material. The long-term scenarios project assumes that around 30 million metric tons of CO2 will have to be captured, transported, reused or disposed of in final storage by industrial plants in Germany even after climate neutrality has been achieved in 2045. Possible locations of capture plants and transport pipelines for CO2 are shown in Figure 2. 

Figure 2: Possible CO2 sinks, sources and transport pipelines in Germany in 2045 (source: Langfristszenarien)

Here, it is noticeable that clusters of CCU/S sites are located in the core areas of German basic and heavy industry. This clustering is mainly due to economic economies of scale for infrastructures for capture, transport but also the potential reuse of CO2. Accordingly, the focus of the German Carbon Management Strategy will be primarily on the industrial sector and not on capture in coal-fired power generation.

In addition to the capture of CO2 at industrial sources, however, the use of carbon removal solutions, i.e., the physical removal of CO2 emissions from the atmosphere, must also be developed. Carbon removal is the only way to offset the greenhouse gas emissions that will continue to occur in 2045, for example from agriculture. At 45-80 million metric tons of CO2, the negative emissions required are actually at a higher level than CO2 emissions to be captured from industrial processes. We have presented the details here and here.

Key principles of the German carbon management strategy

The use of CCU/S in industry will play a role as a decarbonisation option, alongside energy and resource efficiency and the use of green energy sources and electrification of processes. Key findings from the latest climate neutrality studies for Germany (Klimaneutrales Deutschland 2045, Klimapfade 2.0, dena-Leitstudie Aufbruch Klimaneutralität, Langfristszenarien) allow the following assessments:

  • Increase in ambition level of climate targets leads to increased use of CCU/S
  • CO2 capture in the million metric ton range necessary as early as 2030
  • Use of CCS mainly in industry and waste sector
  • Negative emissions from carbon dioxide removal must be scaled up from 2030 at the latest
  • Permanence of CO2 removal and storage by nature-based methods is uncertain and therefore makes technical solutions necessary as well
  • Fossil CCU/S and technical carbon dioxide removal can use the same infrastructures and should be considered in an integrated way
  • Transparent and continuous dialogue needed to ensure societal acceptance for ramp-up of CCU/S
  • Significant amounts of CO2 capture at global level (6-12 Gt/year depending on scenario) also driven by CCS at fossil power plants 

The recently published evaluation report on the KSpG provides the following key recommendations to the German government for revision: Examination and adjustment of regulations of the (cross-border) transport of CO2 and regarding German final storage sites for CO2, the further integration of CCU/S into the European Emissions Trading System (EU ETS), and the development of a clear framework for accounting of negative emissions. The details are to be elaborated in a German Carbon Management Strategy (Figure 3) by the German government, which will be presented during 2023. 

Figure 3: Basic pillars for carbon management in Germany (source: German government, adjusted by carboneer).

Which issues need to be clarified?

The German Carbon Management Strategy first aims to spell out a prioritisation of CCU/S applications. Questions must be answered for which industries and which emissions CCU/S measures are most important in order to use available resources in an appropriate manner. This should go hand in hand with the adaptation of the relevant regulatory framework, for example for approval procedures and the development and financing of (transport) infrastructures. Measures and funding programs in special application areas are also to be developed.

Methodologies for monitoring, reporting and verification (MRV) for CCU/S need to be developed. For example, the accounting of CCU/S in the EU ETS and the accounting for the use of CO2 from different sources (fossil, industrial cycle, biogenic, from the atmosphere) in the chemical industry and in the production of synthetic fuels must be clarified.

In particular, the possibility of transboundary CO2 transport will play a major role across the EU. In this regard, the Norwegian government has already made offers to the EU industry for accommodating their CO2 in underground storages in Norway. The design of pipeline and ship capacities as well as questions of EU network regulation and financing are important issues. The synergy effects of CCU/S clusters between industries as sources and sinks of CO2 must be elicited to find the most efficient solutions when planning infrastructures.

For possible CO2 storage facilities to become a reality also on German territory (probably rather under the seabed than under the mainland), social acceptance for CO2 capture and final storage must be built up. This can only happen through clear and transparent communication regarding the necessity of CCU/S for a climate neutral Europe and Germany.  

We will keep you up to date on the latest developments regarding the German Carbon Management Strategy. Please feel free to contact us if you have any questions on this topic.