Humans don’t just need to cut carbon emissions as quickly as possible to limit the worst impacts of global warming. According to the latest science, we need to start removing it from the atmosphere as well. And doing that in a big way — and with verifiable results — will cost a lot more than can be supported by the prices being set by some of the dubious "nature-based" removal projects on the market today.
This is the problem that Mitsubishi and South Pole hope to solve with their Next Generation Carbon Removal Purchase Facility. Over the course of this year, the "virtual facility" between the Japanese industrial giant and the carbon project portfolio developer will seek to secure investors for a portfolio of direct air capture, carbon mineralization, biochar and other “technological carbon removal solutions” that will be worth between $300 million and $800 million in certified credits by 2030.
The prices per ton of removed carbon for these projects will be between $50 and $400, Patrick Buergi, South Pole’s co-founder and director of innovation, said in an interview last week. That’s quite a bit higher than the $10 to $30 per ton for the reforestation projects — planting and nurturing new trees — that dominate the government and private markets for carbon-removal projects today, including South Pole’s portfolio.
But according to the 2018 report of the United Nations Intergovernmental Panel on Climate Change, much greater investment in "negative-emissions technologies" will be required to limit global warming to 1.5 degrees Celsius over the course of the century. This will need to be undertaken at a scale and pace that can’t be supported with reforestation alone, he said.
And while reforestation has immense potential, forest-based carbon projects are also fraught with challenges and problems. Reports of miscalculations, misrepresentations or outright fraud in the two-decade-old market for forest preservation underscore the stark fact that “we will never have 100 percent certainty” of their carbon-removal value, he said.
Technologies that can “measure every kilogram of CO2 removed from the atmosphere” don’t have that problem, he said. And unlike forests that can burn down or be transferred to new owners that opt to cut them down, technological solutions can provide “certainty that the carbon will stay in the ground for hundreds of years,” he said.
But, Buergi added, “technological solutions are very expensive compared to nature-based solutions” —and the proliferation of low-cost nature-based projects have set the market price for removing a ton of carbon far too low to support many technological solutions.
Price points for carbon-removal technologies
That’s where South Pole’s collaboration with Mitsubishi comes in. “We’re trying to aggregate demand for these technological removals,” Buergi said, by allowing companies with net-zero targets to commit to buying carbon-removal credits from a bundle of technologies that need capital to get their first projects up and running.
“There is some [research and development] money going into these facilities” from government funding, such as the $477 million earmarked for such projects in the December omnibus spending bill passed by the U.S. Congress. Tesla CEO Elon Musk's Xprize has promised $100 million for the most promising carbon-removal technology.
But getting prices down in the long run requires "deploying these technologies at scale,” Buergi said. “And in order to do that, these technologies need revenue certainty.”
South Pole’s portfolio is still being created, but it does specifically include one named technology: the direct air capture system developed by Canada-based Carbon Engineering and being plotted for deployment in Texas by 1PointFive, a joint venture of private equity firm Rusheen Capital Management and Occidental Petroleum subsidiary Oxy Low Carbon Ventures. That project is expected to cost between $300 and $400 per ton of carbon captured, but South Pole is hoping to see future full-scale project costs at closer to $100 per ton, he said.
"Mineralization" technologies that store carbon in solid form are “also quite scalable...in the range of $50 to $100 per ton,” he said. Some of these actively absorb atmospheric carbon, as with those using minerals known as olivines. Others use already captured carbon for cement production, itself a highly carbon-intensive process, as with technologies being developed by companies such as CarbonCure and Blue Plane. Mitsubishi is actively pursuing similar technologies via research and development grants from Japan’s government.
“We also have biochar in the facility,” he said, referring to the industrialization of age-old practices of converting agricultural residues to charcoal to enrich soil. While these projects are smaller and less scalable than the others already mentioned, they are trading at about $50 per ton of captured carbon, he said.
All in all, South Pole is "trying to achieve a mix of different projects to reach a price of $50 to $100 a ton,” he said. “This is still way above $10 to $30. But it’s much more manageable.”
South Pole and Mitsubishi are far from the first to commit funding to carbon-removal projects in an effort to bring down their costs. Microsoft has committed to major investments in carbon removal as part of its climate strategy, with a portfolio of 1.3 million metric tons of projects that includes direct air capture from Switzerland-based Climeworks combined with mineralization by partner Carbfix, as well as biochar projects certified through carbon-removal marketplace Puro.earth.
Technology companies Shopify and Stripe have also invested in negative-emissions projects, and others are incorporating carbon removal into their carbon strategies. “But these were bilateral transactions,” Buergi noted. “Ours is the first facility that tries to aggregate demand on a more massive scale.”
"The devil is in the details" for carbon-removal tech
Whether such a portfolio approach can successfully scale up carbon-removal projects that are worth the investment will depend on many factors, said Danny Cullenward, policy director at the nonprofit CarbonPlan. The group’s independent analysis of climate programs has added to an increasing amount of evidence that many of today’s forest-based programs significantly overstate their carbon-removal value.
“The cost of doing something real” to reduce atmospheric carbon “is something like $50 to $100” per ton of carbon, he said. “And $100-plus is where we see the most innovative technological proposals,” which is “an order of magnitude out of the market” for today’s forest-based offsets.
In that light, South Pole and Mitsubishi’s plan is “committing money to a good thing,” he said. “The nature of the announcement from South Pole was focused on searching for quality — and we have deep systematic problems with quality” in today’s markets.
But the value of these investments will depend greatly on the composition of South Pole’s portfolio, as well as the processes used to certify their carbon-removal value, he said. On the portfolio composition side, it will be important to verify that the majority of projects are truly technology-based, rather than nature-based, Cullenward said.
On the certification side, “right now, there are four major registries that do the majority of the accounting in carbon offsets,” he said: the Verified Carbon Standard, the American Carbon Registry, Climate Action Reserve and Gold Standard. CarbonPlan has significant concerns about these groups’ rules for measuring and certifying the carbon-removal value of forestry projects, which he said have “been written in very lax ways in private markets and [have] sort of been rubber-stamped in public markets.”
How the rules for technological carbon-removal measurement will be designed remains an open question, he said. “There’s a lot of promise but many questions, and the devil is in the details.”
For example, mineralization technologies that secure carbon in a stable form are more reliable long-term removal processes than trees that can burn down or decompose. But many of them are not actively removing carbon dioxide from the atmosphere; rather, they are mitigating emissions from existing human sources.
CarbonCure’s plan for capturing emissions from cement manufacture and reinjecting them into the final product is one example. Cullenward characterized this as an “exciting as a building block toward this process,” but not, strictly speaking, a form of carbon removal.
As for direct air capture projects that pull CO2 directly out of the atmosphere, “it’s a poster child for a technology where you shouldn’t have any additionality concerns,” he said. "Additionality" is a term that describes the question of whether the project would have gone forward whether or not it was being paid for its carbon value. “There’s no reason to do it except to pursue the climate goal.”
At the same time, “It’s expensive and...very energy-intensive, and some of the product processes are very water-intensive,” he said. Another concern is what the projects do with the CO2 they remove from the atmosphere, he noted.
While Climeworks is working solely on underground mineralization, Canadian firm Carbon Engineering’s oil industry partners are considering reinjecting the captured gas for enhanced oil recovery, which could erode the removal value through boosting fossil-fuel production, according to Cullenward. This highlights the fact that finding money-making uses for captured carbon may play into the overall cost-effectiveness of the technologies being considered for investment.
Does carbon removal compete with or complement decarbonization?
Buergi said that South Pole is in the midst of developing a pipeline of portfolio projects that can “easily absorb” the up to $800 million it’s targeting in the partnership with Mitsubishi. The 1PointFive project using Carbon Engineering’s technology in Texas “can absorb a lot more” than this total, for example — although it’s worth noting that that project is pursuing enhanced oil recovery as a way to offset its technology costs.
As for finding investors willing to sink money into carbon credits that are higher than today’s prices, “there’s no hard business logic behind this,” he conceded. “The big question is [whether we can] manage to sell this amount of volume at this level of prices.”
Still, “we are seeing encouraging signs,” he said, from the commitments of companies like Microsoft, Stripe and Shopify, to promises from major companies such as Swiss Re, the world’s biggest reinsurance company, to shift to carbon removal as a major part of its climate strategy. “They have the funds now to buy carbon at an average price of $100,” he said, “and they want to go to $200 per ton by 2030.”
Government mandates will also play an important role, he said. The European Union’s new climate law announced earlier this month sets limits on the role of carbon removal to meet its goals. This is a reflection that “many European governments and organizations are worried that by relying on removal, you can take away pressure to work on carbon emissions reduction,” he said.
In the United States, by contrast, the 45Q tax credit for carbon capture and storage, created in 2018, is seen by some climate activists as an incentive for oil and gas companies and heavy industrial emitters. At the same time, “many oil and gas companies are well-positioned to become carbon storage companies,” he said.
Critics of carbon-removal incentives worry that they'll detract from the enormous demands of decarbonizing the energy and transportation sectors by giving companies a cheaper venue for climate investment. But with the U.N. projecting the need for removing between 100 billion and 1 trillion tons of CO2 from the atmosphere this century to keep global warming below catastrophic levels, "it’s clear that without scalable technological solutions, we won’t make it," Buergi said.
(Article image courtesy of Marcin Jozwiak)
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