We need to talk about carbon removal

Welcome back. Last week ended with an important development in Brussels, where representatives of EU member governments reached agreement on a revised draft of the landmark Corporate Sustainability Due Diligence Directive.

As we wrote recently, this legislation would dramatically increase the responsibility of EU companies — and many non-EU ones — for environmental and social problems in their supply chains. Friday’s agreement came after officials moved to limit the rule’s scope, notably by increasing the minimum size of companies that will be subject to it. The CSDDD now needs to get through the European parliament before this summer’s EU elections. We’ll keep you posted.

EU policy is also an important part of the story we cover in today’s edition. The main global climate science body has warned that large-scale carbon dioxide removal must be a big part of any successful response to climate change — yet the subject has been curiously neglected in the wider climate debate. Is that starting to change?

NET ZERO STRATEGY

A dangerous blind spot in corporate climate plans

The term “net zero” trips off the tongue so easily these days that it’s easy to forget what it actually means.

The concept is pretty simple. The world will reach net zero emissions when the amount of greenhouse gases we add to the atmosphere is matched by the amount we remove.

Yet while great emphasis has rightly been placed on cutting carbon emissions, strikingly little public or corporate discussion has focused on the other side of the “net zero” ledger: how to build up the huge carbon removal capacity that the Intergovernmental Panel on Climate Change says is needed. But last week brought new signs that this is starting to change.

On Thursday, the US Department of Energy announced a new plan to encourage investment in carbon removal: it will set up a “leaderboard” to highlight the companies making the biggest purchases in the space, and will work to connect buyers and sellers of carbon removal services.

Perhaps more significantly, EU authorities last month reached a provisional agreement on a new certification system for carbon removals. On Wednesday, EU lawmakers approved a rule that requires companies to comply with the new carbon credit standards if they want to use offsets to make green marketing claims.

The common theme here is that governments are waking up to the need for a massive acceleration of investment in carbon removal, alongside efforts to reduce the emissions we pump into it.

This awakening comes not a moment too soon. The level of carbon dioxide in the atmosphere is already 50 per cent higher than before the industrial revolution, and has been continuing to rise at a steady clip in recent years.

According to the IPCC, “all pathways that limit global warming to 1.5C with limited or no overshoot” require carbon dioxide removal at a massive scale, between 100bn and 1,000bn tonnes this century. (For context, total emissions of all greenhouse gases in 2022 were 53.8bn tonnes of CO₂ equivalent.)

To use the analogy of a bath tub: as well as striving to reduce the amount of water flowing into the tub, we also need to start drilling holes at the bottom to slow the rise of the water level, and eventually bring it down.

This is where corporate purchases of carbon credits could have a crucial role to play. The growing collection of carbon removal providers range from “direct air capture” businesses such as Zurich-based Climeworks, which sucks carbon dioxide from the air and turns it into limestone, to others using “enhanced weathering” to increase the absorption of carbon by rocks.

But carbon removal projects have so far played a very marginal role in the voluntary carbon market. The vast majority of carbon offsets are linked instead to projects intended to avoid or reduce emissions — often through protecting trees that, according to their owners, might otherwise burn down.

A crunch moment for the offset market

A couple of years ago that market was booming, with many companies snapping up avoidance-linked carbon credits for a few dollars per tonne or less, and using these to make eye-catching green claims. (Particularly striking was the claim by professional services firm EY that it had become “carbon negative” using avoidance-linked offsets.)

Last year, however, that market fell into crisis after a string of reports that raised severe doubts about how much impact these projects were actually having. As faith in the market and its suppliers has declined, so have corporate purchases.

The Integrity Council for the Voluntary Carbon Market, chaired by former US securities regulator Annette Nazareth, is trying to restore confidence in the offset market through a lengthy set of guidelines. Yet these make no fundamental distinction between the respective merits of removal- versus avoidance-based carbon credits, and give no sense of why buyers should ever choose the former, which are commonly about a hundred times more expensive than the latter.

Companies seeking a science-based way to incorporate carbon removals into their climate strategy should take a look at a different framework, published last month by Oxford university academics. The latest version of the Oxford Principles for Net Zero Aligned Carbon Offsetting states that companies can claim “net zero” status only when — after making big emissions cuts across their business — they cancel out all remaining emissions using carbon removal. While the supply of carbon removal credits is limited today, it says, companies should start buying them now and have a clear plan to increase their purchases in the years to come.

Some big companies have already put carbon removal at the centre of their climate strategies — notably Microsoft and other tech giants like Google and Stripe. JPMorgan last year announced long-term carbon removal agreements worth more than $200mn.

All eyes on the EU

Peter Reinhardt, chief executive of Charm Industrial, one of the most prominent carbon removal companies, estimates that sales of removal offsets grew by 600 to 700 per cent last year, while the rest of the market slumped. But, he told me, “voluntary purchasing of carbon removal is not going to scale to the billions [of tonnes] per year that’s necessary”.

Reinhardt’s warning reflects widespread hope in his industry that governments could start requiring companies to buy carbon removal credits. If this happens, the EU looks the most likely first mover. The latest version of the new certification framework has attracted some criticism — notably for the decision to include “soil emission reduction” projects. But the latest moves from EU authorities still look like a meaningful signal, steering corporate offset buyers towards carbon removal projects rather than the avoidance-based sort that currently dominates the offset market.

As a forthcoming report from non-profit Carbon Gap notes, EU authorities could introduce mandatory carbon removal purchases either by integrating this with the existing emissions trading system, or through a wholly new scheme. It’s also worth watching California, where a bill requiring some companies to buy removal credits passed the state senate last year but has not yet been signed into law.

Whether or not mandatory carbon removal purchases come any time soon, executives trying to keep up with the debate around responsible corporate climate strategy — and avoid accusations of greenwashing — would be wise to start paying attention to this space.

Smart read

The world’s oceans have just marked 365 straight days of record-breaking surface temperatures, Jana Tauschinski and Emiliya Mychasuk report in the FT’s latest Climate Graphic of the Week.

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