The Government on 26 June published the much-anticipated outcome of the last year’s consultation on Business Models for Greenhouse Gas Removals (GGR).
Key points are:
- The government is exploring the integration of GGRs into the UK Emissions Trading Scheme (ETS) and considering opportunities in Voluntary Carbon Markets and international carbon trading.
- MRV standards will be developed to ensure the credibility and verifiability of GGR projects, guided by independent reviews of existing standards.
- To overcome investment barriers, the government proposes a contractual business model based on a Negative Emissions Contract for Difference (CfD) structure to support GGR projects.
Greenhouse Gas Removal plays a major role in the Government’s strategy to reach Net-Zero by 2050. Through the Net-Zero Strategy, the government intends to develop markets and incentives for engineered GGR technologies. As a first step, in July 2022, DESNZ consulted on business models to attract private investments to enable GGR projects to deploy within this decade. Such a scheme is especially advantageous to the AD industry, as providing a revenue support mechanism for negative emissions can encourage more plants to install carbon capture and storage (CCS).
Governments around the world are putting forward ambitious actions to support and incentivise investment in GGR technologies.
For example, US Inflation Act provided enhanced incentives for DACCS, and European Commission implemented a funding package to support low-carbon technologies and infrastructure.
Joining the race, the UK government commits to developing a GGR business model and providing revenue support for negative emissions, to achieve the ambitious targets set by the Net Zero Strategy. The GGR sector is small but rapidly expanding globally, with increased government action and corporate initiatives driving investment in cutting-edge technologies like Direct Air Carbon Capture and Storage (DACCS) and Bioenergy with Carbon Capture and Storage (BECCS).
The consultation identified different technologies that could potentially benefit from a GGR business model which include:
- Direct Air Carbon Capture and Storage (DACCS): the capture and storage of CO2 from the ambient air using separating agents that can be regenerated using heat, water or both.
- Bioenergy with Carbon Capture and Storage (BECCS): the capture and storage of CO2 from biomass which is used to produce low-carbon energy – particularly in sectors such as biofuels, anaerobic digestion, biomethane, and energy-from-waste that are not supported by other mechanisms such as the ICC and Power BECCS business models.
- Carbon-negative concrete: the production of zero-carbon lime, which delivers negative emissions by naturally absorbing CO2 from the atmosphere after it has been used as a building material.
- Seawater CO2 removals: the capture and storage of CO2 from seawater via chemical or electrochemical means.
ADBA responded to the consultation on 27 September 2022, highlighting the crucial role the AD sector plays in greenhouse gas removal as a mature sector with ready-to-launch technology. Our response further highlighted the sector’s preference for the negative emission CfDs, as it has a long, fixed period for the strike price which would enable bank finance for the developers.
The government’s response primarily addresses 3 key points
- Possible integration of GGRs into the UK-ETS
- Introduce a Negative Emissions CfD structure to support GGR projects
- Development of MRV standards
Negative Emissions CfDs
The government identifies the Negative Emissions Contract for Difference (CfD) as “the most effective approach to deliver the policy objectives” in the development of GGR business models, as it will provide revenue stability for project developers through a fixed strike price. ADBA’s response to the consultation also suggested this option outlining the added advantages of incentivising the development and deployment of GGRS through a CfD, such as encouraging investments with high upfront costs and long payback periods.
The DESNZ recognises that the CfD scheme successfully accelerated investment and reduced costs in renewable technologies, and similar models are being developed for CCUS, power BECCS, and low-carbon hydrogen. We have, however, raised our concerns regarding the unsuitability of the existing CfD schemes for the AD sector due to its too-high threshold, and we expect the new GGR CfD schemes will provide a better alternative.
Integrating GGRs into UK-ETS
As strongly supported by the stakeholders, the government is considering integrating the negative emissions in the UK-ETS, creating a compliance market for GGRs.
Establishing a controlled/regulated market for engineered GGRs is necessary to ensure that the targets and the projects proposed by the developers are real and achievable. When considering the AD industry as a ready-to-use GGR technology, integrating the regulated market with the schemes like UK ETS and GGR obligation scheme is essential to help the industry gain the full economic benefits.
Such integration will:
- Enable the biomethane operators to link in with the scheme,
- Support plants (especially small-scale plants) to capitalise on carbon capture, and help generate revenue by selling credit to the large emitters — creating co-benefits in revenue generation and emission reduction, and
- Provide credibility to private investors to invest in early GGR projects.
The Net Zero Growth Plan recognizes the integrity and potential of the UK ETS to unlock significant investment in the GGR sector. Therefore, the department rightfully understands the importance of moving forward with this and collaborating with the UK-ETS Authority to explore options for integrating GGRs into the UK ETS.
However, this integration is subject to the outcomes of the previous UK ETS consultation, the establishment of a robust MRV (monitoring, reporting, and verification) regime, and the management of wider impacts. We are to receive more information on this topic in the Government Response to the ETS consultation, to be published later this year.
A standardised and systematic MRV framework is necessary for any project in the sustainability arena to make sure the ambitions are achievable and not a greenwashing agenda. A proper MRV framework can help track and understand the trends of improvement, allowing the developers to understand the strengths and weaknesses and what to improve going forward.
Consultation has yielded varying opinions on the most effective approach for the government to develop a credible MRV framework for negative emissions. Suggestions include government endorsement or certification of third-party standards. Some proposed adopting voluntary market standards in the short-term while developing government standards over time. Another suggestion was for the government to set MRV standards while relying on third-party bodies for verification and certification.
Taking these views into consideration, to address the issue of developing a credible MRV framework for negative emissions, the government has commissioned E4Tech and Element Energy to conduct an independent review. This review will assess MRV standards currently used in the GGR sector, considering a comprehensive list of GGR standards and methodologies, including international approaches and private sector actions. The review is expected to be completed by Autumn 2023, and its findings will be published.