Integrated Carbon Capture Utilization and Storage
Integrated Carbon Capture Utilization and Storage
- Voluntary Carbon Market Differentiating by Type of Offset
Price Trend by Type of Carbon credit, 1Q21 – 1Q22Source: S&P Global via The World Bank (Report: State and Trends of Carbon Pricing, published May 2022) Key points: The World Bank’s carbon pricing report includes an update on voluntary carbon markets (VCMs). Price differentiation of carbon offset credits shows preference for carbon removal activities. Demand for nature-based credits is also benefitting from buyers’ focus on co-benefits; and growing demand and market maturity bode well for higher prices. World Bank report on Carbon Pricing. The World Bank (WB)’s State and Trends of Carbon Pricing report published this week includes discussion of global carbon pricing instruments, both taxes and trading systems, and the outlook and implications of new policy and agreements coming out of COP26. Among the key takeaways from the report is that global carbon pricing revenue increased 60% in 2021 to US$84 Billion, with emissions trading systems generating more than carbon taxes for the first time. The report also includes a review of voluntary carbon market trends, prospects and issues related to future growth. Nature-based credits dominate VCM value in 2021. As noted in a previous Payne Financial Flow, Forestry and Land-Use credits comprised nearly 80% of the estimated US$1+ Billion VCMs’ value in 2021 (data as compiled by EcoSystems Marketplace remains unfinalized; our estimate reflects compiled data through November). This category of nature-based credits is largely comprised of projects to avoid deforestation, but includes some removal-type projects as well including afforestation, carbon sequestration in agriculture and improved forest management. The WB report notes that as demand grows overall, as there are more buyers adopting decarbonization targets and relying on offsets to meet milestones, some of these buyers are putting value on co-benefits of projects. Co-benefits can include achieving one or more of the Sustainable Development Goals. However, removal-based credits command a higher price. The WB report cites S&P Global analysis pointing to removal-based credits trading at 2.5x the average price of reduction/avoidance-based credits in 4Q21-1Q22 (see chart). This stronger price appears to reflect buyers’ (1) desire to comply with Net Zero strategies (i.e. buyers view that credits related to projects that (only) avoid emissions don’t offset their internally-generated emissions) and (2) views of the potential for removal technologies. Removal technologies also avoid, as the WB report puts it, the “polarized debates regarding additionality, permanence and baseline accuracy” of Forest and Land-Use credits. Further, removal-based credits are in short supply, in part because of the non-commercialized state of removal technology (such as Direct Air Capture) and slow development of sequestration projects. Financial sponsorship of removal technologies is also happening outside of marketplaces and rather through direct investment. Market maturity points to greater liquidity. The report notes several signs that VCMs are maturing, including that (1) financial actors are stepping in to provide capital and to hedge risk, (2) standardized transactions are growing more common and (3) there are signs of speculative (i.e. non-strategic) buying. The report also notes the role that Blockchain is starting to play in tokenization of carbon credits to increase buyer access and highlights the potential issues this creates related to integrity (see here for a brief review of technology’s role in spurring greater environmental investment).
- Lithium Is Key to the Electric Vehicle Transition. It’s Also in Short Supply 5/26/2022
Lithium Is Key to the Electric Vehicle Transition. It’s Also in Short Supply Payne Institute Director Morgan Bazilian contributes to this article about how the element lithium, a lightweight substance, is a critical component in rechargeable lithium-ion batteries, which are used in most personal electronics and electric vehicles. And in the last year, it’s gotten expensive. Lithium has shot up 432% year over year, hitting nearly $62,000 per metric ton in April. The price spike is due to the booming electric vehicle market, which is putting demand pressure on battery producers, which in turn puts demand pressure on the minerals suppliers. May 26, 2022.
- The US role in securing the European Union’s near-term natural gas supply 5/26/2022
The US role in securing the European Union’s near-term natural gas supply Payne Institute Fellow Arvind Ravikumar, Director Morgan Bazilian, and Michael Webber write about how the European Union’s plan to phase out Russian natural gas imports by 2027 rests partly on increasing near-term imports of US liquefied natural gas. This will require a coordinated policy response that includes securing supplies from major exporters, global diplomacy, expanding import capacity, and alignment with Europe’s climate goals. May 26, 2022.
- INFLATING 5/24/2022
Inflating Payne Institute Program Manager Brad Handler has prepared a quarterly report on how the top priority for the U.S. public oil and gas (O&G) companies remains to deliver higher financial returns to shareholders. Public commentary as the companies reported their 1Q22 earnings included widespread commitments to pay higher dividends and to buy back shares of their own stock. Yet, only a couple of months after laying out their spending expectations for 2022, the companies have also begun to raise their spending budgets for the year. These increases are largely in response to rising prices for goods and services, a function of supply constraints. May 24, 2022.
- Industrial decarbonization via natural gas: A critical and systematic review of developments, socio-technical systems and policy options 5/23/2022
Industrial decarbonization via natural gas: A critical and systematic review of developments, socio-technical systems and policy options Colorado School of Mines student researcher Shivani Mathur, Payne Institute Fellow Greer Gosnell, Benjamin K. Sovacool, Dylan D. Furszyfer Del Rio, Payne Institute Fellow Steve Griffiths, Director Morgan Bazilian, and Jinsoo Kim write about how natural gas is an important and highly flexible fuel across the industry sector globally. However, the future of natural gas remains uncertain, especially for industry planning to be net-zero or carbon neutral by mid-century. This review addresses the role that natural gas might play in global industrial decarbonization, and how it can help decarbonize industrial processes. May 23, 2022.
- Salty, subterranean water could relieve world’s lithium shortage 5/20/2022
Salty, subterranean water could relieve world’s lithium shortage Payne Institute Program Manager Jordy Lee contributes to this article about how the next bottleneck in lithium-ion battery supplies isn’t cobalt, even though China has a stranglehold on the market, and it’s not nickel, either, despite nickel prices nearly doubling in the past five months. There’s no substitute for one crucial component of these batteries: Lithium. Today’s lithium mines can’t hope to meet the skyrocketing demand for the next decade and beyond. May 20, 2022.
- May 2022 Newsletter
May 2022 Newsletter
- Regulator Declines to “Bless” Certified Natural Gas Given Varying Standards
Expected Daily Volume of Responsibly-Sourced/Certified Natural Gas by Basin, End-2022eSource: S&P Global Key Points: The FERC’s recent rejection of Tennessee Gas Pipeline’s proposal to sell responsibly sourced/certified natural gas highlights the value in establishing (robust) measurement standards. Market-wise, TGP’s more recent proposal, which allows unbundling certification from the product, makes more sense than the company’s original physical (hub)-based plan. The FERC rejects proposal to sell responsibly sourced gas. At the end of April, the Federal Energy Regulatory Commission (FERC) rejected Kinder Morgan subsidiary Tennessee Gas Pipeline (TGP)’s proposal to sell natural gas that is below a threshold for methane intensity. The FERC begged off taking responsibility for what constitutes so-called responsibly-sourced gas (RSG), noting that the market was nascent, that different standards were being set by different independent vendors and that methane emissions are unregulated (see more below). Evolution of TGP’s proposal. TGP’s original proposal was based on a physically traded hub market, i.e. that the pipeline would source gas that had been certified as meeting methane intensity criteria. That proposal was met with protest from gas producers that had not pursued certified gas, that would be excluded from selling through the pipeline. In response, TGP shifted its proposal to a “certification-based” market, which allows for the unbundling of the certification of methane intensity from the physical product. In other words, similar to Renewable Energy Credits in power markets, the natural gas sold through the pipeline could be sold separately from the methane intensity certificate for that gas, thereby allowing buyers other than those using the gas. TGP’s proposed gas “certifiers” included Project Canary (Trustwell Responsible Gas program), RMI/SYSTEMIQ (MiQ Standard) and Xpanisv (which in turn can use third party certification providers). Accentuating the FERC’s key objection, the third party certifiers have different methodologies/standards for certification, including frequency of monitoring. TGP’s revised proposal also met with objections, in this case that TGP would be too influential in determining what qualifies as certified gas. Thus the pipeline company proposed to place criteria for RSG in its tariff, placing responsibility on the FERC. In rejecting this last proposal, the FERC indicated it was unclear how to evaluate TGP’s criteria given lack of Federal regulation on methane emissions and lack of standards in the industry. The FERC further cited the risk that TGP’s tariff structure as proposed might stifle market-driven efforts to further reduce methane emissions. In other words, if the tariff only rewarded meeting a threshold, gas producers may lack the incentive to deliver even lower methane intensive gas. Other certificate schemes have incorporated such incentives — for example, the S&P Platt’s/Xpansiv’s recently introduced Methane Performance Certificate uses percentage-below-industry-average as a metric (issuing more certificates for natural gas with emissions further below industry average). The FERC’s ruling was reported to have been positioned such that it is expected that TGP sorts out a way to proceed with its RSG plan. But the FERC’s point about varying standards reflects the challenge for buyers (and everyone else) in assessing the “true” methane intensity of the certificates and (therefore) of price discovery. This highlights the value in having a set of standards regarding ongoing measurement (frequency, number of points on site, nature of monitoring, etc.). U.S. RSG market appears set to grow to 20 Bcfd. S&P Global reports that ~20 Billion cubic feet per day of U.S. natural gas production, or 21% of the U.S.’s total dry gas production, is set to have third party certification by the end of 2022 (see chart).
- Whose data is this anyway? Striving for higher standards of emissions reporting 5/17/2022
Whose data is this anyway? Striving for higher standards of emissions reporting The Payne Institute is proud of our research with Baker Hughes on creating higher standards for emissions reporting. The new research partnership aims to clarify best practices and help industry come to grips with disclosing Scope 3 GHG emissions. May 17, 2022.
- Water Security Issues for Lithium Mining in Chile 5/17/2022
Water Security Issues for Lithium Mining in Chile Payne Institute Communications Associate Eleanor Igwe writes about how due to lithium’s central role in electric vehicle batteries, its demand is predicted to continue a steep rise and likely reach the level of two to four million metric tons by 2030. In addition to the stresses this will put on mining production and the environment – issues of water security are likely to become a key challenge. May 17, 2022.