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Nature-based solutions can play a role offsetting emissions in the short term but technology-based solutions are critical to achieve long-term decarbonization targets
To adhere to a 1.5°C pathway, massive deployment of solutions to
reduce and remove emissions will be required. Emissions reduction
technologies will be the main pathway to meet net zero targets, but
these technologies alone will not be enough. CO2 removal
(CDR)—achieved through negative emission solutions that either
capture or remove CO2 from the atmosphere and
permanently store it—will be essential to balance remaining
emissions from heavy-emitting-sectors that are difficult to reduce.
There are two types:
Nature-based solutions (NBS): Activities that aim to protect,
manage, enhance, and restore nature to address challenges and
include re/afforestation, soil carbon sequestration and biochar.
Some NBS are used as carbon credits in corporate climate
strategies.
Technology-based solutions provide permanent removal and
artificial carbon sequestration of CO2. Examples
include: Carbon capture, utilization, and storage (CCUS), direct
air capture (DAC) and bioenergy with carbon capture and storage
(BECCS).
Despite their relevance in the net zero race, the prioritization
of these solutions will depend on the attractiveness and maturity
of each solution, i.e. project type, time frame, and region
specific. Furthermore, each solution has strengths and setbacks.
While technology-based solutions are easy to monitor, their cost is
still the main drawback for implementing these solutions at large
scale. NBS, on the other hand, provide low-cost CO2
removal and no technological risk but are hard to monitor and
permanence of carbon sequestration is still uncertain.
Due to their far-reaching impact, NBS credits are more widely
used than technology-based solutions. However, they should only be
used to offset emissions that cannot be avoided, while
easy-to-abate emissions are better addressed being avoided directly
or reduced using technology-based solutions.
NBS credits have become a key component of meeting net zero
targets for many companies, particularly those operating in sectors
with hard-to-abate emissions. Giants like Facebook, Delta Airlines,
Eni, and BP are investing in afforestation and reforestation
projects worldwide through the purchasing of offsets (i.e. third
party dedicated entities) to compensate emissions elsewhere in
their value chains through the voluntary carbon market (VCM). Other
companies like Total and Shell have established dedicated entities
for direct investment in NBS including afforestation and
reforestation, in fact Total's has publicized plans to invest $100
million annually in these solutions.
Among NBS, two have distinct advantages relative to other
methods, being both fully mature and cost-effective. These are
afforestation, i.e. planting trees on lands that were originally
grasslands or shrublands, and reforestation, i.e. planting trees on
lands that used to be forest but were converted to another use. IHS
Markit analysis shows that for agriculture, forestry, and land-use
(AFOLU) projects, of which reforestation and afforestation are the
most common, a metric ton of sequestered carbon is valued at an
average of around $4/tCO2e but can reach up to $50/tCO2e, with
costs increasing as potential for sequestration decreases with less
land availability. These numbers are significantly lower if
compared to technology-based solutions ranging from $17/tCO2 to
$180/tCO2 (up to $800/tCO2 if DAC is
included). With this cost difference, it is not a surprise that
some corporations are favoring short-term nature-based solutions
over technology-based solutions to align with their corporate
targets and accelerate their transition to net zero targets while
optimizing investment/making out more for their money.
The trend to favor nature-based in the short term will only gain
steam as more companies commit to net zero targets, especially
among those with hard-to-abate emissions. Voluntary carbon markets
are an area of particular interest as the COP26 UN climate
conference develops. Article 6 of the Paris agreement set out broad
strokes that permitted the potential use of cross-border offsets in
meeting Nationally Determined Contributions to achieve the net zero
goals envisioned by the Paris agreement, but individual countries
have shied away from designing programs without more specific
guidance on which offsets would "count" under Article 6. AFOLU
offsets were part of the clean development mechanism (CDM) market
under the Kyoto protocol, and holders of those offsets are pressing
COP26 attendees to grandfather in those credits to any Article 6
agreement as well.
A widespread application of NBS is not exempt from controversy.
Although NBS credits are attractive to corporations with aggressive
climate targets required to show immediate results, concerns remain
over a heavy dependency on these solutions that focus on offsetting
emissions instead of reducing or avoiding them. For some critics, a
ton of CO2 compensated replaces the need to reduce
emissions in line with science, a concept that has been coined as
greenwashing. Moreover, accounting for emissions from afforestation
and reforestation projects is challenged by the absence of
universally accepted standards or oversight and the potential for
double counting, as well as issues of actual sequestration capacity
and project permanence including physical risks (i.e. natural
disasters as fires, earthquakes, etc.) and the implications they
would have over offset contracts. There are also additional
questions related to how forestry projects linked to carbon credits
should be managed over time, the quality of the reductions as well
as concerns over lifecycle emissions, and some past cases of fraud
that impacted industry reputation. COP26 will be crucial to reduce
uncertainty around these topics and provide a policy and legal
roadmap for these solutions.
Overall, NBS enable companies to positively contribute to
climate action via the generation of co-benefits for adaptation,
biodiversity, and other sustainable development objectives. As
critical tools to deliver global climate goals, they will likely
play a relevant role in the VCM in the short-term due primarily to
their lower cost. However, as offsets prices increase, given higher
market demand, technology-based projects will become a more
permanent and attractive solution in the long-term - as policy
support and project economics improve - with less uncertainty
around emission reduction accounting, permanence, and monitoring.
As companies keep developing their net zero strategies, they should
rely on offsets for their residual emissions and continue advancing
technology-based solutions to reduce emissions as their focus.
Companies should keep in mind that when NBS credits occur
outside the value chain, they should not be captured as a company's
decarbonization strategy nor as a mitigation outcome. In other
words, NBS credits do not represent a company's GHG reduction. By
doing so companies may undermine their efforts to accelerate the
adoption of technology-based solutions. If NBS investments occur
within the supply chain, they should be credited as part of the
abatement efforts following adequate GHG emissions methods. The
companies that follow these foundations will lead the way and act
as reference point for other corporate actors.
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Posted 04 November 2021 by Edurne zoco, Executive Director, Clean Technology & Renewables, S&P Global Commodity Insights and
Paola Perez Pena, Principal Research Analyst, Gas Power and Climate Solutions, S&P Global Commodity Insights and
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