The voluntary carbon market (VCM) has a total value of over $2 billion, and some predictions show it growing to $10 billion in just a few years.
But the integrity of the carbon offsets available has come under increasing scrutiny in recent years, causing demand to slow and prices to go down.
According to a new report from Morgan Stanley the market is approaching a ‘tipping point’, as more and more companies hesitate to stake their environmental claims on offsets that may be debunked in the newspaper the next day.
If the market does hit a tipping point, what’s next? And what does it mean for the companies and governments hoping that “carbon removal” can fill the gap with a more reliable type of offset?
Our panel will take a look at implications of the oil company Oxy purchasing Carbon Engineering. Is big oil good for DAC?
Whether or not oil and gas should be involved in carbon removal is healthy debate within the CDR community, and this announcement made headlines in the broader environmental media too.
Listen to hear what our policy panel, Holly Buck and Wil Burns, think about this news and its aftermath.
On This Episode
Radhika Moolgavkar
Wil Burns
Resources
Article on “Tipping Point” report
West et al. Paper on Carbon Offsets
Subscribe to Climate Workers Anonymous
My other show, Reversing Climate Change
Books referenced in the podcasts, at Bookshop
Full Transcript
Announcer: You’re listening to Carbon Removal Newsroom, a weekly show about current events in the world of carbon removal, from technology and innovation to policymaking and job growth. Brought to you by Nori, the carbon removal marketplace.
Radhika Moolgavkar: Welcome to the September 19th, 2023 edition of Carbon Removal Newsroom. It has been a while. I think it’s been about six weeks, and I’m super happy to return with one of my favorite segments, the Policy Group. So welcome back, Wil Burns, Co-Executive Director of the Institute for Carbon Removal Law and Policy at American University. Hi, Will.
Wil Burns: Radeka.
Radhika Moolgavkar: Have you survived the heat wave that the Midwest was in?
Wil Burns: We have. We have. We’re into glorious fall at this point.
Radhika Moolgavkar: Good. I was in St. Louis in August and I thought I was going to die. Holly Jean Buck, Assistant Professor of Environment and Sustainability at the University at Buffalo. Hello, Holly.
Holly Jean Buck: Hello.
Radhika Moolgavkar: And you are now in Maine today in the path of a hurricane potentially. So stay safe. And I am Radhika Moolgavkar, Head of Supply and Methodology at NORI. So, as I’m sure many people who listen to this podcast know, the voluntary carbon market has a total value of over $2 billion, and some predictions show it growing to $10 million in just a few years. So that’s billion with a B. But the integrity of the carbon offsets available has come under increasing scrutiny in recent years, causing demand to slow and prices to go down.
According to a new report from Morgan Stanley, the market is approaching a tipping point. As more and more companies hesitate to stake their environmental claims on offsets that may be debunked in the newspaper the next day. So if the market hits a tipping point, what’s next? What does it mean for companies and governments hoping that carbon removal can fill the gap and with a more reliable type of offset? Today, we’ll take a look at the state of the VCM and discuss the implications of an oil company Oxy purchasing carbon engineering.
Is big oil good for DAC? And let us get started and find out what our panelists think. So Holly, I’m going to jump to you and start with you about these VCM tipping points. Why has there been more scrutiny of carbon offsets recently, just as a base?
Holly Jean Buck: So I think this has been building for a while. Demand actually dropped in 2022. A lot of criticism from investors, from the media, this whole mess with crypto in general. So why recently even more criticism? I think a couple of things. There is a paper that came out a few weeks ago in Science from West et al. That was an international research team that looked at a bunch of red plus projects. Basically found that most red projects are less beneficial than is often claimed. So that, you know, there’s a kind of a big deal paper in Science that puts some numbers to kind of what people had been feeling.
The other thing in the past few weeks, there’s been more kind of shady deals. You might’ve seen announcements that there’s a draft MOU in Liberia with a Dubai-based firm, Blue Carbon, that would be a pretty sizable forest carbon deal up to 10% of the size of Liberia that would prevent them from using the land to meet their own international climate targets. But just more headlines from announcements like that, that I think are increasing the skepticism even beyond what we saw last year, or for some of us in the climate movement the past two decades.
Radhika Moolgavkar: Yeah, so you’ve been in the climate movement for two decades. Will, I know you’ve been part of it for many, many decades as well. And I’m curious, one of the things I have a hard time wrapping my own brain around is, is it fair to judge these credit’s From what we know today versus when they were created from a historical perspective, like weren’t people doing their best at that time? And now we’ve learned more and maybe they aren’t what we expected. But is it fair to judge them so harshly, setting aside like the Liberia deal or, you know, but more of these older projects that get this sort of harsh criticism?
I’d love to get your perspectives. I’ll start with you, Will, and then go over to Holly.
Wil Burns: Yeah, I mean, I think some of the truly older projects, but some of the ones that were looked at in the West piece, for example, that Holly alluded to were more recent and quite frankly, folks should have known better. Same thing with the South Pole fiasco, right? I just think there’s some rent-seeking and game-playing where people are using unrealistic And maybe consciously not adjusting to changes in rates of loss that have occurred more recently. And that’s kind of what that study showed. And so I would say to some degree, yes, with some of the older projects, but a lot of the newer projects still are distressing sometimes in terms of the methodologies they’re using.
Radhika Moolgavkar: Holly, anything you want to add to that?
Holly Jean Buck: Just the way, you know, I do feel for the people who have tried to make this work in various ways in various places around the globe. But it’s just illustrative to me of the way bad projects can pull down an entire field.
Radhika Moolgavkar: Yeah, it is unfortunate and it’s something I think about a lot. So Will, if companies are not buying offsets, what are they doing? Are they doing anything or just sitting on the sidelines?
Wil Burns: Yeah, well, you know, it should be noted you still have some companies that are pretty aggressively in the offset market, Microsoft, Shopify, JP Morgan, Chase. But, you know, notably you have Shell. That was going to be the largest purchaser of offsets, including some that would have been CDR offsets. To the tune of $100 million recently announcing that they’re scrapping that, at least for now, right? And that’s foreboding, right? But, you know, at the same time, if you have a 2050 net zero commitment, invariably, it is going to require some removals, right?
And so folks are going to have to pivot after the initial panic. And I think I think there’s various things that could happen, right? I think, you know, there’s various voluntary movements that are seeking to strengthen the integrity of these sort of standards. And an industry may rally around those and embrace those in a way that gives people more confidence in terms of the investor community or the public. In the longer term, companies are going to embrace removals more than they are avoided emissions reductions, right? And that the problem I think they face, and I can see the frustration is, in my opinion, it’s easier to prove That you’re removing carbon from the atmosphere with an afforestation project or a soil project, for example, or direct air capture.
Then these avoided emission scenarios that got South Pole in trouble and the West study talk about. But the question is, does the public or do investors understand that distinction? And if they don’t and the optics are still bad, you’re not going to opt for any of that, right? I think in the longer term, companies are gonna try to move toward industrial removals because it’s easier to verify. But of course, those are very expensive right now. There’s not enough of them. And we face that chicken or egg dilemma that until there’s enough demand, we’re not gonna scale and bring prices down, right?
So I’m not quite sure what happens.
Radhika Moolgavkar: Yeah, you hit on a huge, huge plethora of concerns and things that I think anyone in the carbon removal industry I think to you, Holly, People have been skeptical about carbon trading for a long time, and this kind of plays into what I’m thinking about in terms of supply outstripping demand eventually. Is carbon trading the right approach to what we’re doing? Is this the right, especially if businesses start to move away from it because of the press and the appropriate concerns about the baseline? Or do we need to start over?
How do you think about this?
Holly Jean Buck: I mean, what I’m worried about as a sociologist is a more deep seated skepticism about being able to do anything in an organized fashion that has all of these different actors. And so I guess the idea was that, you know, the market is going to be the thing that coordinates everybody. And so far that did not work, right? I do think that maybe there’s a scenario in which we can build a removal only market, which would be good for the climate. But if the whole perception of all of this is wrecked already by the shenanigans and carbon markets to date, that won’t work.
And I actually... I had a question for Will that came up when I was thinking about this. So on one hand, there’s this imagination that we have this removal only market that’s much more rigorous than maybe works in a different way. On the other hand, there’s the whole thing about ITMOs, the Internationally Transferable Mitigation Outcomes in the Paris Agreement. Read just this week that Sternom would be possibly the first to register with that using, you know, its forest carbon credits. And so does this IPMOS thing just perpetuate the problems from, from what we’ve seen?
Do you know, Will?
Wil Burns: Yeah, it very well may. I mean, yeah, I think that, you know, I know we’re going to talk a bit about article six in a little bit anyway, but it, it’s I think that the international community really hasn’t really grappled with these distinctions in a way that establishes meaningful guidance or maybe even correct guidance. And I think it’s laudable that we are starting to discuss these things in the context of Article 6, but I think there’s a very good chance that we’ll get it wrong. And we’ll inject some of the same problems into the compliance community that we have in the voluntary community at this point.
Radhika Moolgavkar: Yeah. Wow. That’s so much there. But I will move on because you gave me such a nice segue, Holly. You have talked, Will, about the UN process that’s currently taking place to regulate carbon markets. I, for one, have to constantly remind myself of that process because the voluntary markets seem so separate from the regulatory markets. And I know there’ll be a convergence at some point, but it feels very far away. But, you know, how do you think the loss of faith in carbon offsets will impact the UN and, you know, Article 6 thinking?
And, you know, also there’s a lot of concern within the UN about CDR being a human rights problem. And how do you think about that also within this broader UN context?
Wil Burns: Yeah. Well, I mean, I think this is going to rile the waters further. I mean, one of the things that was striking in the last iteration of the Article 6 committee’s documents was really an emphasis on afforestation as the preferred CDR method, right? And direct air capture was deemed non-sustainable per se almost. And they bent over backwards to use dynamic accounting to privilege trees, even though they acknowledge that, you know, there’s permanence issues, right? Even though they reverse that ultimately. Now they face this crisis when it comes to trees, right?
And I think that’s something that they’re going to have to confront. I think that the human rights issues are something they’re going to have to confront too, because, you know, realistically, if you’re looking at Large scale afforestation or, or some of the red projects that we’ve looked at, there’s been serious human rights considerations, right? And yet, uh, That document really focused on the threat of human rights associated with so-called, quote, industrial CDR, right? But a realistic assessment of the impacts of CDR in terms of human rights is going to have to include these kind of large-scale forest projects.
And I’m not sure... It seems to me the agenda is tilted in such a fashion that they’re going to be able to objectively make those kind of distinctions. But this crisis associated with forest credits may result in some reconsideration of some of their findings, which I think would be helpful. And, you know, we’ve got more actors, people like the Carbon Business Council and the Direct Air Capture Coalition and others have now I don’t think they really saw some of this coming or they were in their early stages of formulation. I think they’re more stood up now and hopefully that will help create a more robust and meaningful sort of conversation.
Radhika Moolgavkar: Yeah, I find it fascinating. I read an article that said, you know, they’re concerned about BECCS because you could have the water and land use issues, but You think about afforestation, reforestation is the same sort of thing. I mean, how they reconcile that in their own head. I’m curious. Maybe they don’t. I don’t know. Okay. So this last question about this topic is for both of you. I’ll start with you, Holly, and then I’ll let Will have the last word. The carbon removal industry we covered generally purports to offer improved methods of carbon storage compared to traditional offsets.
Could they benefit from this as buyers look for better alternatives, the traditional offsets, or will this sort of traditional offset market sink us all? I think we’ve talked about that a little, but if you have any final thoughts.
Holly Jean Buck: Again, I’d be looking to Will to explain how much the Paris Agreement and what comes from a mox ocean to kind of the old I guess my question is what could removals do to differentiate themselves and can they tell that story and take those actions in a way that regular people understand? I mean, if I was to come up with creative ideas to that question, I think about two things that are kind of off the wall, but I think we need bold thinking. So I would like to see Works for community-based monitoring of projects just to make it more transparent, which what’s actually going on.
I think we have the tech, we have this digital ecosystem that didn’t really exist in the same way 20 years ago that we could put towards that. And the second thing, you know, we’re certifying projects. Well, why don’t we certify buyers as well to make sure that those, you know, removals are compensating for things that are actually difficult to abate. Crazy, I know, but let’s start thinking.
Radhika Moolgavkar: Oh, that’s still, that’s an interesting idea. You know, why not? Will, last word.
Wil Burns: Yeah, I think those are excellent suggestions, especially the last one, right? I mean, you’ve got the SBTI that’s trying to mandate that with corporations that sign up to it, right? We probably should have something like the SBTI standards or what the European Union is looking at. Incorporated into the Paris rulebook rules that will govern Article 6 ultimately, I think that could be important. Removals definitely could be part of the Article 6 framework because it defines I think the biggest issue, again, though, are the optics. And countries don’t think they can explain to people that the integrity of removals may be sounder than those of avoided emissions, right?
Which is a subtle distinction. If you’re not in the weeds or forests like a lot of us are, then they may just eschew doing that. They may just say, we’re not going to be able to do that. And so we’re going to try to move on. To something else. But, you know, again, if we’re going to get to net zero, we’re going to face the reality that we’re going to need to bring some of this in. But I agree that Holly’s crazy ideas shouldn’t be so crazy when we get to that point, but we’ll see what they do.
Radhika Moolgavkar: Okay. Yeah, they aren’t crazy. I love those ideas, Holly. And I mean, to me, it just feels like it’s as simple as you mandate emission reduction to the lowest point and then you use carbon removal for hard to abate in residual emissions. These are all fairly well understood and defined terms. And I don’t know why we have made it so complicated. Every time I read something, I get more confused, if you’re like. But let’s move on to something controversial because Oxy bought Carbon Engineering, which, you know, some people cheered and some people caused a lot of heartache about.
So I’m just curious, Will, if you have thoughts about why Oxy chose to purchase Carbon Engineering now. They’ve been partnered for five years. And, you know, what do you think motivated the purchase?
Wil Burns: Yeah. So, I mean, one thing to remember is that Oxy has been an equity partner in carbon engineering since 2019, which is sometimes a prelude. You know, you kick the tires and then determine if you want to buy the car, right? And that may have been what Oxy’s strategy was from the outset. I think other motivations could be they’re planning to build like a hundred direct air capture plants, Oxy, right? And they may want a supplier that is singularly focused on their projects, right? And not flitting about. And given the kind of the massive scaling that’s going to require, they may have wanted to bring Oxy into the fold of their low fuels, I think the last reason, oh, and I think there’s a couple others.
One is, I think they think they can make a lot of money in terms of technology licensing and royalties, and they’ll bring that money in a way that they wouldn’t, obviously, if they didn’t own carbon engineering. And the last one, which may sound silly, but wait for a moment on this one, is employee recruitment. So Vicki Holub, who’s the CEO of Oxy, and doesn’t always use her quiet voice when it comes to things associated with this. She was on a podcast last year, and she said, the employees love direct air capture, especially our early career employees who had questions about whether or not they should be working for an oil company.
And one of the suggestions is that it’s hard in the fossil fuel industry to now to get good young people to come and join and direct air capture provides at least a patina of progressive, you know, policy. And quite frankly, they only gave them, they only cost them 1. 1 billion, which is, you know, it’s pincushion money in the fossil fuel industry, given its profits. And so I think it was a mix of motivations.
Radhika Moolgavkar: A billion dollar recruitment tool that’s merely a pincushion.
Holly Jean Buck: I mean, how many people say that in one sentence?
Radhika Moolgavkar: Holly, so as I alluded to at the beginning of this topic, oil and gas being involved in the carbon removal industry is a healthy debate, to put it nicely. And it also makes headlines in the broader environmental media. So what was your reaction to the news? And what did you notice from a sociological perception about the reception to this news in the broader public?
Holly Jean Buck: Yeah, I mean, I had a hard time feeling a reaction to it because I was writing back in 2018, like, this is, you know, a big risk for this technology. It’s going to be acquired and used by oil companies. And I guess maybe, you know, my perception may have shifted. I’m not sure that’s the worst outcome, because if you think about the question of what are we going to do with these oil and gas companies, having them transform into carbon management, Companies isn’t the worst thing that could happen. But, you know, this is the thing about startups.
They get bought by big companies. That’s the model. It’s the exit, right? And so there’s a little bit of writing about the concept of exit to community, but that’s definitely not in the mainstream yet. The sad thing about this is that it’s just proving to people that it’s all an oil industry scheme, if that’s already their prior belief. I do think that’s unfortunate.
Radhika Moolgavkar: Yeah, I didn’t even think I didn’t even think about that, Holly. That’s a really, really interesting point that is just validating beliefs that are already there rather than elevating a new technology. So, Will, back to you, critics of CDR worry it will be used to continue the status quo and kind of to Holly’s point, does this prove them right or is it too early to tell?
Wil Burns: Yeah, it’s, I mean, one thing I’ll echo, and I know I’ll get duff for this is, is I don’t, I concur with Holly that it’s not necessarily a totally bad thing for all the reasons she talks about, but maybe for a couple others also. First of all, I, I think we’re going to need massive injections of capital to, to scale these approaches and bring down the cost and learn by doing and so forth. And For better or worse, it is companies the size of Occidental that have that capital, also that have a time horizon in terms of their return on investment that is multi-decadal as opposed to venture capitalists or Foundations and so forth, or governments that can come and go, right?
You get a Trump administration or a Haley administration, and a lot of this may be gone, right? But oil companies are here for a long time, right? And so they can inject capital away that can make projects happen. Massive practical expertise in components of this that are going to be critical, including transporting CO2 safely, storing CO2, characterizing it and so forth, right? So, you know, it may not be the end of the world. Now, on the other hand, right, this threat that it lets the good times continue to roll, right?
Our friend Vicky Holub at Oxy, again, not using her quiet voice, at a meeting last year at oil company’s Said that direct air capture quote is going to be a technology that helps us to preserve our industry and it gives us a license to continue to operate for 60, 70 or 80 years. Right. I’m not so worried about that because I think that would be her hope. Right, of course, as a head of an oil company, I’m not sure that’s the reality, right? The bottom line is that given how much more competitive renewables are coming, right, it’s hard really to foresee the oil industry lasting that long.
It’s also hard to believe that you’re going to be able to scale any of these things to the point that you’re still not going to have to have massive decarbonization, right? And I think that Train is leaving the station, right? So, you know, my only concern, some people have talked about catch and kill strategies, right? What the oil companies did to the electric car industry. I don’t think that’s where we’re at. I think the oil industry and coal and natural gas see the handwriting on the wall that they are creating.
Moving toward a phase out and I think they’re looking for more revenue opportunities, right? That are commensurate with what the size of their industry are, right? So I’m not sure they’re going to kill these things. I think they’re going to try to spruce up their images. So I’m not so concerned. Also from a standpoint of political economy, I think if oil companies start making a lot of money by doing this, they’re less likely to be opposing climate legislation. And that can make a huge difference because they have been Major, if not the most major players in slowing us down and even requiring us to talk about things like putting, you know, sulfur in the sky or massive direct air capture projects, right?
So, you know, if they now see a motive to stop doing that, that’s good too, right? And I guess the last thing to add, though, is I agree again with what Holly was talking about before, about Article 6. We want companies to embrace the science-based targets initiatives. Maybe we need to make those statutory where companies have to focus on wringing out all possible emissions reductions before they use CDR or in conjunction with it to try to avoid moral hazard, right? But, you know... I’m not as concerned and I do see some benefits of injecting this capital at a critical time.
Radhika Moolgavkar: Yeah. You know, I would only add a couple of things. One, we don’t talk about it a lot, but there’s, I feel like also an equity issue around electrification, right? It’s more expensive. It’s more difficult. It’s not available to everybody. So we need oil and gas, as Holly has mentioned in our podcast, to Orderly transition out. And so giving them this other mechanism of keeping their businesses moving forward, I think, makes a lot of sense. And you can’t just remove gas from every part of the world overnight. And the other thing I think is we’re so entwined, as you mentioned, Will, with the oil and gas industry and our political system that finding ways to bring them along and support rather is hugely critical.
And we’re not getting rid of the tax incentives anytime. So Let’s figure out a way to give them incentive to do the right thing versus continue to extract. And I sometimes wonder if that’s what she sort of meant by that comment. I’ve seen, I’ve heard that comment before. And who knows whether she meant in the current form or in a full new state. I don’t know. Shouldn’t say. I don’t think. Our good friend, Vicki. So Holly, final question for you on this topic is, is this a sign that Oxy is using DAC to greenwash or are you more optimistic about it?
Will’s kind of given his thoughts. What do you think?
Holly Jean Buck: I mean, I don’t know how to read some of their comments because I imagine that a leader like that has to do massive internal work to change things. The culture of her organization, right? So there’s probably certain things that if you’re in that position, you have to say them even no matter who knows what she really thinks, who knows what any of them really think. But my concern, which I don’t have the, you know, chemical and engineering expertise to say something about, but maybe some listener does. I wonder if having a lot of capital behind one particular version Of DAC could lock us into one type of DAC technology that might not be the best one.
Like, for example, Oxy is North America’s leading producer of potassium hydroxide, the chemical used in this particular type of carbon engineering technology. Like, if you have a producer that is mixed up with the petrochemical industry, do they have And sometimes to use one particular technology versus a whole other operation, or is that irrelevant? I’m just not a chemical engineer. I don’t know that, but I do wonder if we get locked into less efficient, less environmentally friendly forms of DEX through investments like this.
Radhika Moolgavkar: That’s a really smart and interesting point that I had not considered. Well, that’s why I love this show. You guys are always bringing new thoughts to my head and it keeps me on my toes. But we will keep moving on to the last subject today, which is pretty short, but NOAA awards. So, you know, I am always happy to see the Biden administration, the federal government fund different types of CDR. NOAA has awarded $24 million to Marine CDR Research Project. Not a huge amount, but definitely not something is better than nothing.
So Holly, why do you think they’re supporting research in this area?
Holly Jean Buck: Because thinking science. No, I’m really excited to see just some basic scientific funding in this area, a fraction of what It was recommended by the National Academy’s research strategy, but still something is good. And the interesting thing about these awards is that they are multi-partner awards. So really new collaborations between academia and they had to partner with federal scientists or industry. So you had 17 projects with partners from 47 institutions. And I think that’s a good sign at this stage. Impacts, like biological impacts of CDR and efficacy, which is, you know, the science we need to be doing across the range of marine CDR technologies right now.
Radhika Moolgavkar: And Will, last question for you. What did you make of the award recipients? Do you see a lot of potential in the type of CDR that they are researching? Because, well, oceans are tough.
Wil Burns: Yeah. I mean, again, the caveat, it is a small amount of money. I wish in many ways Occidental would invest a billion dollars in ocean-based research also, but With that caveat, I like the approach for a number of reasons. First of all, it’s diversified. I don’t think we want to pick winners and losers at this really incipient moment with the ocean-based CDR. And so there’s funding for ocean alkalinity enhancement and seaweed and coastal enhanced mineral weathering, for example. So I think that’s good. It’s diversified. I also like the fact that there’s some...
Projects that are taking advantage of existing infrastructure. For example, there’s funding of a project called Hampton Roads that will look at the possibility of manipulating wastewater treatment plant procedures and discharge to enhance carbon removal. What I like about those kinds of approaches is You know, when you think about the kind of the long regulatory slog that we’re going to face with ocean-based CDR, any project that can piggyback onto existing regulatory structures can facilitate, in many cases, a more expeditious sort of project. And so I think that’s good. It also, there’s a lot of emphasis on approaches that have potential co-benefits, including addressing ocean acidification.
And so I think that’s great for a number of reasons. One, ocean acidification, bad. Second of all, more likely... Yeah. Yeah. Yeah. Yeah. Yeah. With a model of smaller companies that are trying to make a return on their investments. So, you know, again, caveat too small, but I thought well thought out portfolio projects.
Radhika Moolgavkar: Yes, I’m personally excited because the University of Washington got a small funding and we know the people, so that’s exciting to us, to me. But, well... Well, Holly, thank you for joining me on the return of Carbon Removal Newsroom. As always, you guys gave me lots to think about. Hopefully you gave our listeners lots to contemplate. And I look forward to seeing you in about a month.
Wil Burns: See you soon.
Radhika Moolgavkar: Take care.
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