Crafting a strong case for Carbon Removal: Some key fundamentals to keep in mind

The inherent focus on fossil carbon in compliance markets means that project developers seeking to trade carbon removal credits from biogenic carbon will find the voluntary carbon market as their opportunity space.

One of the key challenges within the carbon removal credit market is that most existing solutions are low-cost nature-based carbon removal solutions, trading at prices as low as EUR 2-3 per tonne of CO2³. As a consequence, technology-based carbon removal solutions such as BECCS and DACCS struggle to be cost-competitive with nature-based solutions such as reforestation.

Eligible CCUS projects do, however, offer more robust carbon removal permanence, project additionality, and verifiability than nature-based solutions⁴. These projects have a higher likelihood for permanent carbon storage and a lessened risk for reversibility, have a higher likelihood to occur from the sale of carbon credits, and are easier to monitor, report, and verify that carbon is removed.

As the voluntary carbon markets remain largely unregulated, a proper standardised distinction between the various solutions based on their quality parameters, which could impact preferences for higher quality solutions and come to be reflected in market prices, is still missing.

Upcoming frameworks for reliable certification of high-quality carbon removals

To overcome such uncertainties and develop harmonised methodologies to assess the validity of carbon removals, the EU is now developing a Carbon Removal Certification Mechanism (CRC-M) to certify carbon removals generated in Europe. Since 2020, Ramboll has been a key partner for various stakeholders providing detailed assessments of eligible carbon removal solutions, technologies, and possible certification mechanisms.

Aiming to boost innovative carbon removal technologies and sustainable nature-based solutions, while fighting greenwashing, the framework will set out to define high-quality carbon removals and the process to monitor, report and verify the authenticity of these removals.

For these reasons, the CRC-M, set to be adopted in 2023, is widely anticipated among CCUS developers hoping to gain better conditions for carbon removals originating from CCUS. While price differentiations between different types of carbon removals are likely to remain, an increased demand for carbon removal credits with these quality parameters could ensure a better market position for technology-based carbon removal solutions in the future.

Assess the demand potential

To unlock the value of carbon removals and successfully enter carbon removal credit trading markets, CCUS developers need to assess the demand potential to understand the potential buyers and their interests, develop an understanding of carbon markets and identify the opportunity space for CCUS, and enable the issuance of tradable credits. There are several important commercial aspects to first consider regarding the demand for carbon removal credits.

Who are the potential buyers of carbon removal credits?

Demand for carbon removal credits is growing rapidly, driven not only by private companies seeking to remove hard-to-abate or residual emissions to meet their net zero targets, but also by national governments seeking to reach their countries’ climate targets. While demand could be significant, it will be necessary to determine who potential buyers of the carbon removal credits will be, and what are their specific motivations for purchasing the credits, as it might have impact on both the expected volumes and price levels.

How much are they willing to pay, and will it be enough to support your project?

Buyers across different sectors, industries and countries will have different requirements and needs, meaning that their willingness to pay will be different as well. Therefore, it is crucial to assess the price levels, that correspond to the mapped demand, and whether the resulting income will be enough to financially support the project. This step will be key, although the lack of transparency around carbon pricing today makes it challenging for project developers to estimate current and future price levels.

These initial considerations should be used to inform the development of a business model that specifically addresses how carbon removal credits can become an additional revenue stream – an often-critical element in supporting the business case for CCUS.

Enable the issuance of tradable credits

Future CCUS developers must also understand that the generation and sale of carbon removal credits through the voluntary carbon market is likely to have a mutual interdependency with several external stakeholders.

In addition to potential buyers, these include third-party standard bodies and traders. It is critical to understand each actor’s role within the carbon market and what types of partnerships should be formed to enable the issuance of tradeable credits.

External Sources:

¹ IPCC 2022, “Sixth Assessment Report Summary for Policy Makers”; IEA 2021, “Energy Technology Perspectives 2020” ² Global CCUS Institute 2022, “2022 Status Report” ³ The World Bank 2022, ”State and trends of carbon pricing 2022” ⁴ Environment Agency Austria 2021, “Certifications of Carbon Removals”