Even with best efforts to reduce carbon output, there will always be unavoidable residual emissions, argues Fredrik Ekström
The world is at a pivotal moment, reaching critical mass in the commitment towards an energy future that is designed both for energy security as well as energy sustainability.
A shift of this magnitude does not happen overnight and can only happen through an ecosystem approach that brings all organizations together to push the boundaries of possible.
Corporations will be essential to these efforts, and many have already stepped up with actions to reduce greenhouse gas emissions. But reductions will only get us so far: to meet the ambitious goals that the climate challenge demands, an all-of-the-above mitigation strategy that includes a mature market for carbon removals must be on the table.
Half of the world's largest companies have now publicly committed to net-zero targets, a notable milestone in the effort to limit global warming to the 1.5°C Paris Agreement target adopted at COP21. But committing to a goal is decidedly easier than accomplishing it —companies around the globe are now looking for concrete solutions to help them achieve carbon net-zero.
Many businesses have focused their initial efforts on replacing fossil fuel usage with renewable energy sources, implementing energy efficiency within their facilities, and requiring sustainability practices from suppliers.
These initiatives are, and will be, an essential part of the solution. But even with the best efforts to reduce carbon output, there will always be unavoidable residual emissions — adding to the world's already considerable carbon debt. In fact, a recent University of Oxford study finds that as much as 9 billion tons of CO2 per year will need to be removed from the atmosphere if the world is going to meet the Paris Agreement target.
High-quality carbon removal projects are a viable solution for mitigating hard-to-abate emissions in a durable way, removing carbon from the atmosphere and storing it for hundreds — and sometimes even thousands — of years. But clear guidelines do not currently exist for how corporations can use carbon credits as part of their net-zero strategies. This needs to change.
Throughout history, financial market infrastructure has evolved alongside changing economic landscapes, technological advancements, and regulatory frameworks to help meet emerging demands. Today, we need a similar evolution to help companies achieve their net-zero goals and address the very real need to remove carbon from our atmosphere.
"To be able to reach a net-zero state and to manage any overshooting of the carbon budget, the carbon removal market needs to scale to gigatons of capacity. To succeed, the scaling needs to start now"
To be able to reach a net-zero state and to manage any overshooting of the carbon budget, the carbon removal market needs to scale to gigatons of capacity. To succeed, the scaling needs to start now.
Scaling the carbon removal market will require collaboration between the public sector and private sector. This should include the creation of efficient pricing mechanisms, industry guidelines and frameworks, verified and trusted carbon standards, and transparent and interconnected registries.
This would support the establishment of more fungible carbon spot and futures contracts and build an active secondary market to support better price formation and demand signals.
This isn't a far-fetched idea. The European Union's Emissions Trading Systems has already become a global benchmark for carbon pricing. Scaling up these efforts to create one global framework that would allow well-defined, durable carbon removals to be part of emissions trading mechanisms would create demand for more carbon removal projects, incentivize climate-friendly corporate actions, and ultimately help achieve the goals outlined in the Paris Agreement.
Ultimately, competition drives innovation and builds better markets and products. An efficient structure would leverage the structure and the learnings from the financial markets with overarching regulatory frameworks and oversight, but still allow private initiatives to drive innovation and efficiency within given boundaries.
Centralizing standard and registry activities in a single public entity may slow down progress.
The journey to net-zero won't be walked along a single path. By pursuing multiple routes for emissions mitigation — including a mature, transparent market for investing in carbon removal projects — we can encourage more companies to get off the sidelines and be part of the climate solution.
Fredrik Ekström is Head of Carbon Markets at Nasdaq, Inc. and Chairman of Puro.earth.
