Net Zero Company — Core Principles

Last year Mark Tercek and I co-authored a two-part series exploring some of our thoughts and ideas regarding the net zero transition originally featured here on The Instigator and republished here by the Corporate Eco Forum (CEF). I see this article as a continuation from that project as the Net Zero Company will fully embrace the principles and ideas explored in these articles and incorporate them into the design of the Net Zero Registry and the CDR Token.

Disclosure: Neither Peter nor Mark are neutral on this topic. Peter has spent his entire career thinking about and getting directly involved in, carbon markets to achieve climate goals. Most recently, he co-founded SilviCarbon and the Net Zero Company. Mark is the former CEO of The Nature Conservancy (2008–19) and is an advisor to and investor in several companies in the carbon removal business.

The Net Zero Company is an exciting new project bringing together carbon and digital markets in a way that helps society transition to net zero.

In a nutshell, the Net Zero Company is a spin-out from SilviCarbon, a company I co-founded in 2019 which is majority owned by VARO Energy (which is owned by Carlyle and Vitol). As of June 2022 the Net Zero Company will mint and sell CDR Tokens which will be backed by carefully curated high-quality CDR carbon credits, representing physical, monitored and audited carbon dioxide removals from the atmosphere.

These CDR Tokens can be used by companies participating in the Net Zero Registry to balance their monitored and audited greenhouse gas emissions. The Net Zero Registry will be operated by the Net Zero Company and is in essence a quasi-regulatory system, similar to the EU Emissions Trading System but open to any company globally and more directly consistent with the global net zero objective. Participation in the Net Zero Registry will be entirely voluntary.

For those companies who are serious about their net zero transition participation in the Net Zero Registry will make it easier to transition to net zero in a way that is credible, transparent and cost efficient. All of the core principles and ideas described below will be incorporated into the design of the Net Zero Registry.

An interesting aspect of the Net Zero Company is the dual function of the CDR Tokens. They are a utility token within the context of the Net Zero Registry, but at the same time they are as easily investible as any other digital/ crypto asset. A key difference between the CDR Token and some other “carbon-meets-crypto” initiatives is the Net Zero Company’s careful approach to creating a trustworthy representation of physical, monitored and audited carbon dioxide removals. This involves several layers of carbon credit selection/ curation as well as careful structuring and design (more about this in another blog post).

We expect that our decision to utilise the blockchain as a tool for the net zero transition will be challenged on the grounds of the negative environmental impact of many of the existing blockchain initiatives. And we believe that this challenge is entirely justified. However, we also believe that despite its past and current negative environmental impact the blockchain can be “rewired” to become a powerful tool to help with the net zero transition. Our aim is to — over time — help replace the blockchains which essentially represent energy consumption and carbon emissions with new blockchains which represent carbon dioxide removals. We aim to turn the blockchain from a tool that pumps greenhouse gases into the atmosphere into a tool which helps suck them back out. It’s a very audacious goal. Just as the goal of “solving climate change”. However, we still believe it’s worth trying.

The Core Principles

My friend Mark Tercek and I have over the past two years workshopped ideas on how companies can transition to net zero without meaningful regulatory guardrails and within the structures of the existing market-based economy. While there are still a lot of unanswered questions to this challenging problem Mark and I believe that the following principles and ideas point in the right direction. The Net Zero Company will fully embrace these principles and ideas and incorporate them into the design of the Net Zero Registry and the CDR Token:

1. We need a widely accepted framework for companies who commit to a net zero target.
2. The initial goal is to achieve a situation where anthropogenic greenhouse gas emissions are balanced with anthropogenic carbon dioxide removals within a given time period (e.g. one calendar year).
3. The next step is to achieve a situation where total carbon dioxide removals increasingly exceed total greenhouse gas emissions so that eventually the concentration of greenhouse gases in the atmosphere is brought back to pre-industrial levels.
4. As part of this global “atmosphere remediation project” companies are required to accept the moral — and potentially legal — responsibility that they have to ensure that at some time in the future all of the greenhouse gas emissions in their operations, supply and value chains are balanced with carbon dioxide removals within each calendar year.
5. Companies have a moral — and potentially legal — responsibility to start reducing their net emissions (greenhouse gas emissions minus carbon dioxide removals) now and not just at some more or less distant point in the future.
6. Companies have a moral — and potentially legal — responsibility to balance their greenhouse gas emissions and carbon dioxide removals as soon as possible. They also have a similar responsibility to ensure that their annual reductions of net emissions (difference of net emissions from one year to the next) towards that goal are as high as possible. The respective speed of reducing net emission and achieving a balance of greenhouse gases and carbon dioxide removals should be proportional to a companies’ abilities. The strongest and most able companies should achieve a balance in 2022, other companies may take a few years longer. All companies have a responsibility to justify in a transparent manner why special circumstances apply to them which make it impossible for them to achieve a balance in 2022 and why they cannot reduce their net emissions faster than they do.
7. Robust frameworks need to be established which ensure that companies monitor and audit their greenhouse gas emissions and the carbon dioxide removals which balance these emissions. The monitoring framework for greenhouse gas emissions covered by regulatory schemes, such as the EU Emissions Trading System should provide guidance as to the required level of accuracy and reliability.
8. There should be a high level of scrutiny (and robust frameworks which ensure this level of scrutiny) to minimise any harm from carbon dioxide removal activities (Do no harm!). The same level of scrutiny should be applied to greenhouse gas emission abatement activities and also to those activities which continue to cause emissions of greenhouse gases. Some carbon dioxide removal activities can be harmful to communities and the environment. These activities need to be prevented. This problem is not unique to carbon dioxide removal activities. Any such harm should be equally prevented if it is caused by greenhouse gas emission abatement activities or by activities which continue to emit greenhouse gases.
9. Companies have a responsibility to balance not just the greenhouse gas emissions in their operations, supply and value chains. They also have a responsibility to balance the emissions caused by the re-release of carbon dioxide which has been stored after carbon dioxide removal activities were used to balance their previous greenhouse gas emissions. In other words when a company balances their greenhouse gas emissions with carbon dioxide removals they now need to monitor whether the removed carbon dioxide is re-released into the atmosphere at some stage in the future. Any such re-release needs to be treated the same way as any other greenhouse gas emissions in the respective company’s operations, supply and value chain and needs to be balanced with new carbon dioxide removals. The frameworks for monitoring and auditing these greenhouse gas emissions from re-release of previously removed carbon dioxide need to be as robust as the respective frameworks for their other greenhouse gas emissions (see above 7.). This approach addresses the issue that after carbon dioxide has been removed from the atmosphere the stored carbon may be re-released into the atmosphere at some future date. From a climate perspective the storage of this carbon does not need to be “permanent” as long as it is ensured that any re-release of carbon dioxide from this storage is again balanced with new carbon dioxide removals. One way to ensure this is to place the responsibility for balancing these “re-release emissions” on the company that balanced their greenhouse gas emissions with the respective carbon dioxide removals.
10. There is no “mitigation hierarchy” in the sense that carbon dioxide removals are intrinsically inferior or superior to greenhouse gas emission abatements. They are of equal value from a climate perspective, as long as (i) the “do-no-harm” frameworks for carbon dioxide removals are equally robust as similar frameworks for greenhouse gas emission abatements and (ii) as long as any re-release of previously removed carbon dioxide is treated just as any other greenhouse gas emission of the company whose greenhouse gas emissions have been balanced by the respective removals.
11. One way to structure a net zero framework is to ensure that a participating company’s greenhouse gas emissions in their operations, supply and value chains are balanced with carbon dioxide removals which may occur within or outside of the company’s operations, supply and value chains. Within such a net zero framework emission reduction activities carried out outside the operations, supply and value chain of a company cannot be used to “balance” a company’s greenhouse gas emissions. There is value if companies nevertheless financially support such activities. Many such activities (in particular nature conservation projects) are very worthy of this form of support. We hope that companies will continue to see a strong moral responsibility to support such projects in addition to their moral and potentially legal responsibility to balance their greenhouse gas emissions with carbon dioxide removals. This may particularly apply to companies that have disproportionally contributed to deforestation and natural habitat degradation in the past. However, repeating ourselves for the purpose of clarity, any such support from companies needs to be separate and in addition to the respective company’s responsibility to balance the greenhouse gas emissions in their operations, supply and value chain with carbon dioxide removals.
12. The interconnection between companies’ commitments to balance greenhouse gas emissions in their operations, supply and value chains with carbon dioxide removals and (i) national and supra-national regulatory schemes which balance domestic greenhouse gas emissions and carbon dioxide removals and (ii) international efforts to balance greenhouse gas emissions and carbon dioxide removals (Paris Agreement, ICAO, IMO) are complex. As a general principle companies should ensure that the greenhouse gas emission/ carbon dioxide removal pairings on the company level match the respective pairings on a national, supra-national and international level.
13. The aggregate costs of balancing anthropogenic greenhouse gas emissions and anthropogenic carbon dioxide removals will be high. In principle, they are the sum of (i) the costs of all greenhouse gas emission abatements, (ii) the costs of all carbon dioxide removals and (iii) the administrative costs related to these efforts. These costs will to a large degree be passed on to consumers and tax payers. This will disproportionally impact lower income households. Appropriate social policies will need to be implemented to reduce this disproportional impact as much as possible. Details of such policies are complex. However, it is in any case imperative from a social justice perspective to achieve the goal of balancing anthropogenic greenhouse gas emissions and anthropogenic carbon dioxide removals as cost efficiently as possible. The net zero framework should aim to effectively achieve a balance of greenhouse gas emissions and carbon dioxide removals and it should also aim to help achieve this goal at the lowest possible aggregate costs.
14. The global “atmosphere remediation project” (see above 4.) will need to be achieved in a way that is compatible with continued growth and increasingly shared prosperity. We believe that this is the fastest and most likely path to achieve the first step which is balancing greenhouse gas emissions with carbon dioxide removals and the even more daunting task of bringing the concentration of greenhouse gases in the atmosphere back to pre-industrial levels. In our view, an approach based on the principles outlined above has the highest chances of getting to net zero and beyond in a way that is compatible with growing and shared prosperity.