Introducing Digital Carbon Removal Assets

This document is part of a series of collaborative governance and market-design initiatives led by Xpansiv to foster a common digital ecosystem in support of transparent, ESG-inclusive commodity markets; see “Digital ESG Commodities 1.0: Principles for Building a Common Data Governance Framework for Market & Environmental Integrity” (Cohen and Prell, 2020). Experts from a broad array of disciplines have provided input on this document. [1]

Jeff Cohen & Joe Madden, Xpansiv

Abstract

New financial instruments to expand deployment of carbon capture, utilization, and storage (CCUS) technologies can play an important part in mitigating climate change. We present here a conceptual framework for the digital Carbon Removal Asset (d-CRA) representing carbon dioxide (CO2) emissions that have been captured, and subsequently sequestered in secure geologic formations or durable materials, or utilized as feedstock for alternative fuels, polymers, chemical intermediates, or other products.

d-CRAs are:

• Grounded in real-time metering data, accepted standards, and independent certifications.
• Issued, registered, and transacted to connect producers and buyers of verified CO2 removals across supply chains, with immutable lifecycle traceability.
• Designed to support market-driven price signals and GHG disclosures that are consistent with existing and future reporting frameworks and corporate climate commitments.

Potential d-CRA scenarios are illustrated for three example utilization pathways in industrial and energy sectors:

• Injection of captured CO2 into secure geologic formations for permanent storage.
• Utilization of captured CO2 as an alternative curing agent in concrete manufacturing.
• Chemical transformation of captured CO2 into feedstock for alternative fuels or chemical intermediates.

Pathways beginning with direct-air capture and ending with permanent removal of the captured CO2 (e.g., in concrete or in secure geologic formations) would represent the greatest net reductions in atmospheric CO2 levels, and would be expected to be the most widely traded, highest value d-CRAs.

Expanding CCUS Deployment Requires Path to Positive Return on Investment

Even with steep cuts in greenhouse gas (GHG) emissions in the next two decades, avoiding the worst projected impacts of climate change will require physically removing hundreds of gigatons of CO2 from the atmosphere (IPCC, 2014).

Recent meta-analyses suggest that these targets are achievable with continued development and implementation of key technologies to lower capital costs and improve scalability, along with market and policy incentives (Lux Research, 2018; Hepburn et al., 2019).

Figure 1. Global Market Potential for Select CO2-Utilization Pathways [2]

This document presents new financial instruments to enable global commodity markets to assign and transact value from the removal of atmospheric CO2.

Potential Negative Carbon Emissions from CCUS

The climate benefits of carbon capture — and the cost — depend on the source of the CO2 and how it is used (Table 1).

• CO2 can be scrubbed from industrial flue gas (“stack emissions”) at relatively low cost where high-concentration CO2 is readily available. [3]
• At significantly higher cost, CO2 can be pulled directly out of the atmosphere (“direct air capture”) and permanently buried in secure geologic formations or locked up in durable materials such as concrete and carbon fiber. [4]
• While not permanently removed, captured CO2 that is recycled into chemical intermediates, syngas, and alternative fuels displaces production of fossil fuels.

Table 1. Characterization of Carbon Reductions for Different CCUS Pathways

Markets that Value Carbon Removals Can Scale CCUS

In the U.S., CO2 capture and storage is eligible for federal U.S. tax credits, credits under California’s Low Carbon Fuel Standard (LCFS), and voluntary carbon offsets:

• U.S. tax credits are subject to minimum annual capture limits and construction start dates. [6]
• LCFS credits only apply if the captured CO2 is used in production of transportation fuel ultimately sold in California.
• Like all offsets, carbon capture and storage projects are subject to additionality tests and compete for buyers in voluntary markets.

Beyond these limited incentives, new financial instruments — grounded in empirical data and accepted lifecycle assessments and MRV protocols documenting physical processes without any condition of additionality — can be used to create economic value for carbon capture and removal in broader energy and commodity markets.

Carbon Dioxide Removal as a New Asset Class

In conformance with framework principles for data governance (see Cohen and Prell, 2020), Xpansiv’s Digital Feedstock™ uses technological, legal, and financial constructs to enable supply chains and other market participants to define, register, and transact the environmental attributes of raw material commodities consistent with their ESG (environmental, social, governance) and climate commitments. As an additional application of Digital Feedstock, Xpansiv has created the digital Carbon Removal Asset (d-CRA):

A tradeable, non-tangible environmental asset that represents proof that a metric ton of carbon dioxide (CO2) was:

1. Either a) captured from a commercial or industrial point source, or b) captured directly from the atmosphere; and
2. Either a) subsequently sequestered in a secure geologic formation or manufactured material [7], or b) subsequently used as a feedstock to manufacture alternative fuels, chemical polymers, or other consumable products.

Just as renewable energy certificates are registered, tradable, intangible assets that represent (and help finance) renewable power projects, these new assets represent the physical removal of CO2 associated with CCUS operations:

• “Primary” production and other empirical data are aggregated and encrypted with immutable provenance.
• Consensus standards, emission factors, certifications, facility audits, benchmarks, and other relevant inputs are applied in accordance with d-CRA product specifications to convert data into market-relevant, ESG-inclusive digital assets.
• In some cases, data conversion may rely on quantification methodologies used for carbon offset projects; unlike carbon offsets, however, information in the d-CRA does not require testing for “additionality.” For example, concrete produced using captured CO2 may have a lower carbon intensity relative to conventional concrete, regardless of whether the operations are business as usual, mandated, or an exception to the norm.

The digital assets would be registered in a system that:

• Tracks the provenance of the underlying physical materials (e.g., CO2 that is captured and stored and products that utilize the CO2).
• Enables participants to maintain privacy without compromising data provenance.
• Automatically prevents double counting.
• Tracks financial ownership.
• Enables permissioned market participants to audit the asset history, including transactions, without the need for a central authority.

The digital assets can be transferred and transacted across supply and value chains, bundled with or separate from the physical materials. For example, the carbon removal and lower carbon intensity of concrete produced with captured CO2 can be transferred downstream in the supply chain to buildings, roadways, or other end-uses.

Figure 2 outlines the lifecycle of d-CRAs generated from long-term removal of captured CO2, beginning with CO2 capture and ending with registration and eventual retirement and reporting of the CO2 reductions.

Figure 2: Lifecycle of d-CRAs

1. CO2 is either separated from industrial flue gas or extracted from the atmosphere.
2. Captured CO2 is embedded in durable materials or permanently sequestered in secure geological formations.
3. Metered data directly from carbon capture and CO2 utilization operations — combined with lifecycle analyses and monitoring, reporting and verification protocols, and third-party certifications — are encrypted as certified CO2 reductions/removals.
4. Digital Carbon Removal Assets (d-CRAS) are minted based on original source of removed CO2 and subsequent sequestration or utilization.
5. The d-CRAs and associated CO2-removal metrics are registered for bilateral or market transactions and ultimate retirement and reporting to GHG-accounting frameworks.

Market Utility/Acceptance for the d-CRA

The value and market viability of the d-CRA will depend on adherence to a common set of d-ESGc principles (Cohen and Prell, 2020) that include the following assurances:

• Integrity and verifiable veracity of the underlying data.
• Data are managed and converted into CO2 reductions and other performance metrics using standardized, established methodologies and protocols. [8]
• Key metrics can be tracked across their lifecycle.
• The asset has a unique, registered identity that enables clear delineation of ownership rights, and secure transfer and transaction between two or more parties that prevents double counting and eliminates contractual uncertainties.
• Acceptance in standard GHG-accounting applications.
• Adaptable for multiple data/information-based products designed to represent ESG or climate/GHG performance of energy and industrial commodities.

Illustrative CO2 Utilization Pathways and GHG Accounting

The core component of a d-CRA is the net reduction in atmospheric CO2, with a different magnitude, a different quantification methodology, and ultimately, a different market identity, depending on the source of the CO2 that is captured as part of a CCUS process.

For different CCUS pathways, lifecycle analyses and published methodologies [9] can be used to calculate the net amount of CO2 that is removed from the atmosphere and sequestered/utilized with a common, generic formula:

Net CO2 reductions from CCUS = Baseline Emissions – Process Emissions

Baseline emissions represent the CO2 emissions that would have occurred in the absence of the CCUS process. Process emissions are based on energy inputs and actual measurements of CO2 captured, stored, and emitted during capture, compression, transport, injection, and storage, as well as the durability of the storage site or material, including estimated emissions of CO2 from product disposal or end-use (e.g., fuel combustion).

The amount of CO2 that is utilized by a pathway is not necessarily the same as the amount of CO2 removed or CO2 stored. Furthermore, CO2 utilization does not necessarily reduce emissions and does not necessarily deliver a net climate benefit, once indirect and other effects have been accounted for.

There are hundreds of carbon-utilization pathways in varying stages of research and development and commercialization. Illustrative scenarios for three CCUS pathways that have demonstrated significant potential to scale are outlined below. Other CCUS pathways — including those involving nature-based CO2 sequestration in biomass and soils — can be evaluated in separate assessments.

Pathway #1: Carbon Capture and Underground Storage

Table 2 compares a hypothetical baseline scenario, beginning with a hypothetical 100 units of atmospheric CO2 and normal power plant emissions, with two alternative carbon capture pathways: a) separation and capture of 1 unit of CO2 from the flue gas from a power plant waste stream; and b) removal of 1 unit of atmospheric CO2 via direct air capture. In both cases, the captured CO2 is subsequently injected and stored in a secure geologic formation.

For present purposes, additional CO2 emissions associated with carbon capture and CO2 injection processes are not included. As noted previously, such emissions would be accounted for in LCA and other quantification methodologies used in generating the d-CRAs. In addition, this example pathway does not include injection of captured CO2 into depleted wells for enhanced oil recovery (EOR). [10]

For the flue gas separation scenario, all things being equal, the 1 unit of power plant CO2 emission would be neutralized, with no net change in atmospheric CO2 levels.

For the direct air capture scenario, there would be a net 1 unit reduction in atmospheric CO2 levels, resulting in negative emissions. In this case, the d-CRA product would be labeled a NegaTonne™, defined as: “A tradeable, non-tangible environmental asset that represents proof that a metric ton of carbon dioxide (CO2) was captured from the atmosphere and stored and/or sequestered long-term in a secure geologic formation or manufactured material.”

Table 2. CO2 Scenarios for Underground Storage

In a hypothetical project where CO2 is captured from a power plant in Scotland and subsequently injected into a geologic formation in the North Sea, d-CRAs would be registered that encode certified GHG-emission reductions. Those reductions could be accounted for by different project participants as follows:

1. COMPANY A deploys technology to capture CO2 flue gas at a natural gas power generation plant in Scotland operated by COMPANY B, whose power plant is downstream from natural gas producer (COMPANY C) via connection to North Sea natural gas delivery pipeline.
2. COMPANY A transports all captured CO2 to geologic formation under North Sea for sequestration.
3. Per contract between the parties, COMPANY A owns all right and title to any d-CRAs generated from CO2 captured from COMPANY B’s power-generation plant.
4. In the process, COMPANY A can register two distinct d-CRAs: (a) Scope 1 emission reduction which can be transacted with COMPANY B (or others on the same local natural gas delivery system), and then retired/reported to mitigate against scope 1 emissions; and (b) Scope 3 emission reduction, which can be transacted with COMPANY C (or others on the same upstream natural gas pipeline system), and then retired/reported to mitigate its scope 3 emissions.

Pathway #2: Use of Captured CO2 for Concrete Manufacturing

Table 3 compares the same BAU scenario as presented above in Table 2 against two carbon-capture scenarios that involve use of CO2 as an alternative curing agent to lime in the production of concrete products. In the process, gaseous CO2 is chemically converted into a calcium carbonate mineral that is embedded in the concrete and mitigated as a greenhouse gas for potentially decades or more.

Table 3. CO2 Scenarios for Concrete Manufacturing

In the hypothetical Direct Air Capture (DAC) scenario, the d-CRA “NegaTonne” would reflect a net reduction in atmospheric CO2, with potential GHG accounting across the supply/value chain as follows:

1) 1 CO2 unit captured directly from the atmosphere by DIRECT AIR CAPTURE COMPANY.

• Issuance and registration of a d-CRA reflecting removal of 1 unit CO2.

2) 1 captured CO2 unit permanently sequestered in concrete produced by CONCRETE MANUFACTURER.

• DAC COMPANY transfers d-CRA as a NegaTonne with 1 CO2 removal unit.
• Claimed and retired by CONCRETE MANUFACTURER as Scope 1 emission reduction.

3) The NegaTonne (1 CO2 removal unit) embedded in the low-carbon intensity concrete can be transferred downstream from CONCRETE MAKER to CONSTRUCTION COMPANY, bundled with, or separately from, physical concrete.

• Claimed and retired by CONSTRUCTION COMPANY as Scope 3 emission reduction, or;
• Transferred further downstream to BUILDING OWNER or other customers and claimed as Scope 3 emission reductions.

Pathway #3: Use of Captured CO2 for Alternative Fuels or Chemical Intermediates

Table 4 compares a baseline scenario with conventional petroleum-based fuels to scenarios where captured CO2 is used as a feedstock in the production of alternative transportation fuels, for example, ethanol produced from algae grown with captured CO2, or synthetic fuels made from captured CO2 combined with hydrogen. [11] GHG emissions associated with ethanol produced from corn or other bio-feedstocks are not included in this simple comparison but would be accounted for in more detailed lifecycle analyses.

Unlike the previous CCUS pathways, captured CO2 would in effect be “cycled” back into the atmosphere when the fuel is burned. Nevertheless, there may be reductions in CO2 emissions relative to BAU if the captured CO2 displaces hydrocarbons derived from crude oil production, accounting for energy inputs from carbon capture, hydrogen production, synthetic fuel production, and other processes.

Table 4. CO2 Scenarios for Transformation into Alternative Fuels

Captured CO2 can also be used in the synthesis of chemical polymers. In the case of alternative-fuel production, the CO2 would be expected to be cycled back into the atmosphere within a relatively short time period. In contrast, the timeframe for atmospheric release of CO2 used in production of chemical polymers or other chemical products will vary depending on the resulting chemical products.

For example, CO2 can be used to synthesize polyols that can be processed into polyurethane (von der Assen and Bardow, 2014) and the associated plastic/foam products may serve as a “sink” for the CO2 for an extended period of time. Detailed lifecycle assessments would be needed to quantify GHG emissions associated with specific utilization pathways involving chemical intermediates.

Product and Market Considerations

• For any given Use Pathway, the d-CRA NegaTonne that represents Direct Air Capture and physical removal of CO2 from the atmosphere would have a greater reduction in net CO2 emissions, and a corresponding higher market value, compared to the reduction from separating CO2 from flue gas streams, which is essentially a mitigation activity relative to BAU.
• In comparing Use Pathways, projected net reductions in atmospheric CO2 can be expected to be greatest for concrete (or other durable materials) and geologic sequestration.
• In these simplistic examples, while the captured CO2 utilized for alternative-fuel production or chemical intermediates may not result in permanent CO2 removals of atmospheric CO2, more detailed lifecycle assessments would be required to determine any reductions in carbon emissions compared to BAU. In the case of captured CO2 transformed into chemical feedstock for the production of alternative fuels, although the CO2 is released back to the atmosphere when the fuels are consumed, the manufacture of alternative fuels (or similarly chemical polymers) may be displacing conventional, more energy intensive or more emissive production.
• For a given unit of CO2 reduction, one entity could claim a Scope 1 emission reduction (e.g., the cement manufacturer) and another “downstream” participant (e.g., a construction company or building owner) could claim a Scope 3 emission reduction.
• Under any scenario, transfer of CO2 removals across CCUS cluster participants must be registered so that a given CO2 removal could only be “monetized” once and not double counted in any GHG emission inventory reporting.

Conclusions

Financial markets, shareholders, and customers are demanding greater climate accountability and transparency. In parallel, there is growing recognition that significant expansion of CCUS deployment is not only viable, but a necessary component of global efforts to meet climate-mitigation imperatives.

With the advent of data-driven digital networks, measurements of climate performance across CCUS operations can be converted into dCRAs programmed with empirical data, MRV methodologies, third-party certifications, impact metrics, and other “intelligence.” The d-CRAs encode certified atmospheric CO2 removals that can be embedded in downstream products and traced upstream to the source (e.g., CO2 separated from flue or exhaust gas streams).

These new assets enable a wide range of market applications, including collaborative partnerships across “CCUS clusters,” GHG disclosures across supply chains that are consistent with existing and future reporting frameworks and corporate climate commitments, and price signals for products with reduced carbon intensity.

While the CO2 use scenarios presented here are purposefully simplistic, in a carbon-constrained world d-CRAs would generate positive price signals across a variety of market applications. Generating new economic value can in turn accelerate deployment of innovative CCUS technologies to support a low-carbon, circular-CO2 economy.

About Xpansiv: Xpansiv is the world’s first commodity marketplace built for a data-rich, resource-constrained world. We bring transparency to global markets through innovative, ESG-inclusive commodity products and price information.

FOOTNOTES

[1] The authors wish to thank the following individuals for their valuable input: Pedro Faria (CDP); Seth Epstein (NSF International); Irena Spazzapan (SystemIQ); Amy Zell (Bluesource); Carina Krastel (Air Liquide); Jim McDermott (1pointfive); Tom Anderson (Devvio); William Flederbach (ClimeCo); Kim Raath and Chris Georgen (Topl); Jill Abelson; and Masao Koyama, Akifumi Takagawa, and Yusuke Tsuji (Mitsubishi Corporation).

[2] From Lux Research (2018). Strategic actions identified by authors include policy incentives (e.g., global carbon tax, mandates for renewable products, standardization), R&D consortia, and supply-chain collaborations.

[3] As of December 2019, there were 19 commercial-scale facilities operating, with a combined capture capacity of approximately 40 MtCO2 per year. An additional 32 projects are in various stages of development around the world, with potential capture capacity of 38 MtCO2 per year (GCC, 2020).

[4] Negative emissions can also be generated from “bioenergy with carbon capture and storage” (BECCS), where CO2 absorption is done by trees and crops as they grow and the biomass is then burned for energy, with simultaneous capture and storage of the resulting CO2, permanently removing it from the atmosphere. The concepts presented in this paper for industrial CCUS pathways would apply to BECCS as well and can be addressed in follow-up assessments. Likewise, programs that conserve and restore forests, wetlands, soils, and other natural carbon sinks will continue be a major component of climate-mitigation strategies; these activities to increase nature-based carbon sequestration and storage are not addressed in this paper.

[5] The largest industrial use of CO2 has been enhanced oil recovery (EOR), 30% sourced from stack emissions and 70% coming from natural CO2 deposits close to oil fields. An estimated 90–95% of injected CO2 is permanently sequestered in the geologic formation where the oil was originally trapped (NETL, 2010).

[6] Congressional Research Service, “The Tax Credit for Carbon Sequestration (Section 45Q)”, March 12, 2020. https://fas.org/sgp/crs/misc/IF11455.pdf

[7] It is unlikely that CO2 can be completely locked up permanently; in the current context, CO2 that is kept out of the atmosphere for at least 100 years is considered sequestered over the long-term.

[8] The calculation methodology for the core removal unit will be consistent with standard GHG-accounting principles and procedures, including ISO 14064, and adopted from established quantification and MRV standards, such as the California LCFS CCS Protocol and US EPA Subpart RR.

[9] For example, C2ES (2012); California LCFS (ARB, 2018).

[10] For EOR, lifecycle CO2 emissions associated with produced crude oil would apply equally to both the EOR and the baseline scenario, but it is possible that the use of captured CO2 would be displacing natural CO2 reserves, or that the produced crude oil is displacing more energy-intensive production in new oil fields.

[11] In manufacture of synthetic fuels, CO2 is reacted with hydrogen. For present purposes, hydrogen is assumed to be carbon neutral, e.g., “green” hydrogen produced from hydrolysis of water using renewable electricity. Most hydrogen produced today has a high carbon-intensity, generated from steam-reforming of natural gas.

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