Carbon Storage Units and Carbon Storage Obligations: A Review of Policy Approaches

14 Pages Posted: 28 Nov 2022

See all articles by Paul Zakkour

Paul Zakkour

Carbon Counts GmbH

Margriet Kuijper

Independent

Patrick Dixon

Independent

Stuart Haszeldine

University of Edinburgh - School of Geosciences

Martin Towns

BP; Independent

Myles Allen

University of Oxford - School of Geography and the Environment

Date Written: October 26, 2022

Abstract

Policies that incentivize the capture and geological storage of CO2 from large point sources (‘CCS’; and more recently, removal from the atmosphere), have so far tended to reward the resultant avoided CO2 emissions (or CO2 removals) achieved by operators at the point of capture. In many cases, the expectation has been that geological CO2 storage sites, as well as the connecting infrastructure, will be developed and operated based upon the funding delivered from the single point of incentive (e.g. under an emissions trading system or a carbon tax, only CO2 capture installation operators are absolved of the obligation to acquire and surrender CO2 emission rights or to pay the tax). Project-based crediting mechanisms (e.g in the voluntary carbon market) tend to treat the entire chain of operations as a single entity to be supplied with emission reduction or removal credits. Consequently, there has been minimal explicit financial incentive to store CO2. Yet a multiple gigaton-per-year scale capture and storage industry requires complex CO2 networks to evolve, with multiple sources connecting to multiple sinks, with installations owned by different operators with different technical expertise, climate mitigation goals and obligations. This multiplicity of goals and incentives can create cross-chain risks, which impact negatively upon investment decisions. Geological storage site operators are reliant on payments for the offtake of CO2 from capture operators. On the other hand, the choices and decisions of CO2 capture operators are governed by the carbon prices and other factors (e.g. fuel prices, political preferences for technologies). Several proposals to address this risk have been made, including carbon contracts for differences or the imposition of carbon storage obligations on emitters or the producers/ suppliers of fossil carbon. In this paper, we review carbon storage obligation concepts, focusing on mechanisms applied to fossil carbon producers and suppliers. Thereunder, storage site operators are credited with carbon storage units (CSUs) that can be sold to and counted by fossil fuel producers against specific targets that are separate from those of CO2 capture operators – that is, for the purpose of offsetting the carbon embodied in the fossil fuels they produce. Parallel incentives can therefore be established that encourage competent actors to implement permanent CO2 storage alongside carbon price incentives that encourage actors to capture and supply CO2. We begin by reviewing previous efforts to develop crediting and storage obligation systems, we then outline the design basis for such a system today and highlight various proposals to establish such approaches in different jurisdictions.

Keywords: CCS policy and incentives, carbon storage units, carbon takeback/storage obligation, supply side climate policy, producer responsibility

Suggested Citation

Zakkour, Paul and Kuijper, Margriet and Dixon, Patrick and Haszeldine, Stuart and Towns, Martin and Allen, Myles, Carbon Storage Units and Carbon Storage Obligations: A Review of Policy Approaches (October 26, 2022). Proceedings of the 16th Greenhouse Gas Control Technologies Conference (GHGT-16) 23-24 Oct 2022, Available at SSRN: https://ssrn.com/abstract=4285264 or http://dx.doi.org/10.2139/ssrn.4285264

Paul Zakkour (Contact Author)

Carbon Counts GmbH ( email )

Feuerbachstraße 38
Frankfurt am Main, 60325
Germany
06979302833 (Phone)

HOME PAGE: http://www.carbon-counts.com

Margriet Kuijper

Independent

Patrick Dixon

Independent

Stuart Haszeldine

University of Edinburgh - School of Geosciences

Edinburgh, EH9 3JW
United Kingdom

Martin Towns

BP ( email )

Chertsey Road
Sunbury-on-Thames, TW16 7BP
United Kingdom
+442034019949 (Phone)

Independent ( email )

Myles Allen

University of Oxford - School of Geography and the Environment ( email )

Mansfield Road
Oxford OX1 3TB, OX1 3QY
United Kingdom

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