GCPC Workshop No. 4: “Integrating GHG removals in domestic carbon pricing instruments”
On 30 October 2024, the GCPC held its fourth online workshop on integrating GHG removals (GGRs) in domestic carbon pricing instruments. Experts from GCPC Partners and Friends, Network Members, and countries interested in the GCPC shared their experiences with and plans for integrating removals into domestic compliance carbon markets. Speakers highlighted different aspects that need to be considered when integrating GGRs. The workshop was attended by more than 20 participants from government, international organisations, and research institutions.
Several jurisdictions with established carbon pricing instruments have integrated GHG removals (GGRs) in their policy. Others are considering including GGRs on their path to net-zero emissions. Including GGRs in carbon pricing can incentivise regulated entities and private sector service providers to invest in technology development and deployment as they can offer these “negative emissions” to other market actors or use them to reduce their own compliance costs. However, this requires comprehensive rules and eligibility criteria to ensure that the environmental integrity and functioning of the policy is not compromised.
Presentations
1. New Zealand’s experience with GHG removals under the NZ ETS
Presented by Isabel Cahis, Ministry for the Environment, New Zealand
Isabel Cahis discussed New Zealand’s current practices and futures considerations. In 2024, the New Zealand government announced achieving net-GHG emissions with a least-cost, net-based approach as one of its priorities. This includes both emission reductions and removals. Non-forestry removals are one of eight key areas that present opportunities for cost-effective emission reductions/removals identified by the country’s second Emissions Reduction Plan. As a result, the government aims to include non-forestry removals in the New Zealand Emissions Trading System (ETS) or other market system.
The New Zealand ETS is the country’s main too for reducing GHG emissions to meet its climate targets. It already includes the entire forestry sector and allows 100 percent of emissions to be offset by forestry. Alongside forestry, the government considers other removals such as wetland restoration, on-farm vegetation, coastal vegetation management, marine ecosystems, carbon mineralization, carbon capture, utilization and storage, ocean fertilization, direct air capture, and bioenergy with carbon capture and storage. It will prioritise the most affordable, scalable, and scientifically valid non-forestry removal options. Recognising non-forestry removals could offer more options for landowners and businesses, create incentives to shift land use or management that reduces net emissions, and offer other co-benefits such as better water quality, biodiversity, and climate resilience from wetlands. More work is however needed to understand the role that non-forestry removals could play in reaching New Zealand’s climate targets.
2. GHG removals in the UK ETS: results of the recent public consultation
Felix Grey, Department for Energy Security & Net Zero, UK
Felix Grey presented some early results of the United Kingdom’s (UK) stakeholder consultation on integrating GGRs in the UK ETS. Both the IPCC and the UK Climate Change Commission view GGRs as unavoidable and key to achieving net zero emissions. In July 2023, the UK announced its intention to integrate engineered GGRs in the UK ETS and committed to explore integrating high-quality nature-based GGRs, subject to further work on permanence, costs, and wider land management impacts. The 2024 stakeholder consultation followed up on those commitments.
Three options for setting the ETS cap were identified: 1. Adding removal-based allowances in addition to the existing cap, 2. Maintaining the existing cap and exchanging some conventional allowances for removal-based allowances, 3. Adopting a new lower cap and adding removal-based allowances in addition to the new cap. While a new lowered cap could be an option for the longer term, including removal-based allowances within the existing cap seems a likely option for the shorter term. Maintaining the existing cap and including removal-based allowances within it keeps the overall supply of allowances the same as it would have been without GGR integration.
Multiple options for possible differentiation between conventional and removal-based allowances were subject to the consultation. This includes three options: 1. No new type of allowances are created for GGRs, 2. A generic type of GGR allowance is created, 3. Technology-specific GGR allowances are issued. Differentiation would not affect how GGRs are used for compliance purposes, but it would provide the buyer of allowances with more information about the GGR type, which could be of value to the buyer. The results of the stakeholder consultation are further being evaluated and processed and will feed into the UK’s ETS revisions.
3. The role of removals in domestic carbon pricing instruments: global landscape
Stephanie La Hoz Theuer, ICAP
Stephanie La Hoz Theuer provided a comprehensive overview of considerations that policymakers should weigh when pondering the inclusion of GGRs in their carbon pricing instruments. Advantages of including GGRs in carbon pricing instruments are: It can be an instrument for compliance cost control, depending on the costs of abatement vs. the costs of removal. It could also increase market liquidity, provide an incentive for GGR development and deployment, and offer flexibility in emissions outcomes. Risks of including GGRs in carbon pricing instruments are: Undermining environmental integrity in the case of low-quality units, a loss of control over decarbonization pathways, as well as a risk of abatement deterrence.
Stephanie continued by listing questions that focus on different dimensions of carbon pricing instrument design, if the principled decision of including GGRs has been taken: Which removals are allowed (permanent/temporary, domestic/international)? How do removals enter the system (do entities buy directly, does a government agency act as intermediary)? Should there be any limits on the demand side (who can use them, how many can be used)? Should there be any limits on the supply side (certain volume in reserves, cap on gross emissions)? Are there limits on gross emissions or only on net emissions (cap adjustment, complementary policies)? How are reversals addressed (permanence, liability)?
Several existing domestic carbon pricing instruments already include GGR units, mostly from forestry. Addressing permanence is always a challenge when including GGRs in carbon pricing instruments and diverging approaches are being employed to address it. Cost differentials between nature-based and engineered removals pose a challenge, but also between current carbon prices and engineered removals. Overall, a longer-term outlook is necessary to understand how many negative emissions are required, paid by whom, implemented where, with what technologies, and through what policies.