In theory, emission reduction credits are as good as removals

A new paper by Kenneth Möllersten et al argues that there is a misconception that only carbon removal can be used to reach net zero or climate neutrality. The atmospheric effect of reducing or removing emissions is the same as they correctly point out.

On a global level, it is a physical reality that only removals can offset any remaining emissions to reach net zero. But on a sub-global level requiring removals for corporate or national net zero claims before global net zero is a policy choice (like in the SBTi net zero standard). Since the definition of net zero on a global level means counterbalancing emissions and removals it makes sense to preserve that on a sub-global level. It also greatly improves the chances of claims having high integrity.

If some countries still have emissions that would be cheaper to reduce than to remove, then it could theoretically be preferable to buy emission reduction credits from them. The problem with using emission reductions to reach sub-global net zero targets lies in practice, not in theory.

One could easily imagine a very high-quality emission reduction project that is as good or better than any removal. For example using credits to finance the installation of CCS on cement plants in India today, decades ahead of timelines. If these credits also have a corresponding adjustment, not displacing other climate action in India, they are just as likely to create a climate benefit as for example a Direct Air Capture credit. 

Very few, if any, such emission reduction credits exist though. Most existing credits cannot live up to the promise of reducing 1 tonne of CO₂ per credit, and efforts to raise quality may be falling short. A difficulty with reduction credits is that they per definition require a counterfactual analysis. What would have happened if not this credit was sold? There are two ways this could go wrong. Firstly, projects that sell credits may not actually need credit income, meaning there is weak financial additionality. Credits from wind and solar energy are examples of this. Secondly, even if the project needs credit income to happen, the country in which it takes place may use the emission reductions from credit projects to take less action elsewhere. Corresponding adjustments (1) are meant to solve this but cannot completely eliminate the risk that countries set easier national targets to allow for the possibility of selling credits, or fail to reach their targets due to the sale. That means it is difficult to produce very high-quality credits such as in the cement example above, and the price of such credits may be not that far from the cost of permanent CDR. (This is not the only issue with emission reduction credits, for a more thorough overview see this analysis.)

Removals are most often clearly financially additional, but they are not immune to the second risk as I explained in this post. However unlike emission reductions, for removals, the second risk can be eliminated by corresponding adjustments or similar measures (2).

Making net zero claims requires high certainty that the entity making the claim is not contributing to warming. Requiring permanent removals for fossil fuel offsetting before global net zero is the safest way to ensure that in practice, and aligns with the global definition of net zero. After global net zero is reached it is the only option (3). 

That is not the same thing as carbon removal being the most cost-effective investment today. Removals are absolutely necessary if we want to decrease temperatures below 1.5C after the inevitable temperature overshoot we are heading towards. CDR also makes net zero cheaper and more easily achievable. But the reason to spend on carbon removal now is mainly to build the sector into a mature part of the solution. Those who seek to create as much climate impact as possible would also spend on options with higher short-term cost-effectiveness including decarbonization projects, as well as nature protection and restoration. Credit can be one of several funding instrument for that. This approach of funding emission reductions, nature and novel CDR is also the strategy of the charitable Milkywire Climate Transformation Fund. It is supported by companies like Spotify and Klarna, intending to maximize the long-term impact on reaching global net zero.

Möllersten et al.'s article deepens the discussion on reduction and removal credits, showing that their theoretical effect is the same. In this piece, I sought to explain why in practice, requiring CDR for net zero claims is the safest option and the option that preserves the global definition of net zero. The biggest role for CDR is not in offsetting though, but in bringing temperatures back down after the inevitable overshoot.

(1) Corresponding adjuments mean that the country in which the emission reduction takes place does not count these in its national target fulfilment, transferring them to the country purchasing the credits. This would be a strict requirement if emission reduction credits were to be used for offsetting. For removals, a corresponding adjustment could be made, or the country could just refrain from accounting for the removals, or increasing their ambition for each tonne sold to voluntary buyers. 

(2) Countries cannot create more space to sell carbon removal credits by setting weaker climate targets, as can happen with emission reduction credits. 

(3) Möllersten et al point out that theoretically, you could still buy reduction credits even at global net zero if the one who sells their reduction already neutralized the emissions with CDR before making the reduction. However, that just means you are indirectly buying CDR.