The agony and the ecstasy of short-term removals

(This reflection appeared originally in Nori's 3/14/2024 newsletter. To subscribe and get access to the full content of the newsletter, subscribe here.)

Horizontal stacking and the role of shorter-permanence carbon removals.

The role of shorter-duration removals within climate change mitigation is not straightforward. The consensus within the carbon removal community is that non-durable removals should not be used to negate durable emissions, e.g. afforestation/reforestation or soil credits should not attempt to negate a fossil fuel emission. There is a place for them within climate mitigation (see the EU’s CRCF taxonomy, or the Carbon Takeback Obligation et al’s focus on like-for-like emissions, e.g. biogenic removals can negate biogenic emissions), but it’s not as simple as people may once have thought.

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There have been numerous attempts to find comparability across credit types (as well as fungibility within credit categories), with tonne-year accounting’s long saga being an exemplar. It has a whiff of the philosopher’s stone to it, and its desirability makes sense. Market depth is extremely powerful. If ten/fifty/one-hundred temporary emissions could credibly equal one durable removal, we’d no longer have the fragmented hyper-gradated bespoke complexity of VCM. We’d have scale immediately. We’d have liquidity immediately. Right now the market is still very far from this (though there are some potential challengers to this within CDR with the scale possible with biochar.) Product types both between and within categories still have too much differentiation for fungibility to be set (or at least we perceive it that way). I suspect this will not always be the case with scale and maturity. But we’ll have to come back to that topic at a future time.

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More to the immediate concern of shorter-duration removals’ role within CDR, Drs. Stéphanie Arcusa & Klaus Lackner of Arizona State University recently restarted the discussion of how to use shorter-duration carbon removals renewed over time to emulate durable CDR, commonly referred to as “horizontal stacking”.

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Horizontal stacking has such a strong logic to it. If companies can commit to continuously renewing their temporary carbon storage over decades and even centuries, at some point that could conceivably have a similar effect to durable carbon removal. The thing is, how do you enforce a contract over this period? Many companies dissolve and you end up with things like abandoned wells, or does this long-term commitment possibly face something like the rule against perpetuities as dramatized in The Descendents? Moreover, in a warming world, some temporary carbon sinks could become net-emitters, which would mean all of the horizontally stacked carbon stored within them could be quickly emitted. I believe if that calamity happened, solar radiation management would soon follow. I doubt there’d be a lot of time to be fussy.

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Putting aside the catastrophic risk that shorter-duration removals may face in a warming world, I believe that financial and contractual innovation is going to become increasingly relevant within carbon markets. One priority: figuring out if and how horizontal stacking might be operationalized. There are financial tools meant to manage counterparty risk like escrow. How much should companies prepay? Do those funds just enter escrow or some sort of trust structure? Interest-bearing accounts? Do they have to pay all at once or does it sit as a liability on their balance sheet? What happens to the carbon liability in case of a wind-down? And I bet you can think of dozens of other questions.

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There is a lot of room for innovation for financial engineers and lawyers to work on deal structure. It doesn’t currently have the same panache as creating a new hardware pathway to carbon removal, but it may in the future. If you’re thinking about this, reply to this newsletter and let me know if you’re on a similar wavelength.

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1. Read the back and forth from a few years back between NCX and CarbonPlan if this interests you. Here’s a lightweight place to start, but you’ll have to move to more detailed scientific work soon after to follow their debate.

2. Also, who will fund the ramp up for the gigatonnes/year of CDR we’ll need decades from now without major purchases beginning now, and growing year over year?

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