Cleaning up
UK carbon market to incentivise greenhouse gas removal
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The UK ETS could be the first regulated compliance carbon market to include greenhouse gas removals (GGRs) after the UK government announced that they will be eligible to receive UK ETS allowances (UKAs) by the end of the decade. Here are my 16 observations on the consultation response, where UK-based GGR is right now, the market reaction on the UK ETS, and the international context:12
The gross cap (i.e., the total number of allowances that can are available each year) as well as the cap trajectory will be maintained for initial integration of GGRs. Emission allowances (UKAs) will be replaced with GGR allowances on a one-for-one basis, maintaining the incentive to decarbonise. However, given that the cap is declining the incentive to build GGR capacity will also fall over time, and so in the longer-term the Authority recognises that there will need to be a new ‘net cap’, enabling “an economically efficient approach to net zero.”
Standards for monitoring, reporting and verification (MRV) for GGR operators under the UK ETS will be aligned with the UK GGR Standard currently being developed. The British Standards Institute have now launched two new standards - covering BECCS and DACCS - for public consultation.3
Only GGRs that have taken place in the UK will be eligible to receive UK ETS allowances during the initial integration. It’s unclear when this ‘initial integration’ period will last for, nor what the considerations will be for expanding the scope of GGRs to include non-UK based removal.
GGR projects must demonstrate a carbon storage period of at least 200 years before they are eligible for entry into the UK ETS. This is consistent with the requirement under the EU Carbon Removal and Carbon Farming regulations (CRCF).
GGR allowances will only be awarded ex-post, i.e. only once carbon sequestration has taken place and been verified. It’s unclear whether operators must demonstrate that the carbon has been removed and remained in-situ for a certain time period before receiving a GGR allowance, nor what the process is for verifying that this has taken place.
Initially at least, only engineered GGRs will be eligible to be included in the UK ETS. The consultation response only refers to two examples of engineered GGRs: direct air carbon capture and storage (DACCS) and bioenergy with carbon capture and storage (BECCS).
It’s unclear whether other methods such as enhanced weathering and biochar will be eligible. For that we may have to wait until later in the autumn. In March the government launched an independent review into how GHG removals can help the UK meet its net zero targets, including technologies not reliant on CCS infrastructure. It is expected to be published in October.
The Authority states that there is a strong case for nature-based (woodland) carbon removals to be included in the UK ETS, but a final decision will only be made only after an additional round of evidence gathering takes place. Given the problems that the New Zealand ETS has had with forestry (over-supply of credits, mono-culture planting, etc.) it’s quite right to be cautious. The report proposes strict limits on the amount of GGR allowances that can be generated this way.