The fight against global warming is becoming profitable: it is access to soft loans, and the sale of quotas for greenhouse gas emissions. How to enter this market, and why it is difficult in our country, in the material of Trends
Climate and business
Climate projects are projects that prevent global warming by reducing the amount of greenhouse gases in the atmosphere, primarily CO2. Consulting company DRT (formerly Deloitte) and GCI 4 Boards have published a report on the risks and opportunities of climate projects as of June 2022, and we have selected the most important ones for you.
Closely related to the concept of a climate project is the concept of a carbon unit, which originates in the UN Kyoto Protocol. Many countries have set caps on greenhouse gas emissions, quotas that companies must pay to exceed. A company that has not reached its quota can sell the rest – these will be carbon units. In addition, a company can voluntarily set itself a target to reduce emissions – for example, to increase competitiveness in the international market. You can do it yourself, get certified by a recognized organization on the market, and get carbon credits for reducing emissions. Or you can buy someone else’s units, thus investing in the overall reduction of emissions on the planet. In carbon units, that is, tons of CO2-equivalent, measure any greenhouse gases, taking into account their ability to influence global warming. For example, methane traps solar radiation 25 times more than carbon dioxide, so 1 ton of methane contains 25 tons of CO2-equivalent.
Accordingly, one of the bonuses of climate projects for business is income from carbon credits. In theory, they can be sold to other companies on the international or Russian market. In practice, you still need to get into the international market, but the Russian one does not exist yet, but more on that later.
Secondly, reducing the carbon footprint has become extremely beneficial for export companies after the EU announced the introduction of a “carbon tax” on products imported from abroad. Companies that import cement, electricity, fertilizers, aluminum, iron and steel into the EU will have to report on emissions from 2023, and from 2026 they will have to buy special certificates that offset their carbon footprint.
Even taking into account the broken trade relations with the West, the issue does not lose its relevance, since our Eastern partners trade with the West, and the carbon footprint is taken into account along the entire product chain.
“In today’s global economy, companies cannot afford not to be involved in international supply chains – on the contrary, it is important for companies to keep them. For companies that plan to stay on international financial markets, be it Hong Kong or London, the implementation of these projects is still relevant and profitable,” says Evgeny Schwartz, Head of the Center for Responsible Environmental Management of the Institute of Geography of the Russian Academy of Sciences, Doctor of Science, Honored Ecologist RF.
Thirdly, a company may have its own internal corporate sustainability goals, and climate projects contribute to their achievement.
The fourth bonus of climate projects is the improvement of ESG indicators and, as a result, access to green finance at attractive rates.
In addition, climate projects can generate additional profits that are not related to environmental protection. This applies, for example, to technologies for capturing and storing carbon dioxide. The collected gas can be used to increase oil production, in metallurgy, in the food industry, and in medicine.
Forest, soil and petrochemistry
Climate projects are generally of two types: natural and technological. Natural work with ecosystems and are aimed at their protection, restoration, and effective management. Technological ones are implemented in various branches of industry and transport.
Natural solutions are based on the fact that plants capture carbon dioxide from the air and store it in their tissues. In order to receive carbon credits for such a project, it is important to prove that its implementation will increase the amount of carbon dioxide absorption. For such calculations, there are special methods, and for their confirmation (verification of projects) – international organizations such as Verra, Gold Standard, GCC and others.
For example, the Indonesian company PT Rimba Makmur Utama is implementing a project to protect and restore 149,8 thousand hectares of peat forest ecosystem. The project started in 2010 and carbon credits will be credited until 2070. And India’s Om Organic Cotton is working to improve soil properties on agricultural land, including increasing its ability to absorb carbon.
Natural solutions are very often connected with the forest. For example, in 2020, according to the Ecosystem MarketPlace, the largest volume of transactions for the sale of carbon units was associated with forest climate projects and projects in the field of land use (Forestry and Land use) – 47 million tons of CO2 in 2020 at a price of $5,59 per ton of CO2. The scope of REDD+ projects (Reducing Emissions from Deforestation and Forest Degradation) has also increased.
“The forest has the greatest potential in our country – it is the forest that is the main absorber of CO2, forest-climatic projects are the most effective, but it is also possible to develop other projects, for example, in the field of land use, ”says Andrey Ptichnikov, Deputy Head of the Center for Responsible Nature Management of the Institute of Geography of the Russian Academy of Sciences, Ph.D.
According to the DRT, approximately 400 forest-climatic projects have been implemented in the world; at the moment, three such projects are known in our country. Here is what analysts have collected about them:
And the Russian company Polymetal informed DRT that it is considering the possibility of implementing a forest climate project in Kazakhstan. The company plans to plant the forest and take care of it so that the ecosystem becomes stable. True, already at the stage of project development, the company faced legal and technical difficulties. For example, Kazakhstan does not have its own seedlings, and they may have to be transported from our Central country.
Technological climate projects include, in particular, everything related to CCS / CCUS technologies (capture and storage of carbon dioxide / capture, use and storage of carbon dioxide). These are enhanced oil recovery, and the use of fossil fuels with CCS, and bioenergy with CCS.
In our country, such a project, according to DRT, is being implemented in the Nizhny Novgorod region jointly by SIBUR and LindeGazRus. At one of the sites of the SIBUR-Neftekhim plant in Nizhny Novgorod, it is planned to collect CO2which is now a waste product. This carbon dioxide will be brought to commercial quality and sold to consumers. The $10 million project will reduce the plant’s greenhouse gas emissions by 7%. In the future, SIBUR plans to verify it for the monetization of carbon credits.
Other companies are doing research on similar topics. Thus, according to DRT, Inter RAO is studying the possibility of efficient COXNUMX extraction2 from flue gases from power plants of generating enterprises, and ALROSA is investigating the ability of kimberlite rock to absorb greenhouse gases from the atmosphere.
What is the problem
There could be more climate projects in our country if not for a number of “buts”. DRT analysts made a request to representatives of 44 companies, of which 20 did not want to comment on this topic, and 24 shared their experience in in-depth interviews or short surveys and told what exactly slows down the process.
There is no domestic market in our country yet. So far, it is only planned to launch a pilot project to introduce quotas for greenhouse gas emissions in Sakhalin, it will start from September 2022.
At the same time, according to McKinsey & Company forecasts, by 2030 the world demand for carbon units is expected to grow by more than 15 times, by 2050 – up to a 100-fold increase in demand. The volume of the global voluntary market for carbon credits could reach $200 billion by 2050. The price of a carbon unit in voluntary markets is expected to increase by 20% annually over the next five years. So the prospects for climate projects are vast – the only question is how much we will be able to use them.