Direct Air Capture credits: How do they fit into the carbon offsets market?
Hasan Muslemani, BeZero's carbon removals scientist, discusses the role of DAC removals as offset credits
Direct Air Capture (DAC) is the only project type to date to achieve a AAA+ BeZero Carbon Rating, driven by high additionality, permanence and ease of measuring the carbon removed.
These highest quality credits come at a premium, but one that should shrink the more investment DAC attracts.
The big jump in net zero commitments is driving focus on carbon removals. Corporates wishing to pursue a high quality approach to net zero should incorporate DAC removal credits into their approach.
Direct Air Capture (DAC), arguably the most robust form of carbon removal in the world, has recently gained traction amongst the environmentally-conscious, not to mention within climate investment communities. Simply put, DAC is an engineered solution that sucks CO₂ straight out of thin air, to be subsequently buried in safe underground geological storage sites, or alternatively re-used in carbon-based industries (e.g. food and beverage, agriculture, biofuel production, etc.). In the first part of our DiDACtic blog series, we discussed the indispensability of DAC developments towards meeting international, sectoral and corporate climate targets where the technology — as an artificial means of carbon removal — complements the wide array of existing nature-based solutions (NbS), such as forestry, soil carbon sequestration, biochar production and wetland restoration.
Deploying DAC along with NbS is considered key in achieving carbon neutrality or meeting corporate net-zero targets. Before exploring DAC’s role within the offsets market, it is important to note the difference between both of these concepts.
DAC: key to a credible climate mitigation strategy
Misleadingly, the terms ‘carbon neutrality’ and ‘net zero carbon’ have been often used interchangeably — even amongst world leaders. The term ‘carbon-neutral’ was voted New Oxford American Dictionary’s word of the year in 2006, to highlight the rise of green movements at the time. The IPCC defines carbon (or climate) neutrality as a concept of state where human activities result in no net effect on the climate system: put differently, it involves a balancing of the flow of emissions over time, by avoiding emitting CO₂ amounts equivalent to the ones that would have been emitted under a business-as-usual scenario.
‘Net zero carbon’, on the other hand, involves the overall stock of CO₂ in the system, which goes beyond balancing emissions which we emit today, to actively removing them from the system. The removed emissions include residual emissions which cannot be avoided using conventional mitigation techniques, in addition to emissions which we had previously put into the atmosphere since the industrial revolution, until the overall balance of what we emit and what we remove is zero. Going beyond that, if the removed amount of CO₂ from the atmosphere ultimately exceeds what we emit, a state of ‘negative emissions’ is reached.
Figure 1. Role of carbon avoidance and removal approaches in achieving carbon neutrality and net zero carbon targets. Sourced from WRI (2021)¹ and shared under the Creative Commons Attribution license (CC-BY).
On a corporate level, being carbon-neutral simply means offsetting a corporation’s own emissions by investing in carbon-reducing projects elsewhere in order to ‘neutralize’ those emissions. The concept of carbon neutrality has been both hailed and criticized — perhaps understandably — as a tag for companies who offset their emissions in a much cheaper way than opting to make drastic changes to their own operational processes. In practice, the concept argues that a company maintains, or can in theory even increase, its emissions while claiming to be carbon-neutral, which is not especially helpful in the fight against climate change and may raise claims of greenwashing.
In contrast, a corporate net-zero climate strategy entails that a company’s operations would result in no net carbon emissions released — something that can be achieved by first reducing the company’s own emissions if and where possible, and, second, by investing in carbon removal solutions that will counter the residual emissions that it does emit.
Here, it is also worth noting that carbon neutrality can be achieved by investing in projects that avoid or mitigate the release of carbon into the atmosphere, such as those enhancing conservation or producing energy from renewables rather than from fossil fuels, where the alternative (i.e. continuing with a business-as-usual approach) would have released more CO₂ into the air. While encouraged, this means that the existing CO₂ balance in the atmosphere is maintained.
Why does this matter for DAC?
DAC is a solution that physically removes CO₂ from the air, and it does so now, effectively reducing the total atmospheric CO₂ balance and eliminating global warming effects which that uncaptured CO₂ would have otherwise caused over many years. DAC also allows for storage of CO₂ for thousands of years, as opposed to other forms of carbon removal such as forestation which may only lock CO₂ out of the atmosphere for the lifetime of trees e.g. tens to hundreds of years (or even less, in case of wildfires for instance). As such, DAC’s role has recently become especially prevalent in helping corporations in their quest to go ‘net-zero’.
To avoid or to remove? That is the question
Whether corporations seek carbon neutrality or net-zero strategies has significant implications on the type of carbon offset credits they (should) seek in the market. Until recently, the carbon offsets market has been dominated by ‘avoidance’ rather than ’removal’ credits: we here further highlight the difference between the two.
Carbon avoidance projects mitigate carbon emissions which would have otherwise entered the atmosphere in their absence. In contrast, carbon dioxide removal (CDR) technologies — one main technology of which is DAC — generate carbon removal credits which, as already highlighted, go beyond only avoiding emissions to physically removing CO₂ from the system, where one removal credit is equivalent to 1 tonne of CO₂ removed.
Figure 2. Difference between carbon avoidance and carbon removal.
The BeZero Carbon framework assesses all credit types in the market, avoidance and removals, based on the same risk factors. Yet, we find that removals tend to achieve higher scores than avoidance due to their higher additionality. The concept of additionality addresses whether an avoidance/removal project would have been commissioned without the need for carbon finance or for other purposes or co-benefits than climate mitigation.
Additionality, however, is not binary.
For example, while renewable energy projects — prime examples of avoidance projects — contribute primarily to environmental protection, they may be largely supported by the revenue generated through the sales of electricity. For DAC, the only accrued benefit is climate mitigation and the business model supporting the technology’s deployment is the sale of the associated removal credits themselves — rendering DAC a highly additional solution.
Other differences between both types of credits lie in the quality, permanence, immediacy (or lack thereof) of climate impact and credibility of their role in climate mitigation.
In terms of quality, for instance, deploying DAC technology would result in direct and instant CO₂ elimination which can also be very accurately measured and in absolute terms, meaning there is no need to make assumptions about a baseline scenario (as is the case for an avoidance or a NbS removal project). In other words, by buying a DAC removal credit, you literally pay for the carbon the technology captures, assuming the end destination of the captured CO₂ is permanent geological storage.
DAC also guarantees that the CO₂ captured and stored is locked out of our system for thousands of years (i.e. high permanence)², where some nature-based solutions (e.g. soil carbon sequestration) may not achieve the same scale of permanence because carbon in the biosphere sees continual dynamics of release and sequestration. Moreover, due to the lack of economic incentives, the concept of capturing CO₂ out of air may very well pass the public sentiment test and in turn be supported by the investment community.
DAC in the BeZero Rating Framework
For the reasons mentioned above, BeZero Carbon rates DAC credits as the highest quality amongst those generated via other solutions in the market. The BeZero Carbon Rating (BCR) Framework (BCR) includes six factors against which a project, whether avoidance- or removal-based, is appraised. These factors include additionality, over-crediting (rigour of crediting assumptions), permanence, leakage (i.e. emissions which may be produced elsewhere due to the project’s implementation), policy environment and perverse incentives (i.e. whether a project developer has other incentives to undertake the project). Against these factors, DAC naturally scores highly — even higher than other tech-based carbon removal solutions such as bioenergy with carbon capture and storage (BECCS) and CO₂ mineralization in construction materials (e.g. concrete production).
In the case of the former, it may be argued that, considering the revenue accruing from the electricity generated, BECCS is not as additional as DAC. Furthermore, BECCS has had leakage concerns associated with large-scale land use and change. For context, BECCS requires around 400–2400 more land space than DAC to achieve the same amount of carbon removals³ (and did we mention the convenience of being able to deploy DAC anywhere in the world and achieving the same results?!). For the latter, substituting the use of cement for CO₂ in concrete production represents an economic incentive for the project developer, as sourcing CO₂ is much cheaper than cement, which would adversely affect the additionality of the project. As such, and due to their high additionality and minimal risk of leakage, DAC offsets have been prime candidates for inclusion in government and commercial net-zero strategies.
The price tag
However promising, DAC requires highly innovative and expensive installations that demand higher prices than typical offsets, and as a result the costs of DAC credits in the market have ranged between $250-$600 per tonne of CO₂ removed⁴. One of the factors driving up their price is the cost of the underlying technology in addition to its high energy demands: if deployed at the scale required to remain within the 1.5–2°C scenarios of global warming, it is estimated that DAC combined with geological storage could require around 300 exajoules (that is one quintillion  joules) in energy input per year by 2100 — around half of the global energy consumption today, and a quarter of the projected energy demand in 2100⁵! For DAC to be feasible, costs would need to drop from current levels to around $100/tCO₂⁶.
DAC removal credits are now being sold by Carbon Engineering, Climeworks and Global Thermostat. For every pre-purchase of DAC credits, the project developers guarantee that an equivalent tonnage of CO₂ is captured and safely stored underground within a certain timeframe. In this, BeZero Carbon offers the option of pre-purchasing DAC credits produced using Carbon Engineering’s technology, which remain the most competitive and cheapest of their kind in the market as of the time of writing. BeZero also integrates DAC removals into its premium carbon removals basket, which combines DAC credits with a myriad of carbon credits from nature-based solutions, including forestry, soil carbon and blue carbon projects.
The portfolio of projects included in the premium carbon removals basket guarantees that, on average, 1 tonne of CO₂ is truly removed by purchasing 1 credit from the basket. Currently, the cost of each tonne of CO2 removed through the basket is $68/tCO₂, lower than the price of a carbon credit under the EU Emissions Trading Scheme (EU-ETS) (€62 / $73 per tCO₂)⁷.
The relatively low-cost credits purchased through this basket allow for higher accessibility to the average consumer while helping drive costs of the underlying projects — especially DAC’s — down.
Significant cost reductions of deploying DAC are largely expected to occur with increased deployment and modularity of the technology. Similar cost reductions have already been seen in the development of other clean technologies (e.g. solar photovoltaics projects witnessed cost reductions of around 300-fold between 1975 to 2018)⁸. While DAC admittedly needs to be commercialized in a much shorter timespan in order to achieve the decarbonization potential needed, its costs need only be reduced by a factor of 10 to become commercially competitive. In fact, if the global deployment of DAC technologies follows an annual growth rate of 25%, its levelized cost is forecasted to reduce to below $100/tCO₂ in ten years⁸.
Carbon Engineering is a front runner in producing feasibly-priced DAC credits, currently projecting costs of $94-$232 per tonne of CO₂ captured for its first-of-its-kind commercial-scale plant based in Canada⁹.
BeZero has rated DAC offsets as AAA+ on the BeZero Carbon Rating (BCR). BeZero has partnered with Carbon Engineering to sell their carbon offsets, get ’em while they’re hot!
Written by Hasan Muslemani, Carbon Removals Scientist.
World Resources Institute (2021)
Realmonte et al. (2019)
Lackner and Azarabadi (2021)