Carbon Removal Projects Leap Forward With New Offset Deal. Will They Actually Help the Climate?

The open secret behind corporate climate pledges is that many companies don’t know how they will meet them. Some of the biggest questions lie behind the “net” in net-zero, exactly how, where and when companies will compensate for the climate pollution that they fail to eliminate from their own operations.

One group looked to fill in some gaps this week, with the announcement of a pledge to buy nearly 200,000 metric tons of “carbon dioxide removal,” greenhouse gas pulled from the sky. The removals haven’t happened yet, and the projects that would achieve them haven’t been built. And rather than clear things up, the announcement raised as many questions as it answered, including whether the companies behind it can really achieve the emissions reductions they claim.

On Wednesday, a company called NextGen, a joint venture between Mitsubishi Corporation and South Pole, one of the world’s largest sellers of carbon credits, said it had arranged one of the largest “advanced purchases” of carbon removal to date. The idea is to join corporate buyers, including insurance and financial giants Swiss Re and UBS, that are looking to meet their net-zero targets with project developers in need of financing. NextGen served as broker for the deal.

It was a major step for a nascent industry that promises to remove climate pollution from the atmosphere. But the deal also highlights how corporate-driven efforts to curb emissions often involve complex and opaque accounting schemes that fail to deliver the benefits they promise while also funding projects that carry their own environmental impacts.

Carbon dioxide removal—which claims to provide “negative emissions” by sucking carbon already in the air—has quickly become a key piece of global climate efforts, despite large uncertainties about the scale that can be achieved. The United Nations Intergovernmental Panel on Climate Change has said the world will likely need to remove billions of tons of carbon dioxide from the air in order to limit warming to 1.5 degrees Celsius, or 2.7 degrees Fahrenheit. 

That feat could be achieved by any range of technologies, however, and also by using natural processes like forest regeneration and protecting undeveloped ecosystems. Many scientists and policy experts say carbon removal will need to comprise around 10 percent of total emissions reductions by mid-century.

In recent years, governments and private financiers have begun devoting billions of dollars to building a carbon removal industry, and the deal announced this week shows that some of these projects are beginning to take shape, said Danny Cullenward, a research fellow at the Institute for Carbon Removal Law and Policy at American University.

“These are no longer hypotheticals,” Cullenward said.

Under the deal, the removals will come from three proposals, including a “direct air capture” plant being built by Occidental Petroleum and a project that would capture carbon pollution from dozens of Midwestern ethanol plants and then pipe the gas hundreds of miles to injection wells for permanent storage underground.

NextGen’s is not the first such deal. A collection of major corporations, including Alphabet, Meta, McKinsey and JPMorgan Chase, have collectively pledged to spend up to $1 billion to purchase carbon removals by 2030, though so far they have contracts for only about 9,000 tons.

Cullenward said the NextGen deal stands out because it relies on large-scale carbon removal projects, “and that is bringing into reality the very large industrial footprint of carbon management. It’s also going to, I think, illustrate some of the really concerning trade-offs around carbon management and other environmental goals,” he added, “and I think ethanol is maybe the best example of that.”

The ethanol and carbon capture project, by a company called Summit Carbon Solutions, has been particularly controversial. Some landowners and American Indian tribes along the proposed route through North Dakota, South Dakota, Minnesota, Iowa and Nebraska have tried to block the pipeline, which would carry carbon dioxide compressed into a “supercritical” liquid, concerned that potential leaks could pose a safety hazard and about the potential seizure of land through eminent domain.

The new deal will help Summit secure financing from banks by presenting an additional revenue stream for the project. While the companies did not disclose the value of the NextGen deal, their target average price is $200 per ton, meaning the total package announced this week could be worth roughly $40 million for the three developers involved. The third project is a Finnish company that makes biochar, a carbon-rich charcoal-like substance made from crop waste. The biochar can be mixed into soil or building materials and theoretically lock away the carbon for centuries, rather than have the waste decompose and release the gas to the atmosphere.

Ben Nelson, Summit’s director of carbon programs, said in an interview that the NextGen deal is a “milestone” for the company and critical to its success.

Occidental says the project, which is currently under construction in West Texas, will be able to pull 500,000 metric tons of CO2 from the atmosphere annually once built. The largest such plant built so far is able to remove only about 4,000 tons a year. Occidental has said that it could use some of the carbon dioxide it captures to help squeeze oil out of depleted reservoirs, but NextGen said its credits will only be used for dedicated carbon storage.

Both the Occidental project and Summit’s ethanol and carbon capture proposal plan to combine the sale of credits on voluntary carbon markets with involvement in government-run carbon markets like California’s low carbon fuel standard program, which aims to lower the emissions from that state’s transportation sector.

Cullenward and other experts say the NextGen deal raises a host of accounting questions that remain unanswered, including whether emissions reductions get counted more than once and whether the projects achieve “additionality” by ensuring the credits generated represent actual removals that wouldn’t have happened otherwise.

NextGen declined to make anyone available for an interview, but in written answers to questions, Philip Moss, the company’s chairman, said it had robust processes to ensure credits are additional and not counted twice.

Some of the biggest questions surround the Summit pipeline project through the five Midwestern states. A peer-reviewed study published last year examined the effects of the United States renewable fuel standard, a federal program that mandates use of biofuels, and found that increased use of corn ethanol has led farmers to grow more corn on more land. The resulting expansion of cropland and increased fertilizer use counteracted any climate benefits the fuel might have provided, the researchers found, such that the climate impact of corn ethanol produced under the fuel standard “is no less than gasoline and likely at least 24% higher.” 

The Summit project would reduce ethanol’s carbon footprint by capturing carbon dioxide emissions from the refineries that are currently vented to the atmosphere. But selling credits for that removal would also provide an additional economic incentive to make more ethanol, potentially contributing to the larger problem posed by carbon emissions generated when grasslands are converted to crops and by fertilizer.

Then there’s the question of “additionality,” or whether the projects would have happened even without the credits being sold. If projects cannot guarantee this additionality, the credits being claimed by corporate buyers become worthless, because they are not actually achieving any additional emissions cuts.

The Summit project has been in the works for years and will also be able to claim $85 in federal tax credits for every ton of carbon dioxide it removes from the biorefineries’ smokestacks. That figure is more than the expected costs of running the carbon capture equipment, but the credits are available for only 12 years.

Anu Khan, deputy director of science and innovation at Carbon180, a carbon removal think tank, said additionality is a concern for any large-scale biofuels operation. Because an ethanol plant’s main business is selling ethanol, and that fuel could sell at a premium in certain markets if carbon capture equipment lowers its carbon footprint, it can be difficult to say whether the sale of carbon credits is actually necessary to the project or used merely to pad profits. If the credits were not necessary, they would fail the “additionality” test and ultimately provide only the illusion of a reduction for whoever buys them.

Nelson, with Summit Carbon Solutions, said the company would not be able to operate without selling credits, and that it is developing a methodology that will ensure additionality and avoid any double counting. That methodology is being developed with Gold Standard for the Global Goals, which verifies carbon offset projects, and will be available for public comment in May.

Nelson also pointed to research by Argonne National Laboratory finding that corn ethanol does reduce greenhouse gas emissions, and said that Summit’s carbon capture equipment would only improve that equation.

While Summit’s methodology is not yet complete, existing ones for other types of projects, such as forest carbon offsets, have drawn widespread criticism for failing to deliver the emissions cuts they promise.

In fact, South Pole, one of the companies behind NextGen, itself drew controversy this year for allegedly inflating the emissions reductions achieved by one of its projects, according to reporting by Bloomberg, SourceMaterial and other news organizations. The company has defended itself and said the project is under review.

In the case of the new NextGen announcement, there are five corporate buyers who will be purchasing the credits: the insurance company Swiss Re, the European banks UBS and LGT, Mitsui O.S.K Lines, a shipping company, and Boston Consulting Group.

LGT, for example, describes itself as a private bank for wealthy clients and is owned by the princely family of Liechtenstein, which is also the bank’s largest client. Ursula Finsterwald, the bank’s head of sustainability management, said LGT has an ambitious plan to minimize its own emissions, including by reducing power use and obtaining all of its energy from renewable sources. But she added that air travel remains critical to its operations and cannot be eliminated by 2030, when the company has pledged to reach net-zero emissions for its operations and investments. Durable carbon removals will prove critical, then, she said.

Cullenward said he is less concerned that corporations will use carbon removals like those in the NextGen deal to “greenwash” their operations. Because the price of NextGen’s removals is relatively expensive, at about $200 per ton, companies are unlikely to use them to compensate for easy to eliminate sources of emissions, Cullenward said. There are much cheaper options if that were a company’s goal.

The bigger concern, he said, is what types of projects the money is funding, and whether those have their own impacts that are harmful to communities or the climate.

Jim Walsh is the policy director at Food and Water Watch, an environmental group that has been trying to block construction of several ethanol and carbon capture projects in the Midwest, including Summit’s proposal. He said the project fails to acknowledge that corn ethanol production has numerous environmental impacts beyond climate pollution, including runoff from excessive fertilizer use.

“These impacts are universal,” he said, “but they tend to disproportionately impact minority communities.”

Walsh noted that the Pipeline and Hazardous Materials Safety Administration is still developing new rules for carbon dioxide pipelines, and argued that the regulations are not yet in place to ensure the projects are safe or that they deliver the emissions reductions they promise. 

“What NextGen is doing is providing more financing that is allowing these pipelines to move forward even faster before the federal government can catch up with them,” he said.

NextGen said this announcement will be the first of several, and that it intends to secure contracts for 1 million metric tons of carbon removal over the next two years, or a total of about $200 million in contracts. That would represent just one small step towards the billions of tons per year that proponents of carbon removal say is needed within the next few decades.

Correction: This article has been updated after an earlier version erroneously stated that NextGen had said it had arranged the largest “advanced purchase” of carbon removal to date. In fact, NextGen said it had arranged one of the largest “advanced purchases” of carbon removal to date.