Interview with private banking, published on 21.11.2021
Experts agree that carbon dioxide must be removed from the atmosphere if the Paris climate targets are to be met. One proposal to do so comes from a team led by physicist Johannes Bednar of the International Institute for Applied Systems Analysis in Laxenburg, Austria. In the scientific journal Nature, it proposes a special emissions trading system (ETS).
private banking magazin: Mr. Allinger, you have studied Johannes Bednar’s model in detail. Can you briefly explain it to us?
Hanjo Allinger: Materially, the authors call for the implementation of an annual threshold for emissions. This could be set independently of the number of emission allowances already allocated in the European Emissions Trading System. The intention is an implicit increase of the annual target reduction rate, which is already specified by the shortage of emission allowances in the European Emissions Trading Scheme.
However, the additional burdens could then – and this is new – be postponed into the future through the newly introduced possibility of CO2 debts. For exceeding the new thresholds, companies would have to physically commit to emitting a corresponding amount of emissions in the future through so-called Carbon Capture and Storage (CCS) technologies from the atmosphere in the future.
Technically, then, the emissions avoidance pathway would initially be exceeded, but later, it is hoped, offset. The cost of meeting the 1.5-degree target would then have been borne by businesses, not public budgets.
Can such an emissions trading system work?
Allinger: The main problems in practical implementation are identified by the authors themselves: The risk of corporate insolvency or government-sponsored debt relief could wipe out the bill. But even if these problems could be solved satisfactorily – which not everyone must consider realistic – this would still remain a high-risk bet on the widespread use of technologies for CO2 decommissioning that are not yet sufficiently functional today.
What are the prospects of success for these decommissioning technologies?
Allinger: There are currently only 21 large-scale plants in operation worldwide that capture carbon dioxide using CCS. Most of these are plants in the context of oil and gas production.
For example, the methane released during oil drilling is used to supply energy to the platforms. The carbon dioxide produced during methane generation is bound in water, as in the case of mineral water, and then injected back into the reservoir. Apart from the climate aspect, this process serves to maintain the production pressure of the reservoir. In general, the CCS process requires a lot of energy and water. It only makes sense and is only possible if the location where CO2 is produced in large volumes also has a suitable host rock in the form of limestone and silicate rock into which the carbon dioxide or the carbonic acid formed from it can be injected.
According to the International Energy Agency (IEA), all of these 21 plants together are capable of capturing 40 megatons of carbon dioxide per year. Currently, we emit about 1,000 times that amount worldwide. The IEA once estimated that we would need to build an industry equivalent in scale to today’s oil and gas industry if we wanted to sequester about 5 gigatons of CO2. And that would be only one-eighth of today’s emissions per year. It’s not completely out of the question, but it’s probably not out of the question either.
What other options are there?
Allinger: In addition to technical options for CO2 capture, some dream of increasing the storage capacity of natural sinks such as the oceans. Large-scale fertilization of the oceans with iron oxide is intended to stimulate the growth of plankton. The part of the phytoplankton that is not consumed in the food chain sinks to the ocean floor after it dies, and the carbon bound in it is removed from the cycle in the longer term. However, what contribution this can actually make to sequestering CO2 in practice has not yet been adequately researched. There is a great deal of skepticism in the scientific community about such geoengineering projects.
What is the problem with the current climate protection via emissions trading?
Allinger: The current reduction rate of 2.2 percent of the emission rights issued annually under the European Emissions Trading Scheme is not enough to achieve the 1.5 degree target without overshooting, i.e. temporarily exceeding the CO2 budget remaining for 1.5 degrees. At present, according to my calculations, we would need a reduction in climate-relevant gases of around 7 percent per year, which would have to increase significantly in the future (then at an absolutely lower level). It is unrealistic to expect that the difference in the actual reduction by heavy industry and the required reduction can be provided by correspondingly higher savings in the non-covered business sectors or by private households. CO2 already emitted must therefore be recaptured and sequestered in the atmosphere.
Assuming this is the case, however, we are heading for a situation in which we should already be at net zero emissions at a point in time when emission rights are still available to companies for legal pollution. So there needs to be massive investment in technologies to reduce CO2. If we don’t want to miss the 1.5-degree target, the necessary funds would have to come from the public purse.
Bednar also sees this problem. He proposes introducing emissions caps for companies that can still achieve the 1.5-degree target. What do you think of this specific approach?
Allinger: I don’t rule out the possibility that it could work. In my estimation, it would be much easier, more transparent and safer to achieve the same thing, at least in Europe, through a significantly higher annual reduction in the number of new emission allowances auctioned. If their number were reduced so much that it corresponded exactly to the remaining carbon dioxide budget attributable to Europe, while complying with the 1.5-degree target, all objectives would be achieved: the 1.5-degree target would be met, and the financing of investments in carbon capture and storage technologies would be borne by companies (or their customers). In parallel, the number of economic sectors required to participate in the ETS should be expanded, and border adjustment should be used to prevent European producers from being disadvantaged vis-à-vis less-regulatory production locations when it comes to imports and exports.
In very concrete terms, then, we need a transitional import tariff and export subsidy, both of which depend on emissions being taken into account in the country of production and sale. Investments in research into CO2 capture technologies would probably be accelerated even more as a result, because the cost pressure would increase more quickly. At the same time, the significantly higher transparency would make the actual societal costs much clearer and would also make conflicts of objectives with other sociopolitical overarching goals clearer more quickly.
With Cap2, you yourself launched a platform for avoiding emissions this summer. How does your model work?
Allinger: We also rely on the steering power of European emissions trading. For institutional investors such as fund companies, pension funds and foundations, or even for individual entrepreneurs, we calculate the responsible emissions. We then buy emission allowances on the European energy exchange EEX to this extent and pass them on to a climate protection foundation. The emission allowances become part of the foundation’s capital, which may never be touched under state control. This guarantees that they can never again be used to legitimize emissions. Since the amount of available emission allowances is set by law, we do not need to wait for a price effect – every ton counts.
So we are not offsetting, we are reducing emissions. Through the market mechanism, we find a European partner who is willing, in exchange for payment, to reduce more emissions than they would legally have to. Ultimately, this is nothing more than emissions avoidance based on the division of labor. We confirm complete climate neutrality or compatibility with the 1.5-degree target with a certificate and a seal.
Are there already similar models on the market?
Allinger: We believe that we are currently one of the very few providers on the market that can offer a secure reduction in emissions. After the Paris Agreement came into force this January, it is hardly possible to securely offset one’s own emissions through offset projects.
Because each country has now made an individual commitment to reduce emissions, there is always a risk that the host countries of climate projects will reduce their own efforts to reduce CO2 as a result of the commitment of climate activists. As a result, the savings achieved there can no longer be safely regarded as additional and offset against their own emissions.
