VCM CDR 1

The IPCC defined removals as technologies, practices, and approaches that remove carbon from the atmosphere and durably store it in geological, terrestrial, or ocean reservoirs or products. The carbon removal landscape comprises nature and engineered-based solutions; examples include land-based carbon sequestration (planting trees, soil carbon enhancement, etc.), bioenergy with carbon capture and storage (BECCS), direct air carbon capture and storage (DACCS), or converting atmospheric carbon back into rock through remineralisation. These solutions can be further categorised by their capacity to withstand reversal (Figure 1), ranging from decades to centuries (low durability, i.e., forestry and soil approaches), centuries to millennia (medium durability), and ten thousand years or longer (high durability, stored in minerals and geologic formations). Medium to high-durability removals are also known as permanent CDR solutions with minimum to zero risk of reversals over centuries to millennia.

Figure 1: CDR methods based on storage and timescale

VCM CDR 2

Meanwhile, within the EU Carbon Removal Certification Framework (CRCF), the European Commission is developing quality criteria and rules for the first EU-wide voluntary framework to certify high-quality carbon removals, aiming to finalise the CRCF before the end of its term in 2024. The Commission has identified three types of removal solutions: permanent carbon storage, carbon farming, and carbon storage in products.The CRCF is a necessary component to build trust that is needed to scale the removals industry. That being the case, as the world’s first major and currently the biggest compliance market, the EU ETS has the potential to scale the removal industry if it is open to it. Though it is clear that we need carbon removals to scrub atmospheric emissions to ensure compatibility with the Paris Agreement goals, as an industry, the CDR is still in its infancy.

Table 1: CDR solution and some of the applicable crediting methodologies

CDR VCM 3

As we acknowledge that what counts as CDR will continue to evolve as technology develops, the methods mentioned above comprise a list of CDR solutions as defined by IPCC and the currently available carbon crediting methodologies published by the International Carbon Reduction and Offset Alliance (ICROA)-endorsed standards such as UNFCCC’s CDM, Verra, Gold Standard, American Carbon Registry (ACR), Climate Action Reserve (CAR), and Puro.earth. 

is exploring expanding its VCS program to support these emerging activities, especially for marine ecosystems and related ocean activities such as kelp forest restoration and carbon storage in ocean waters and sediments. In addition to those in Table 1, 

is working with the CCS+ Initiative on carbon capture and storage methodology, which includes the methodology for direct air capture, transport, and storage in saline aquifers (batch 1) and BECCS (for future batches). 

is also developing a new methodology for afforestation, reforestation, and revegetation (ARR) projects, currently under final review by the registry, based on the existing ARR CDM methodologies (AR-ACM003 and AR-ACM0014).

CDR VCM 4

However, unlike the VCM with an established market mechanism, there is still no 

 market in the CDR other than several actors trying to kick off the market. Limited crediting methodology exists, especially for medium and highly durable CDR solutions, with Puro.earth being the first and, until now, only ICROA-endorsed standard for highly durable CDR solutions. With most crediting methodologies for land-based removal solutions accounting for both emission reduction and carbon dioxide removal, accounting for activities that solely remove net carbon from the atmosphere is quite problematic. Furthermore, there are still very limited marketplaces for highly durable CDR solutions, with most transactions happening bilaterally between buyers and project developers, which are not captured in Figure 2. When it comes to credits, based on the total issued credits to date (chart on the left), the market's medium and high-durable CDR solutions are still lacking. Even when the total available credits from Puro.earth Accelerate (a program to enable buyers to purchase Puro.earth’s carbon removal certificates from projects in development) was added (chart on the right), medium and highly durable CDR solutions are still in short supply. Furthermore, the scale is even more evident when it comes to the overall retired credits, as h

igh-durability CDR has total credits delivered to date amounting to 109 Kt

, only 0.13% when compared to the 846 Mt credits retired from ACR, CAR, Gold Standard, and Verra.

A6.4 mechanism is forming quasi-regulatory status for the net-negative industry

Article 6 Rulebook from COP21 requested the A6.4 Supervisory Body (A6.4SB) to develop recommendations on “activities involving removals, including appropriate monitoring, reporting, accounting for removals and crediting periods, addressing reversals, avoidance of leakage, and avoidance of other negative environmental and social impacts.” A6.4SB outlines the constituent factors of UN-compliant credits that can give credibility to credits outside of regulatory schemes (i.e., EU ETS, WCI, etc.) while incentivising and facilitating participation in mitigation activities by public and private entities. These UN-backed carbon credits will use A6.4 Emission Reductions (A6.4ERs) and mitigation contribution units (MCUs) as transfer units.

The A6.4SB recently released draft recommendations on activities involving removal (

meeting, outlining recommendations on activities involving removal and new proposals based on the submissions received, including some examples. 

, the A6.4SB will work on the final document on removal activities under the A6.4 mechanism during the SB007 meeting. Meanwhile, the review of CDM methodologies and the development of new methodologies (for engineering and land-based removals) are scheduled for next year; hence, the first few approved methods will likely be adopted from the CDM.

With the market infrastructure still being built, the VCM acts as a momentum builder for the supply-constrained, highly durable CDR industry. VCM has the power and capacity to kickstart the market and secure future supply of CDR, allowing the private sector to play its part in supporting the development of CDR solutions by providing extra-revenue streams (through removal credits) to de-risk CDR investments. Currently, demand for removal comes from innovators and early adopters consisting of fintech companies such as Microsoft, UBS, and JPMorgan, as well as buyers’ clubs (companies coming together to accelerate investment towards CDR) such as NextGen and Frontier.

On the framework side, ACR pioneered a new registry functionality to label credits verified as “removals” currently only for improved forest management projects, while Verra recently introduced 

, including “GHG Emissions Reduction” and “Carbon Dioxide Removal.” However, with most of Verra’s methodologies falling under both reduction and removal criteria (see Table 1), Verra currently only allows projects using methodologies that result in 100% GHG emissions reductions or carbon dioxide removals to be eligible for VCU mitigation outcome type labels. Verra also introduced the ABACUS label to catalyse the growth of nature-based removal credits, which would be applied to projects under the upcoming ARR VCS methodology.

Furthermore, the Science-Based Target initiative (SBTi) defined net-zero targets as reducing emissions to residual levels and neutralising any unabated emissions with permanent removals at the target year. Hence, removal credits should be purchased in a net zero target year (and every year after that to ‘neutralise’ residual emissions) after a 90 – 95% cut in value chain emissions.However, the underlying data on 

 outlined that out of the 2078 assessed companies, only 40 companies (less than 2%) stated that they would use permanent carbon removals at the target year.

With the overarching role of removals, market participants expect to see a clear and distinct role of CDR in mitigation activities, as it holds a different position and should not be substituting direct emission reduction. Reductions and removals are inherently different and not interchangeable. The CDR industry needs greater clarity from policymakers and standards to send clear market signals that can reassure buyers and incentivise investments. As stated in the Oxford Principles for Net Zero Aligned Carbon Offsetting, removal credits should constitute the majority of carbon portfolios after 2040, with a focus on highly durable removal.Hence, the crediting framework should already enable market participants to differentiate CDR credits based on their durability, as CDR solutions with high permanence also cost more than the ones with shorter-duration sequestration. The A6.4SB will adopt the recommendations on activities involving removals during the 7th meeting (SB007) scheduled for the 10th – 14th of September, which will be submitted for adoption in the upcoming COP28.

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Despite its eminence in the market, high-durability carbon dioxide removals (CDR) comprise only a tiny fraction of the total transacted volume. As a credit class, high-durability CDR comprises only 0.01% of total credits retired from major registries. Meanwhile, Article 6.4 (A6.4) of the Paris Agreement defined mitigation to include emission reduction and removal activities; hence, CDR will likely become essential under Article 6. As there are no broadly accepted international accounting rules for carbon removal, the A6.4 mechanism, being the successor to the Kyoto Protocol’s Clean Development Mechanism (CDM), has the potential to set market norms for the crediting market of CDR. While the voluntary carbon market (VCM) has been the main driver behind the novel CDR, the uptake of methodologies endorsed by the A6.4 mechanism will establish a precedent for the global standardisation of CDR activities, ensuring the trust of the market participants as a prerequisite to scale the market.

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