VINACHEM

Imagine a world where CO₂ is no longer a waste product causing the planet harm, but a valuable commodity that we suck from the sky using carbon capture (or, more accurately, CO₂ capture) and turn into everything from food to concrete. A world where the gas is at the heart of a truly circular economy.

Not only is this very much needed – it could soon be a reality.

CO₂ is already used in many industries for a wide range of manufacturing processes. Its importance was recently highlighted by a shortage in the UK food and drinks industry: record high gas prices forced two fertilizer plants – which produce CO2 as a by-product – to shut down. This cut 60% of the UK’s food-grade CO2 supply, threatening shortages of certain types of food, including turkeys at Christmas.
And yet, the atmospheric concentration of CO₂ – a major cause of global warming – is increasing. Capturing that CO₂ and putting it to use in areas like food production is far more sustainable. It is also vital if efforts to reach net zero emissions are to succeed.

But achieving this means building an entire market from scratch – in terms of both the physical supply chain infrastructure and the market trading mechanisms.

Creating a more mature trading space – moving from today’s virtual market of emissions offsets to the physical trading of CO₂ – is a key part of this journey toward a truly circular economy for CO₂.

For example, a more established and mature CO₂ trading market will help provide the economic incentives needed to drive governments, companies and the public’s support of energy efficiency and climate-friendly technologies. This momentum is urgently needed – global clean energy investments alone must triple to $4 trillion by 2030 to reach net zero emissions by 2050.
What is emissions trading?
The emissions trading market has only fairly recently been established and is still somewhat experimental – but the fundamentals are far simpler than they seem. The European Union’s Emissions Trading Scheme (EU ETS) is the world’s oldest international scheme, yet it was only set up in 2005. The relative newness of emissions trading – which is currently all virtual with no physical delivery of CO₂ – means there has been a lot of trial and error. So far, the ‘cap and trade’ method has proven the most successful.

This method sets a limit on the number of greenhouse gases (GHG) a company can emit. Within that cap, a company can buy and sell emission allowances in order to cover their annual emissions – facing heavy fines if they go over the limit. Like any traded market – whether you are buying anything from oil to oranges – the daily price for carbon credits changes every day. The cap on the company’s emissions gradually falls over time, helping them cut their overall emissions.

The EU ETS’ experience has had a domino effect on other countries over the years, including China – the world’s biggest CO2 emitter. In July, China launched what has already become the world’s biggest ETS – even though it only covers 40% of the nation’s CO2 emissions for now. The UK, which was previously part of Europe’s ETS, also launched its own ETS in January. Overall, there are now 64 carbon pricing initiatives worldwide – including a mix of cap and trade, and taxes – versus two in 1990.

Despite the significantly negative impact of COVID-19, operational carbon pricing instruments worldwide now cover 21.5% of GHG emissions and generate $53 billion in revenue, according to the World Bank.

Transparency matters – a lot

This progress has taken years of effort to achieve, yet it is not the final destination – a physically traded CO₂ market is. But this is no small task. More than three decades went into creating today’s virtual market – and much of that progress has been in the past five years.

Creating a physically traded market is complex, as it means aligning many moving parts. This includes establishing both market and physical infrastructure – a trading platform and actual pipelines and transport, for example – as well as identifying cross-border supply chains. Legal, regulatory and geopolitical needs must also be considered – and much more.
“Secure and transparent trading is key to helping trading grow,” says Shuji Hori, Deputy Leader of Mitsubishi Heavy Industries (MHI)’s CCUS Business Taskforce.

The shift from virtual to real trading

One route to turning CO₂ from a liability into an asset is to leverage a CCUS (CO₂ Capture, Utilization and Storage) value chain – where captured CO₂ is utilized for industrial, agricultural and other applications.

CCUS has also been highlighted by the International Energy Agency (IEA) as a key pillar in the energy transition, as it can both reduce and remove emissions – two crucial elements in the path to net zero.

Trading and transporting captured CO₂ is certainly achievable. But there are a lot of steps that need to happen first.

For example, end-use markets must be identified and many more CO₂ capture plants built. Overall, the world’s capacity to capture CO₂ every year must increase by 200 times in just two decades to help reach net zero goals – a very tall order. Plus, pipelines, road transport and shipping routes must be established to move the physically traded CO₂ between buyers and sellers.

For its part, MHI is helping by innovating in every part of the CO₂ supply chain. The company continues to improve its CO₂ capture technology, which is used across the world; it is designing a liquefied CO₂ maritime carrier; and is partnering with IBM to develop an end-to-end digital platform that uses Blockchain and IoT technology to monitor, track and trade captured CO₂. These are all key components for a physically traded CO₂ market.

The idea of being able to physically trade CO₂ is relatively new and there are many complexities to iron out. But monetizing one of the world’s most common elements is essential for realizing a net zero emissions future. - spectra.mhi.com -