BIOMASS AND CCS - -- GUIDANCE FOR ACCOUNTING FOR NEGATIVE EMISSIONS Report: 2014/05 July 2014 INTERNATIONAL ENERGY AGENCY The International Energy Agency (IEA) was established in 1974 within the framework of the Organisation for Economic Co-operation and Development (OECD) to implement an international energy programme. The IEA fosters co-operation amongst its 28 member countries and the European Commission, and with the other countries, in order to increase energy security by improved efficiency of energy use, development of alternative energy sources and research, development and demonstration on matters of energy supply and use. This is achieved through a series of collaborative activities, organised under more than 40 Implementing Agreements. These agreements cover more than 200 individual items of research, development and demonstration. IEAGHG is one of these Implementing Agreements. DISCLAIMER This report was prepared as an account of the work sponsored by IEAGHG. The views and opinions of the authors expressed herein do not necessarily reflect those of the IEAGHG, its members, the International Energy Agency, the organisations listed below, nor any employee or persons acting on behalf of any of them. In addition, none of these make any warranty, express or implied, assumes any liability or responsibility for the accuracy, completeness or usefulness of any information, apparatus, product of process disclosed or represents that its use would not infringe privately owned rights, including any parties intellectual property rights. Reference herein to any commercial product, process, service or trade name, trade mark or manufacturer does not necessarily constitute or imply any endorsement, recommendation or any favouring of such products. COPYRIGHT Copyright © IEA Environmental Projects Ltd. (IEAGHG) 2014. All rights reserved. ACKNOWLEDGEMENTS AND CITATIONS This report describes research commissioned by IEAGHG. This report was prepared by: Carbon Counts The principal researchers were: • Paul Zakkour • Greg Cook • Justin French-Brooks To ensure the quality and technical integrity of the research undertaken by IEAGHG each study is managed by an appointed IEAGHG manager. The report is also reviewed by a panel of independent technical experts before its release. The IEAGHG managers for this report were: Jasmin Kemper & Tim Dixon The expert reviewers for this report were: • Antti Arasto, VTT • Dominic Cook, Parsons Brinckerhoff • Jonas Helseth, Bellona • Joris Koornneef, Ecofys • Wolf Heidug, IEA The report should be cited in literature as follows: ‘IEAGHG, ‘‘Biomass and CCS - -- guidance for accounting for negative emissions’’, 2014/05, July, 2014.’ Further information or copies of the report can be obtained by contacting IEAGHG at: IEAGHG, Pure Offices, Cheltenham Office Park Hatherley Lane, Cheltenham, GLOS., GL51 6RH, UK Tel: +44 (0)1242 802911 E-mail: [email protected] Internet: www.ieaghg.org BIOMASS AND CCS – GUIDANCE FOR ACCOUNTING FOR NEGATIVE EMISSIONS Key Messages • Certain greenhouse gas (GHG) accounting rules do not adequately recognise, attribute and reward negative emission technologies, in particular biomass with carbon dioxide capture and storage (bio-CCS). • Most schemes at least recognise negative emissions from bio-CCS by either allowing for net-back accounting on a portfolio level (“pooling”) or the generation of credits (“offsetting”). • Regional cap-and-trade schemes generally do not recognise negative emissions from bio- CCS. However, the architecture of most schemes would allow for either pooling or offsetting if the regulating bodies implement these methods in the schemes. • Consultation among the regulating bodies is essential to clarify the status of bio-CCS and the recognition and reward of negative emissions. • Incentivising bio-CCS remains a challenge, due to the baseline of many schemes. Currently, there is a debate about whether bio-CCS delivers a double dividend for emissions abatement and thus should receive double credits. • Land use change (LUC) is a big concern. Especially in developing countries, implementation of monitoring systems for land use and forestry activities is poor or patchy, so “carbon leakage” is likely to occur. Some schemes might accelerate forest clearing in these countries. The opposite can happen as well, i.e. generation of more forest plantation due to increased demand. • Low carbon fuel standards (LCFSs) include detailed GHG accounting rules for calculating upstream emissions and also consider LUC effects to some extent. • Parity of treatment between fossil and biogenic CO2 is necessary with respect to accounting and sustainability issues. • Two options for the future design of policies exist: 1. Centrally planned view (i.e. incentivising and prioritising bio-CCS while phasing out fossil fuels) 2. Economic purist view (i.e. letting carbon markets drive the deployment of bio- CCS) • Regulating bodies in the EU and US are currently discussing how to address the sustainability concerns around bio-CCS. This broader discussion will likely initiate a complex political process. Page 1 of 15 Background to the Study Biomass use for energy production in processes such as combustion and gasification, and its use to produce biofuels such as bioethanol, results in CO2 emissions. If CCS is applied to these emissions, because the CO2 is recently taken-up by the biomass from the atmosphere, then actual CO2 removal from the atmosphere can take place. This is referred to as ‘negative emissions’ (compare Figure 1). At present there is only one technology which may be able to be deployed at the required scale –bio-CCS. Low-carbon energy technologies are usually incentivized by recognition of their GHG emissions performance, for example within emissions trading schemes (ETS). However, for this to occur, the emissions must be able to be accounted. With the negative emissions potential of bio-CCS, there are several difficulties. The first is that conventional cap-and-trade schemes reward the maximum for zero emissions, not below zero. Secondly, for all suggested incentive or support schemes for bio-CCS, a most important factor in the accounting of net GHG balance is the accounting of the emissions from the supply-side of the biomass. In this regard, especially GHG emissions and environmental impacts arising from direct or indirect land use change (dLUC/iLUC) are an issue. Consequently, there is a need for analysis of the options for correctly accounting, reporting and rewarding all emissions relating to bio-CCS, and of ways of including it in ETS schemes to appropriately recognising its GHG performance. IEAGHG commissioned this analysis to Carbon Counts Company (UK) Ltd. Figure 1 Carbon balance for different energy systems Page 2 of 15 Scope of Work The main objectives of this study are as follows: • GHG accounting rules applicable to bio-CCS: Understand how they apply, assess their ability to appropriately recognise, attribute and reward negative emissions and suggest potential scope, options and pathways for improvement where necessary. This should include consideration of how other incentive schemes outside ETSs account for GHG emissions associated with bioenergy use, in particular in relation to life-cycle GHG emissions and dLUC/iLUC. • Sustainability and potential negative environmental impacts of bio-CCS: Provide an assessment of measures to regulate sustainability impacts and other potential negative environmental effects that could arise through promoting bio-CCS (e.g. leakage, transboundary issues, dLUC/iLUC effects). • Options to appropriately reward bio-CCS: Taking into account the GHG accounting rules and issues for sustainability, consider options for modifying policies to appropriately reward operators undertaking bio-CCS. Therefore the full value chain for different bio-CCS pathways has to be considered, covering: growing, harvesting, distribution, processing, retail and consumption of final products. Within this, the GHG accounting rules for each stage of the value chain are reviewed in order to address how life-cycle GHG emissions are accounted for. This study reviews the following GHG schemes and accounting rules in detail (the main report provides a detailed description of the schemes in Table 2.1 on p. 12ff): • 2006 IPCC Guidelines for National GHG Inventories under the framework of UNFCCC and Kyoto Protocol (2006 IPCC GLs) • EU GHG Emissions Trading Scheme (EU ETS) • EU Renewable Energy Directive (EU RED) • EU Fuel Quality Directive (EU FQD) • US EPA GHG Reporting Program (US GHGRP) • California Emissions Trading Scheme (California ETS) • California Low Carbon Fuel Standard (California LCFS) • Australia Carbon Pricing Mechanism (Australia CPM)1 • Kyoto Protocol Clean Development Mechanism (CDM) • Kyoto Protocol Joint Implementation (JI) In terms of the sectoral scope, the study covers GHG accounting rules applicable to bio-CCS in: • Electricity generation, • Industry, and • Liquid fuel production. The geographical scope of the review covers mainly the developed countries, as presently only these are obliged to GHG emission limitations and reduction targets. The following accounting rules are considered within the scope of the study: • International rules • Regional and domestic rules • Project-based schemes • Product-based schemes 1 The Australian Government has introduced repeal bills in November 2013, aiming to abolish the carbon tax scheme from 1st July 2014. Page 3 of 15 Findings of the Study Introduction to bioenergy Biomass consists of any organic matter of