Category: Article

Why Carbon Credit Additionality is More Important Than Ever

The voluntary carbon market (VCM) is evolving. As it does, the world is increasingly recognizing that not all carbon credits are created equal. More than ever, carbon credit buyers in particular are concerned with one basic question: Are the carbon credits real?

One attribute especially drives the yes/no answer to that question: additionality. 

When it comes to carbon credits and the emissions avoidance, reduction, or capture that generates them, additionality asks whether “the mitigation activity would not have taken place in the absence of the incentive created by the carbon credits,” note Environmental Defense Fund, WWF, and Oeko-Institute in their carbon credit guidance for buyers. 

In other words: Would the associated activity have happened anyway? Or did the carbon credit itself help drive measures that resulted in new changes to the global emissions balance? 

The challenge of assessing additionality

At first glance, determining additionality might seem easy and straightforward. In practice, for most carbon projects, additionality is exceptionally hard to assess. 

This is due to the fundamental challenge that only the project developer can know whether a project is truly additional. Only they know whether the carbon credit revenue enabled project implementation or expansion, vs. the project proceeding regardless of associated carbon credits. For many projects, these insights are essentially unknowable to anyone else.

In practice, because additionality is difficult to assess, many projects that would have gone forward anyway are still compensated with carbon credits. For example, take the case of ‘passive’ projects such as avoided (i.e., prevented) deforestation. These projects must somehow, through a standardized methodology, test whether a landowner plans to cut down the trees — and then confirm that carbon credit revenue stops them from doing so. 

This test often fails and credits are issued for a forest that would not have been cut down in any case. This miscalculation results in the undermining of trust in the VCM, misallocated climate funds, unfair outcomes, and, worst of all, no contribution to solving the climate crisis – all because the lack of additionality boils down to hollow carbon credits that aren’t real. 

ZeroSix and additionality

ZeroSix carbon credits, by contrast, are ‘additional by design’. Let us explain. 

We aim to reduce global emissions by shutting in oil and gas from the most polluting wells in the U.S. The shut-in reserves are converted to carbon credits following a strict protocol. This incentivizes the early retirement of the most-polluting, least-efficient wells, while transforming the remaining, unextracted oil and gas into a climate-friendly asset. 

A core part of the protocol is its additionality test. Projects that wish to participate in ZeroSix face a three-pronged screen: 1) a regulatory test, 2) a common practice test, and 3) an implementation barrier test. Both reserve reporting (how much fossil fuel is still in the ground) and economic viability (how likely is it that the fossil reserves will be extracted) are central to these screens as tests of additionality. 

Only those underground fossil reserves for which it is currently profitable to extract hydrocarbons and for which there is near certainty that they will be extracted in the future are eligible to be shut in and converted to high-quality carbon credits. 

How we calculate reserves

The basis for our additionality calculation is the SEC-regulated reserve reporting standard (defined here and here). These reports estimate the conservative recoverable reserves and the time period over which the reserves can be retrieved. 

Reserve reports play a key role in the valuation of a hydrocarbon-focused company and help investors assess its financial health. Publicly traded oil and gas companies must file reserve reports annually and an independent auditor assesses each report. 

Within a reserves report, a distinction is made between three types of reserves:

• Proved reserves: have a 90+% chance of profitable extraction; 
• Probable reserves: have a 50–90% chance of profitable extraction; and 
• Possible reserves: have a 10–50% chance of profitable extraction. 

We can further break down proved reserves into three subcategories: 

• Proved developed reserves (PDP): reserves that are economically viable and are actively producing; 
• Proved developed non-producing reserves (PDNP): reserves with an existing well-bore and identified reserves that are not producing; and 
• Proved undeveloped (PUD) reserves: reserves for which a new well-bore is required and, thus, requires new investment.

Only PDP reserves and a very specific, small subset of PDNP reserves are eligible for generating ZeroSix carbon tokens.

How ZeroSix creates an incentive to keep reserves in the ground

In the absence of a counter-incentive or a legal impediment, extracting hydrocarbons from proved developed reserves is, by definition, profitable and feasible — and therefore, likely to continue, counter to what’s needed for a net-zero aligned future.

In the case of proved developed reserves, the investments have already been made, production is already happening (via extraction and refining), and continued operation is profitable. From an oil-and-gas industry perspective, a proved developed reserve and associated producing well is essentially money coming out of a hole in the ground. Without an incentive, producers will not close off the flow of money.

By focusing on proved developed (producing) reserves as a central piece of our additionality criteria, ZeroSix is taking reserves that would be extracted with near certainty and is permanently shutting them in, creating high-quality carbon credits in the process.

And by applying rigorous, regulatory-backed standards to quantifying those abandoned reserves, we’re able to confidently determine how many carbon credits should be issued.

In the absence of the ZeroSix carbon credit mechanism, business as usual would, by definition, continue — resulting in decades of associated GHG emissions from fossil fuels the world can’t afford to extract, refine, and combust. The purchase of ZeroSix credits keeps fossil fuels in the ground, unextracted and unburned — a guarantee that carbon credit buyers are directly contributing to a net–zero world.

Learn more about the ZeroSix approach and what makes us a high-quality carbon credit.

Original source: https://www.zerosix.co/news/why-carbon-credit-additionality-is-more-important-than-ever-by-guus-visman/

The company will bring unprecedented accuracy, additionality, permanence, and transparency to the voluntary carbon market by converting unextracted, unburned oil and gas into permanently protected carbon credits; the solution has the potential to avoid a new gigatonne of carbon emissions per year.

HOUSTON, Texas, Nov. 3, 2022  /PRNewswire-PRWeb/ — Today, the founders of carbon credit solution provider ZeroSix have announced the company’s official launch. The newly formed greentech venture aims to unlock a new gigatonne (GT) per year of greenhouse gas emissions reductions by turning protected oil and gas reserves into carbon offsets available on the voluntary carbon market (VCM). The company will create accurate, additional, permanent, and transparent carbon credits that are created, tracked, traded, and retired on a decentralized, digital platform. In tandem with today’s launch, ZeroSix has released a detailed white paper that explores their unique approach.

ZeroSix was formed by a team of energy and digital technology professionals with extensive backgrounds in the oil and gas sector, as well as various sustainability initiatives, including veterans from Shell and other oil majors. The founders chose to use their expertise to develop a climate-positive solution to leave fossil fuel reserves in the ground. Their approach incentivizes oil and gas producers to permanently shut in their most-polluting wells early and turn unextracted, unburned oil and gas into high-integrity carbon credits generated via ZeroSix’s operating system.

“We believe the voluntary carbon market can be a critical driver of fossil fuel emissions reductions. But the market must improve in size, quality, and transparency to ensure carbon offsets are actually an effective tool. ZeroSix will contribute to all three areas of growth and improvement…”

The opportunity for positive climate impact using ZeroSix’s solution is substantial: the U.S. has more than 850,000 low-rate wells still in operation. ZeroSix analysis shows that, in the U.S. alone, early retirement of bottom-quartile wells could avoid 1 GT CO2e per year — greater than the annual total GHG emissions of Germany, the world’s fourth-largest economy. In addition, above and beyond the avoided emissions that would have resulted from direct fossil fuel combustion, many of these bottom-quartile wells also represent a disproportionate opportunity for further climate mitigation. For example, a subset of wells accounting for less than 1% of U.S. oil and gas production contributes an outsized 11% of sector methane emissions.

“The world needs an additional 23 gigatonnes of carbon emissions reduced each year to reach the goals set by the Paris Climate Accord, and the large majority of global emissions are tied to the burning of fossil fuels,” said Martijn Dekker, CEO of ZeroSix. “We believe the voluntary carbon market can be a critical driver of fossil fuel emissions reductions. But the market must improve in size, quality, and transparency to ensure carbon offsets are actually an effective tool. ZeroSix will contribute to all three areas of growth and improvement as we work to bring the world closer to net-zero.”

As the validity and impact of various carbon offsets comes under increased scrutiny worldwide, ZeroSix has developed an approach to creating carbon credits that will ensure:

• Accuracy: ZeroSix will rely on the SEC standard for calculating emissions related to oil and gas reserves in order to arrive at precise avoided emissions measurements.
• Additionality: Keeping oil and gas reserves from proven producing wells in the ground avoids all emissions related to their potential surfacing, processing, and consumption.
• Permanence: The shutting in of oil and gas wells is irreversible.
• Transparency: The decentralized, digital platform used by ZeroSix allows anyone to easily verify carbon credits.

“Effective climate action is impossible without participation from all sides. That is why our approach invites oil and gas producers to be partners in the climate action solution, giving them a new way to ‘mine’ their reserves by simply leaving them untouched,” said Ondrej Sestak, head of engineering at ZeroSix. “Meanwhile, corporate leaders will have a new opportunity to invest with confidence and unparalleled transparency in a market forecasted to reach $50B annually by 2030.”

The ZeroSix solution is built on blockchain and other decentralized digital technologies. The system uses a ZeroSix token, with one token representing one tonne CO2e. This tokenized system provides a shared, immutable, tamper-proof digital record of events and transactions related to the creation, sale, and retirement of carbon credits. The solution is anchored to the Energy Web Chain and the broader Energy Web technology stack, which was built by and for the global energy sector. The public Energy Web Chain is used by renewable energy developers, utilities, electric vehicle companies, and others to accelerate the clean energy transition with robust digital solutions.

ZeroSix’s operating system will launch at the end of 2022, and the company will continue to advance the ecosystem of potential suppliers and buyers of carbon credits as it aims for a full platform launch in 2023. Beyond the initial focus on oil and gas, ZeroSix plans to scale its solution to take on other high-quality emissions reduction projects, including other hydrocarbons and CO2 removal technologies like direct air capture.

Oil and gas producers interested in becoming a part of the climate solution by turning inefficient hydrocarbon wells into zero-carbon assets should contact [email protected]. For interested buyers of future carbon credits, learn more at http://www.zerosix.co. Finally, to explore ZeroSix’s unique approach to creating carbon offsets and the digital solution making it possible, download the full white paper at http://www.zerosix.co.

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About ZeroSix For 150 years of the modern oil and gas industry, the focus has been on surfacing, refining, and burning fossil fuels. The next era of fossil fuel ‘prospecting’ is focused on the dual economic and climate opportunity of ‘harvesting’ unburned barrels of oil and Mcf of natural gas as permanently protected carbon credits.

Our platform and strict protocol rooted in accuracy, additionality, permanence, and transparency unlocks a pathway to making oil & gas producers a stronger part of the climate action solution, while giving voluntary carbon market buyers the confidence to invest. We’re introducing the world to a revolutionary new kind of carbon credit—an upstream carbon offset rooted in fossil fuels that never burn, by incentivizing producers to shut wells early and turn unburned oil and gas into high-integrity carbon credits. Learn more at http://www.zerosix.co.

Media Contact

Nikki Arnone, Inflection Point Agency for ZeroSix, 1 7708567185

SOURCE ZeroSix

Original source: https://www.prweb.com/releases/Shell_veterans_launch_ZeroSix_carbon_credit_solution_to_keep_fossil_fuels_in_the_ground/prweb18994348.htm

How the Oil & Gas Industry and Carbon Credits are Both Differentiating

By Samantha Holroyd 

From aviation to fuel to steel to hydrogen to electrons, traditional commodities have been differentiating with growing momentum. Often that differentiation is happening along the spectrum of green attributes: sustainable aviation fuel, green steel hydrogen, renewably generated electricity. Suppliers looking to differentiate their offering and byers looking for a cleaner version of a product have both been taking a closer look at the upstream emissions associated with producing one unit of it. 

Now, that some movement has arrived in force within oil and gas (O&G). In the modern era of climate-differentiated O&G, i.e., O&G that looks beyond just the downstream combustion-related emissions and takes into account the upstream supply chain emissions associated with extraction, production, refining, and transport, too. Similarly, voluntary carbon markets are starting to discriminate between various types or classifications of carbon credits, which are no longer the fully fungible commodity they once were.

In this article, we’ll take a closer look at the factors behind the varying carbon intensity of barrel to barrel of oi, cubic foot to cubic foot, as well as how this is paving the way to a superior carbon credit.

Wide variability in upstream O&G supply chain emissions.

Not every barrel of oil and standard cubic foot of natural gas is created equal, particularly in terms of embodied carbon emissions. While the carbon emissions from combusting one barrel of, say, conventional light crude oil is a known and relatively stable quantity, the upstream emissions associated with extracting, refining, and transporting that barrel can vary widely — from basin to basin, operation to operation, and even within an operation, as a given well moves into later stages of its lifecycle and/or wells target formations that are more difficult to extract.

O&G-associated emissions can vary by as much as five times between different barrels when taking into account lifecycle emissions (especially upstream production and refining emissions) of a given resource or product. “There is an even greater difference in the industry’s emissions responsibility depending on how oil and gas are extracted, processed, refined, and transported,” notes energy transition think tank RMI. “The share of emissions from oil and gas production, refining, processing, and shipping can rival that from petroleum end-use consumption.”

The lowest-rate producing wells are also the least-efficient contributors to the overall energy system. And, as it turns out, these low-rate producers, which are approaching their economic limits, are generally the most polluting and have the highest emissions impact across their operations, too. According to the most-recent U.S. EIA data from December 2022, the United States has just under one million wells. About 80% of those produce less than 15 barrels of oil equivalent per day (BOE/d). Such wells are often maintained less frequently than the higher-rate, higher-value wells within an operator’s portfolio, leading to frequent hydrocarbon leaks into the environment and atmosphere.

Decommissioning oil and gas systems can impose prohibitive costs at the wrong time, when they have little to no financial return on investment, but assets that are beyond their useful lifetimes can have outsize climate impacts,” notes RMI in its 2022 report Know Your Oil and Gas: Generating Climate Intelligence to Cut Petroleum Industry Emissions. “This mismatch between cash flows, company valuations, and lifecycle emissions underscores why incentives are needed for operators to safely and properly decommission old assets.”

Moreover, research published in 2022 in the journal Nature Communications found that lower-rate O&G wells (<15 BOE/d) accounted for just 6% of U.S. production and resulted in 50% of methane emissions from the sector. This suggests an outsized opportunity for beneficial climate impacts: retire and permanently decommission less-efficient, higher-polluting wells. In fact, that’s the very focus of ZeroSix’s first wave of carbon credit projects.

Carbon credits based on decommissioning less-efficient, higher-emitting wells.

Just as the O&G sector is evolving — in the context of climate-differentiated upstream supply chain emissions — so, too, is the voluntary carbon market (VCM).

Traditionally, one carbon credit has equaled one tonne CO2e. At least in name, that still remains true. But carbon credit differentiation is beginning to materialize. This differentiation is manifesting due to 1) the emergence of a higher-quality class of credits, based on principles of accuracy, additionality, permanence, and transparency, and 2) an intensifying demand and valuation for the highest quality carbon credits from buyers. 

Carbon credit buyers are increasingly looking for higher-quality credits that meet criteria that go beyond pure “nameplate” CO2e, such as confidence in a project’s additionality. On the other side of the same coin, project developers (i.e., carbon credit suppliers) are looking to offer credits that stand out amidst a sea of historically commoditized carbon credit options.

At least two other differentiation factors are also gaining traction quickly.

First, there’s the question of where a carbon project intervenes in the supply chain. Is it focused on downstream atmospheric carbon removal, trying to “undo” emissions that have already happened? Is it focused on upstream avoided emissions, to prevent would-be emissions from having a climate impact in the first place?

Second, there’s the question of co-benefits, which refers to ancillary benefits above and beyond the 1 tonne CO2e a carbon credit represents. Such co-benefits could include positive impacts on human health, environment, air quality, or social or community impacts, etc. They could also include things like tackling fugitive methane emissions, a global priority issue given methane’s global warming potency over shorter time frames.

ZeroSix carbon credits shine on both of these fronts. 

Because we are focused on early well retirement and permanent abandonment of associated reserves, we’re leaving fossil fuels in the ground where they’ve already been for millennia and where they can’t negatively impact the climate. And furthermore, because we’re targeting less-efficient, lower-producing wells, we’re also by default abating a disproportionately high source of methane emissions.

For buyers looking to maximize the climate benefit of their carbon credit investments, and for suppliers looking to offer a superior carbon credit option in the VCM, the ZeroSix protocol is defining a new high mark for quality. It’s a greener, cleaner carbon credit.

Growing market momentum for reducing O&G carbon intensity

The idea of climate-differentiated O&G is not “pie in the sky” thinking. Market demand and regulatory tailwinds are already here, and voluntary market appetite is fast on the rise.

For example, state initiatives such as California’s Low Carbon Fuel Standard (LCFS) and Washington’s Clean Fuel Standard are aimed at decreasing the carbon intensity of transportation fuels — including improving the efficiency and decreasing the upstream embodied emissions of fuel production processes such as O&G extraction and refining. Meanwhile, perspectives ranging from S&P Global Commodity Insights to the International Energy Agency (IEA) to McKinsey & Co. agree that reducing the O&G sector’s upstream carbon intensity is a crucial piece of the broader energy transition.

The O&G sector itself is also leaning in with upstream decarbonization efforts. The Oil and Gas Climate Initiative (OGCI)  — a consortium of 12 member companies with combined crude oil output of approximately 25 million BOE/d — in July 2020 announceda target to reduce the collective carbon intensity of upstream operations by 9% by 2025. Last year they also announced the Aiming for Zero Methane Emissions Initiative.

In addition, third-party initiatives such as the Oil Climate Index plus Gas (OCI+), a recent evolution of the Carnegie Endowment’s original Oil-Climate Index (OCI), is making upstream O&G emissions intel transparent and actionable for market participants.

The differentiated, decarbonized road ahead

Against this backdrop, the benefits of the ZeroSix fully integrated Protocol and Digital Solution become crystal clear for O&G operators. By prematurely decommissioning the less-efficient, higher-emitting wells in their portfolio, they’re reducing the carbon intensity of their own operations in line with industry targets and a growing landscape of low-carbon regulations. Meanwhile, they’re converting the abandoned fossil reserves into high-quality carbon credits the market wants.

For carbon credit buyers, the benefits are equally compelling. ZeroSix carbon credits go straight to the core of high-impact climate action, helping to mitigate a disproportionate source of methane emissions amidst the energy transition.

Learn more about ZeroSix and how we’re raising the bar on carbon credits. 

Original source: https://www.zerosix.co/news/how-the-oil-gas-industry-and-carbon-credits-are-both-differentiating/

We can’t expect even the highest quality carbon offsets to drive the necessary shift to net zero if carbon markets as a whole are marred by trust issues. ZeroSix’s Arno Laeven explores this issue and explains how “removing the need for trust” can be part of the solution.

According to a recent Guardian analysis, some 90% of the carbon credits issued by one of the largest registries in the global voluntary carbon market (VCM) did not represent actual emissions reductions. That’s problematic, to say the least. It undermines trust in the VCM at precisely the time when a robust market is needed most to drive investment into projects that reduce and/or avoid emissions en route to net-zero.

At the heart of the matter — including the Guardian exposé — is whether any given carbon credit is ‘real.’ If the answer is ‘no,’ then the buyer of that carbon credit is de facto greenwashing, whether they intended to or not. Worse, it also means that the project associated with that carbon credit has not helped the planet’s emissions balance move any closer to actual net-zero.

In 2023 and amidst heightened scrutiny, ‘real’ carbon credits more than ever must equate to either new avoided emissions, emissions reductions, or sequestered carbon vs. what would have happened without investment via the carbon credits. This is commonly referred to as additionality. The projects associated with high-quality carbon credits should meaningfully contribute to changing the global emissions trajectory; they cannot amount to merely ‘buying’ a green claim that doesn’t change the overall global emissions balance.

HOW CARBON MARKETS LOST PUBLIC TRUST

The fact that the overwhelming majority of carbon credits examined in the Guardian analysis didn’t represent actual emissions reductions was the core fundamental failing that lost public trust in at least a part of the VCM. But how the collective ‘we’ can audit and verify the integrity of carbon credits is also partly to blame.

Of course, carbon credit buyers cannot individually inspect every project associated with their carbon credits. They are therefore wholly reliant on the claims of intermediaries: registries, verifiers, brokers, project owners, auditors. Yet trust in this ‘just trust us’ network of intermediaries is not always justified, as a 2020 Bloomberg analysis found (not unlike the more recent Guardian piece).

Blind trust in this system has failed carbon credit buyers. And it shouldn’t take a major investigation from one of the world’s leading journalism institutions to uncover faults in the market. In other words, the VCM has a big trust problem. But rather than throw away carbon markets altogether, we need to make them work better as originally intended.

TACKLING THE TRUST PROBLEM BY REMOVING THE NEED FOR TRUST

The solution — perhaps ironically — is to remove the need for trust as much as possible.

In the late 1980s, then-U.S. President Ronald Reagan famously said to ‘Trust, but Verify.’ He was referring to nuclear disarmament with the Soviets, and Reagan’s quip originally came — also ironically — from an old Russian proverb.

Decades later in the modern era, blockchain technologists have today further adapted the maxim as ‘Do not trust. Verify.’ And herein lies the salvation of carbon markets.

Blockchain, of course, is one flavor of digital solution. If you’ve been watching recent carbon market developments, then you’ve also probably seen a proliferation of so-called ‘tokenized’ carbon credits. They create transparency after a carbon credit has been issued, but they say little about the project and protocols that generated the credit in the first place. These solutions still suffer from the problem of  ‘garbage in, garbage out.’ In other words, the ability to audit a carbon credit claim on a blockchain is relatively worthless if the data that’s been anchored to the chain is of dubious origin.

Solving the trust problem in carbon markets requires leveraging blockchain technology to a greater extent. It must not be about mere digitization or tokenization of off-chain data. The very nature of the carbon credit itself — a project’s type and location, the methodology by which metric tons of carbon have been calculated, the additionality and permanence of the credit, its provenance and chain of custody — all of it can and must become a part of its record.

This is what we are doing at ZeroSix. We are making the shift from a carbon token that simply digitizes a given claim about metric tons of carbon, to a carbon token enriched with full end-to-end transparency into how that carbon credit came to be in the first place. Anyone can independently verify the associated proofs and claims, so that hopefully investigative exposés like that of the Guardian become a thing of the past.

Without the need to trust, but with the ability to verify, the VCM can grow significantly to allow the world to get to net zero emissions. ‘Bad’ carbon credits will have nowhere to hide, while buyers can confidently invest in high-quality carbon credits that get us collectively closer to a 1.5ºC world.

Original source: https://www.zerosix.co/news/carbon-markets-have-a-trust-problem-by-arno-laeven/

A real carbon credit is forever

Three-quarters of a century ago, De Beers captured the world’s imagination with their new and since-legendary slogan, “a diamond is forever.” (Diamonds, coincidentally, are 99.95% pure carbon.) That same focus on lasting forever can and must apply to carbon credits, too.

In the parlance of carbon markets, this concept is known as “permanence” — the sustained, long-term performance of a GHG abatement project with no reversals that undermine its associated carbon credits. Although virtually all projects have measures in place to ensure permanence, in practice not all projects meet this promise.[1]

ZeroSix and permanence

Here at ZeroSix, we aim to reduce global emissions by shutting in oil and gas from the most polluting wells in the U.S. The shut-in reserves are converted to carbon credits following a strict protocol. This incentivizes the early retirement of the most-polluting, least-efficient wells while transforming the remaining, unextracted oil and gas into a climate-friendly asset. The ZeroSix protocol focuses on proved, producing oil and gas reserves — a criteria that helps ensure that ZeroSix carbon credits are additional. 

For these resources, the investments have already been made, production is already happening (via extraction and refining), and continued operation is profitable. Thus shutting in those fossil fuel reserves is a shift from business usual and meets the standard of additionality for new emissions reductions or avoided emissions.

On top of that additionality, permanence in this context means permanently plugging and abandoning (P&A) a gas or oil well. As defined by our protocol, this is an irreversible action that shuts in hydrocarbons and their associated emissions forever. The permanence of ZeroSix carbon credits is legally guaranteed for at least 50 years. In reality, once the well has been properly decommissioned, the oil and gas will remain trapped in the subsurface reservoir indefinitely, where it has already been for millions of years.

How we ensure permanence

Three pillars of “permanence protection” cover ZeroSix carbon credits: (i) geological, (ii) legal, and (iii) operational. Each of the three pillars is independently verified or established by a third party. On top of that, a buffer account provides an additional layer of permanence insurance.

The plugging and abandonment process starts with an assessment of the geologic structure of the project reservoir and the performance history of the well or wells within a project.[2]

1. Geological

At the start of a ZeroSix project, the project owner provides documentation substantiating the project boundaries, lease boundaries, an inventory, and status of the wells within and outside the project boundaries. In other words, the project owner demonstrates internal (wells, reservoirs, maintenance history) and external (seismic activity, reservoirs outside the project boundaries) aspects of the project. A proper assessment of the geologic structure helps ensure the assessment permanence of the project.

Wells, wellbores, wellheads, and reservoirs – In simplified terms, a reservoir is an underground natural “container” made of rocks that contains oil or gas. A wellbore is a hole in the ground that connects to the reservoir. The wellhead is analogous to a faucet, with valves to regulate the pumping up of oil and gas from the reservoir. The term “well” typically refers to both the wellbore and the wellhead.

Part of this mapping is documentation to prove the absence of “subsurface connectivity.” Oil and gas is extracted from reserves through wellbores and wellheads. Typically, multiple wells are connected to one reservoir. In some cases, reservoirs are connected to each other (i.e., there is subsurface connectivity) or are in “communication,” allowing hydrocarbons from one reservoir to flow to another.

To ensure permanence and prevent leakage, only projects that shut in all connected wells are eligible for a ZeroSix carbon credit project.[3] Geologic permanence is an assurance of an isolated volume of hydrocarbons within the project boundaries, that — without dedicated efforts from an operator — would remain in place for millions of years.

Project developers submit the information to the ZeroSix platform, which is consequently independently verified by a third-party verifier.

2. Operational

The operational permanence protection refers to the physical plugging and abandonment of wells. The operational execution is informed by the geological assessment.

The P&A process starts by filing permits with the regulatory authorities. These submissions must include a detailed plan, such as measures to protect subsurface groundwater, clean up of contamination at the surface around the wellhead, removal of surface equipment, and the return of the well site to its natural state.

Once plugged, recovering hydrocarbons from a reservoir becomes technically extremely difficult -if not impossible- and definitely economically unviable.

With the permit in place, the actual plugging of the well can commence. A producing oil or gas well has a wellhead connected to a pump, through which hydrocarbons are extracted from the earth. The plugging process involves the removal of the wellhead and use of cement plugs to seal the well at several depths. It is an irreversible process designed to prevent methane and subsurface fluids from leaking from an abandoned well. 

To confirm the plugging and abandonment, the project developer must submit a report that includes the final measurements of air, soil, and water quality where relevant, clearly validating the permanence of the retired reserves. The report must include the final results of land reclamation success.

Once plugged, recovering hydrocarbons from a reservoir becomes technically extremely difficult (if not impossible) and definitely economically unviable. Additionally, modern plugging and abandonment techniques and regulations make surface or subsurface leaks extremely unlikely. State regulators verify the plugging and abandonment as part of the regular P&A process.

3. Legal

In addition to the operational permanence assessment, the project owner will need to secure a legally binding protection against the future production of the retired resources. This legally prevents any future drilling of new wells to access the retired oil & gas volumes. The contractual limitation has a minimum of 50 years and is bound to the mineral rights and also applies to wells (surface areas) outside the project boundary trying to access the retired oil & gas volumes (subsurface areas) within the project boundary. On top of this, ZeroSix monitors the relevant state regulator databases for any new development permits being issued in proximity of the project area. 

Buffer account

On top of the three layers of protection, ZeroSix holds a buffer account that covers unlikely cases of reversals. The buffer account serves as general insurance across all projects. In case of reversals, carbon credits from the buffer account are retired to compensate. This ensures that one (1) ZeroSix carbon credit always equals one (1) tonne of CO2e sequestered.

Conclusion

By buying a ZeroSix carbon credit, one tonne of CO2e will be sequestered for at least 50 years. There are three layers of permanence protection in place — geological, operational, and legal — to ensure this promise, and a buffer account to compensate for the unlikely case of reversals. The three layers of permanence protection and additional general insurance help ensure the high quality of a ZeroSix credit.

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[1] The most prevalent instances of reversals typically involve illegal logging or forest fires in projects designed to curtail deforestation.

[2] To be exact, the project owner provides: (i) a wellbore inventory (an overview of the wellbores in the designated and surrounding area), (ii) cross sections of the wellbore (measurements of the wellbore), (iii) wellbore schematics (in simple terms, wellbores are a blueprint of the wells) and (iv) other relevant information such as fluid analysis, well production tests and water salinity (see for a comprehensive list paragraph 2.7.3 of the ZeroSix Production Reserves Carbon Offset Protocol v1).

[3] If only one well would be shut in, oil and gas from the same reservoir could be extracted through a different well connected to the same reservoir. This would result in leakage, as carbon credits would be granted for reserves that are extracted at a later point in time. By shutting in all wells for connected reservoirs ZeroSix prevents leakage.Original source: https://www.zerosix.co/news/a-real-carbon-credit-is-forever-by-stephen-buskie/

Not all #carboncredits are created equal. It’s important to understand the options available on today’s #carbonmarkets and which are most impactful when it comes to reaching true net zero. Our CEO Martijn Dekker offers a simple overview in this article.

Carbon markets — and the carbon credits behind them — find themselves perennially in the news these days for a wide variety of reasons… some good, some not. One consistent message is ringing through loud and clear: the quality of carbon credits varies. There is more focus than ever on distinguishing “good” carbon credits from “bad” carbon credits (i.e., high-quality, high-integrity carbon credits vs. “ghost” credits that don’t live up to their carbon claims).

This is front-and-center for carbon credit buyers, who are understandably focused on avoiding “bad” credits and not exposing themselves to greenwashing criticism, legal risk, or both. More than ever, heightened focus is being paid to “good” credits that help buyers move their emissions bottom line and the overall global trajectory truly toward net-zero.

Making that distinction starts with understanding the types of carbon credits available on the market. Much like the quality of the carbon credits themselves, the answer varies — depending on who is doing the defining. In this article, we’ll take a closer look at the most-common types of carbon credits as defined by several prominent organizations, including cross-cutting lessons for voluntary carbon markets as a whole.

What are carbon credits and how are they classified?

A carbon credit is a generic term for any tradable certificate or permit representing the avoidance, reduction, sequestration, storage, or other offsetting of greenhouse gas (GHG) emissions. One carbon credit is equal to one metric ton of CO2 equivalent (tCO2e).

From this common definition, carbon credit classifications vary according to the types of projects behind them. In the voluntary carbon market, different organizations have different ways of classifying or categorizing credits. Three of the most-prominent classification schemes include: 

McKinsey & Company (and others) break down carbon credits into four main categories:

• Avoided nature loss, such as prevented deforestation;
• Nature-based sequestration, such as reforestation or regenerative agriculture;
• Avoided or reduced emissions, such as cleaner cookstoves or energy efficiency projects; and
• Technology-based atmospheric CO2 removal, such as direct air capture or carbon capture on power plants and steel mills.

Oxford University’s Principles for Net Zero Aligned Carbon Offsetting starts by making a fundamental, primary distinction between credits based on a) emissions reductions vs. b) carbon removals. Those break down further ultimately into five types of carbon credits — compared to McKinsey’s four — largely based on whether and how long carbon is stored:

• Avoided emissions (or emissions reductions without storage), such as cleaner cookstoves or renewable energy;
• Emissions reductions with short-lived storage, such as avoided damage to ecosystems;
• Emissions reductions with long-lived storage, such as carbon capture and storage (CCS) on industrial facilities or fossil-burning power plants;
• Carbon removal with short-lived storage, such as reforestation; and
• Carbon removal with long-lived storage, such as direct air capture paired with carbon mineralization.

The South Pole Group (and others) take yet another approach to carbon credit classification. They start with three primary categories: a) avoided GHG emissions, such as building new renewable energy to displace fossil-fueled electricity generation; b) removed emissions, such as carbon sequestration through reforestation; and c) captured and/or destroyed emissions, such as methane capture from wastewater treatment and landfills. But South Pole Group then organizes carbon credit projects into four groupings:

• Nature-based solutions, which lumps projects such as prevented deforestation and reforestation into the same category;
• Renewable energy, including solar, wind, hydro, and geothermal projects;
• Community projects, such as cleaner cookstoves; and
• Waste-to-energy projects, such as biogas from landfills, industry, or biomass.

At least three takeaways become immediately clear to us: 1) There is no shortage of ways to classify the various types of projects and associated carbon credits. 2) Regardless of how carbon credits are categorized, the voluntary carbon market will continue to play an important role in moving toward a net-zero future. 3) The distinction that matters most now is not how carbon credits get bucketed, but rather identifying those carbon credits that derive from high-quality, high-integrity projects.

Separating the good from the bad

So, what then constitutes a “good” carbon credit? Or perhaps more bluntly, how can we determine if a carbon credit is “real” (i.e., based on true impact)? Classifying any given carbon credit according to the conventions we describe above is far less important than ensuring that carbon credits embody two key principles:

• Additionality: The most vital carbon credits are those that support projects that represent new avoided emissions, emissions reductions, or carbon removals. They should not merely reallocate carbon claims in the absence of any material influence on the global net emissions balance.
• Permanence: Moreover, high-quality carbon credits should support projects that avoid, reduce, or remove emissions for the long term. They should represent durable actions that have a low risk of reversal in the foreseeable future.

Adhering to these core aspirations can help the VCM evolve to become better and stronger. And these are two reasons why we’re so enthusiastic about what we’re doing here at ZeroSix.

A new era — and new kind — of high-quality carbon credits

Scientists estimate that 60% of the world’s oil and gas reserves and 90% of coal reserves must be left in the ground — unextracted and unburned — through 2050 to stay within Earth’s carbon budget. ZeroSix carbon credits focus on projects that do just that.

We are creating financial incentives and market-based mechanisms to shut in the least-efficient, most-polluting hydrocarbon wells. Oil and gas producers retire active wells early, leaving the underground fossil reserves permanently where they’ve already been for millions of years. We then convert those unextracted, unrefined, uncombusted barrels of oil and cubic feet of natural gas into high-integrity carbon credits.

Learn more about this new era of carbon credits and how ZeroSix can help you achieve your net-zero goals by reading the whitepaper on our homepage.

Original source: https://www.zerosix.co/news/a-fresh-look-at-types-of-carbon-credits-by-martijn-dekker/

A Compliant-By-Design Carbon Credit: ZeroSix Tech-Based Transparency and Auditability

Carbon credits are an important tool in our decarbonization toolbox, as they can play a key role in narrowing the gap between goals and current abilities for companies at various points along the decarbonization spectrum.

However, recent criticisms have put carbon credits under a microscope–and with good reason. As we have written about previously, the voluntary carbon market (VCM) has wrestled with a trust issue, due to, in part, concerns around opacity, shortfalls in carbon credit quality/additionality, and the inability to vet projects.

The ZeroSix approach overcomes these challenges and criticisms with a blockchain-based, tech-centric approach to administering credits.

ZeroSix removes the current chokepoints in the VCM by embedding the methodology into a digital tool, which has all steps predefined and logs all relevant data, computations, and signatures in an immutable and tamper-proof manner. This procedure enables project developers to create compliant-by-design carbon credits, which can be independently verified, as the entire provenance trail is accessible on the most granular level.

Protocols + Proofs: The Total Package

Buyers want better carbon credits; suppliers want their carbon credits to stand out from the crowd. The ZeroSix carbon credit stands alone among a sea of competitors because the ZeroSix solution is an end-to-end solution rooted in a blockchain. The ZeroSix platform hosts both the protocols and the proofs in a complete package.

A distributed ledger technology, blockchain creates an immutable, publicly-accessible record of transactions, allowing for enhanced transparency and accountability. These traits make blockchain a powerful infrastructure for applications where certainty about the provenance, existence, and characteristics of a digital asset are required–such as in the generation of carbon credits.

However, blockchain-based transparency means nothing if low-quality carbon projects are written to the ledger. For this reason, the ZeroSix protocol is built upon the principles of accuracy, additionality, permanence, and transparency. The protocol helps ensure that only high-quality projects and associated credits pass muster—all via an approach that also provides needed transparency and verifiability for VCM participants.

The Underlying Tech: Building Blocks of a Better Carbon Credit 

The oil and gas protocol is the first ZeroSix protocol, however, the ZeroSix tool/solution/platform is suitable for any high-quality protocol.

This first ZeroSix protocol incorporates well-established standards and processes, such as those utilized in the oil and gas industry, for the purpose of retiring producing oil and gas assets in exchange for the highest quality carbon credits. 

Compliance with the protocol is controlled and digitally recorded employing a blockchain-based decentralized application, the ZeroSix digital solution, which ensures:

• aspects of project governance, including overall adherence to the protocol
• project verification via digital signatures from independent third-party verifiers
• transparency by publicly storing project documentation on the InterPlanetary File System (IPFS), which is an immutable and tamper-proof distributed file storage system
• generation and distribution of ZeroSix digital carbon credits
• tracking and elimination of double counting.
  

Given the distributed nature and associated pitfalls of the VCM—such as its opacity and excess of low-quality carbon credits—certainty about the provenance, validity, and existence of carbon credits is of great added value. 

This immutable ledger and transparent audit trail will help ensure that quality carbon credits play an increasingly important role in our collective sustainability efforts. 

Smart Contracts; Smarter Credit

The ZeroSix carbon credits are generated via smart contracts, which are simple programs stored on a blockchain that run immutably and tamper-proof when predetermined conditions are met. 

The ZeroSix carbon credit (represented by a digital token) can only be generated (minted) after following the strict ZeroSix protocol, which includes proofs of accuracy, additionality, and permanence. In other words, the carbon credit is created only after the project owner has proven ownership of the well, sought agreement from all stakeholders, secured regulatory approval, plugged the well, and submitted all the necessary documentation. These steps are independently verified and a provenance trail is anchored to blockchain. 

If all steps are completed successfully, the ZeroSix carbon credit is generated in the form of an ERC-1155 token and is assigned to the well owner. The well owner is then free to trade, retire, or hold the carbon credits.

Why an ERC-115 Token?

By using an ERC-1155 token to digitally represent a carbon credit, ZeroSix can maintain the information related to the location and specific characteristics of each O&G well belonging to a project. 

The ERC-1155 multi-token standard can represent any number of fungible and non-fungible token types. The well-specific information is encoded to the non-fungible part of the carbon credits, therefore allowing any carbon credit holder to be able to link and trace the digital asset they own back to the specific well to which it corresponds.

The non-fungible part of the carbon credits includes:

• the unique well identifier [API (American Petroleum Institute) number] 
• the ZeroSix protocol that was applied to the specific project 
• the unique serial number of the project that is based on content identifier (CID) of the project documentation folder stored on the IPFS
• the unique digital signature of the third-party independent verifier that reviewed and approved the specific project.
  

This process ensures the quality and verifiability of the credit.

An Evolved Carbon Credit

There’s a lot of hype out there, when it comes to both the promise of blockchain as well as carbon credits. And at the end of the day, a carbon credit is only as good as the standard to which it is held. 

At its core, the ZeroSix protocol results in a carbon credit which is an evolution beyond business as usual, setting a new standard for accuracy, additionality, permanence, and transparency.

Rooted in stringent protocols, practices, and technologies, the ZeroSix solution bridges the gap, from aspirational to achievable, delivering where other carbon credits fall short.

Learn more about ZeroSix carbon credits and how they rise above the rest.

Original source: https://www.zerosix.co/news/a-compliant-by-design-carbon-credit-zerosix-tech-based-transparency-and-auditability/