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News & Insights

Carbon Capture & Storage vs Nature-based Solutions – An Investor’s Guide

30 November 2023

Written by Nick Lyth

These two terms are entering the investment world’s lexicon as we speak, both attached to huge numbers in terms of the investment opportunity they are claimed to represent.  But the nature and derivation of the opportunity is unclear.  In other words, from what credible source or commercial reality does such an opportunity derive?  Inevitably, they are reduced to acronyms.  If you are wondering what the full names mean and are already confused by the practical investment context, then CCS and NBS will do nothing other than to confuse you even more.

Their importance cannot be overstated, however.  By common consent, including the IPCC itself, CCS is an essential part of any programme to limit global warming by reducing carbon emissions and achieving the Net Zero target.  As also universally recognised, the transition required to make this happen will involve investment of billions of dollars in CCS in the coming years.

The Scale of Carbon Capture Storage (CCS)

Conflicting accounts are given of the current scale of CCS, and the number of operational plants.  However, both the International Energy Agency and the Carbon Sequestration Leadership Forum have stated that, in order for the energy sector to achieve net zero emissions by 2050, the global scale of CCS in 2030 and 2050 must respectively be 10–15 times and 100 times greater than the level achieved in 2020.  The IPCC listed CCS as one of three mandatory emission reduction technologies in its 1.5 C special report as long ago as 2018.

But CCS is expensive and still as yet underdeveloped, with some estimates showing less than 40 currently operational projects worldwide, although the Global CCS Institute claims as many as 190 facilities to be in operation.  There are undoubtedly many more in the planning stage, possibly as many as 200.  Last month’s commitment by Rishi Sunak to the Acorn Project in Scotland is one of them, and is just the start in the UK.

Simultaneously, we are realising that a huge amount of investment is required for NBS.  Once again, we are at the start, but the projected requirement is considerable for the UK alone.  “Economic analysis carried out in 2021 estimated that £44 billion to £97 billion above current public sector commitments is required for the UK to meet nature-related outcomes through to 2031.”  Bruce Howard, Director, Ecosystems Knowledge Network (EKN).

Scotland: A leader in Nature Based Solutions (NBS)

A number of things are happening already.  An organisation called the Scottish Nature Finance Pioneers is a coalition of private, public and academic sectors in Scotland (including some members from the rest of the UK) which is, as its name suggests, pioneering NBS in Scotland and the means of sourcing sustainable investment in them.  This relatively obscure organisation has much more significance than its clumsy name (and even clumsier acronym – SNFP) might suggest.  Scotland is both the exemplar and the heartland of the eco-system challenges faced by the UK.  Its landmass is larger than any other UK region by a substantial margin (31,000 square miles, the next largest being the South West at 23,000 square miles, larger than Wales, too, at 21,000 square miles), and disproportionately unpopulated, compared with all other regions.  The South-West is also strikingly sparse in population density, at 236 people per square kilometre.  By comparison, Scotland is 70 people per square kilometre, not even reaching a third of the density of the relatively remote South-West.

Scotland is leading the way in NBS because nature is disproportionately important to Scotland, and the Scottish eco-system is disproportionately important for the whole UK.  We all need it to work.  It’s worth watching what the Scottish Nature Finance Pioneers are doing.  Indeed it’s worth joining them, if you can.  This week alone saw the seeds growing, as, with every week, activity increases.  On 13th September, a webinar featuring Kerry Waylen (James Hutton Institute) and Leo Peskett (Heriot-Watt University) explored some of the challenges and opportunities around natural capital tools, followed by a live demo of the Rethink Carbon platform.  This platform describes itself as “the platform which allows land managers to analyse multiple scenarios to calculate the advantages of different land management decisions, including being able to visualise alternative futures associated with the land and carbon impact.”  But take note: encouraging though this is, the webinar featured two academics.  The research sector is crucial, but we need the private sector and most of all, private investment, to be coming into these projects.

In the same week, the network (and remember, it is a finance network) announced another project:

 

Creating healthy and resilient river systems across Scotland: prioritising research and development gap opportunities for river woodlands.  The overall aim of this project is to prioritise the research and development (R&D) gap opportunities identified in the Riverwoods evidence review for creating healthy and resilient river systems through improved riparian and floodplain management in Scotland, and identify opportunities to address these gaps to enable investment in new and extended river woodlands, and improved/restored riverscape environments.

 

This is an invitation to tender, but note again the project is a research project.  The project is calling for an exploration of gap opportunities for river woodlands, but the gap that is going to be most significant once the project is completed is the funding gap.

The work of SNFP, as demonstrated here, illustrates the point: CCS and NBS are the same.  Everything labelled as NBS has the effect of capturing CO2 (within natural processes) and storing it (within natural organisms). Let’s ditch the acronyms now, and concentrate on reality.  Our planet is a closed environment, in which matter is neither created nor destroyed (Antoine Lavoisier’s Law of Conservation of Mass, dating from 1789, coincidentally the year the French Revolution broke out).  In the closed environment on which our lives depend, carbon dioxide is one of the critical components in our atmosphere.  Instead of thinking about the CO2 emissions that dominate the discourse concerning Net Zero and climate change, let us instead consider the entire system of which CO2 emissions are a constituent and vital part.  

The entire myriad natural eco-systems integrating to support the global ecosystem are characterised by one common feature: they are permanently in a state of flux. Stability is clearly also achieved, or perhaps stasis would be a better word.  Rock formations represent historical movements which crystallised and fossilised previously mobile components of ecosystems, but even these are still in motion.  Look at coastal rock formations, and you will realise they change.  But the change is very slow.

CO2 and the dynamic nature of earth’s eco-systems

CO2 plays both an astonishingly dynamic role in stimulating our ecosystems, and also an incredibly influential role in determining their character, and its role also flexes across the spectrum from mobility to stasis, as it transforms from gas to solid, from particulates to carbon, and allotropes of carbon such as diamonds, graphite or, of course, coal.  CO2 travels in a circle across eco-systems.  Its permanent presence in the atmosphere provides the facilitator for photosynthesis on land and in the ocean, where it is absorbed at the start of the growth cycle in particular.  CO2 helps feed plant and animal life, and is then released by both plant and animal life, in the natural life cycle as animals inhale and exhale, and in end of life cycles such as plant decay.  

The presence of CO2 in the atmosphere is a required condition of life in a second way.  CO2 concentrations regulate the means by which the Earth acts as a greenhouse in reaction to the sun’s rays, and hence global temperature. CO2 is instrumental as part of the filter through which the sun’s rays reach the Earth’s surface, and most especially, the filter through which they escape out of the atmosphere being reflected back, for example from the mirror provided by Polar ice.  Although CO2 accounts for no more than 0.04% of the Earth’s atmosphere, it is the main cause of the greenhouse effect on which temperature and hence life depends.  99% of our atmosphere is oxygen and nitrogen, which which cannot absorb the heat the Earth emits.  The balance is predominantly water vapour, which does.  But its effect is much less significant than CO2, because CO2 climbs to levels of 50 km above the Earth’s surface, where its absorbent effects are much greater than lower down.  Hence, however small it seems in percentage terms, the climb from 300 parts of CO2 per million in the atmosphere to 421, which we have now reached, is disproportionate in terms of the heating effect. 

Climate Feedback Loops

So we have a continuous and permanent system.  The system is oscillating and modifying all the time, in response to the conditions created by organic life on Earth.  These changes create what are called Climate Feedback loops.  In other words, a small change in cooling a region will create a cooler environment in that ecosystem, and the effect of a cooler environment in that ecosystem will be to create a still cooler environment.  The most dangerous feedback loops are existential.  These quickly reach a tipping point when the original conditions are virtually irretrievable.

Never entirely.  We know and understand there have been periods of extreme on the planet – extreme heat, and extreme cold.  The planet eventually restabilises.  None of these periods have coincided with human life, however, for the simple reason that human life would have been impossible during these extremes, as would nearly all other animal and plant life that has accompanied our tenure on Earth.

Matter cannot be created or destroyed, but its physical and chemical properties can be changed.  Our problem is not that carbon has been changed to CO2, but that we now have too much CO2.  It should not be a problem, because our world needs CO2 for life.  We cannot do without it.  But it is a problem.  It has caused the globe to warm, which in turn has caused the climate to change already, and it’s continuing to change, into a climate that is inimical to human, animal and plant life as we know it.

This is how to reduce the climate change challenge to a simple problem.  In this sense, it has a simple solution.  Stop human CO2 emissions (and let’s stop using the “anthropogenic” word, everyone understands ”human” much better), and remove the excess CO2 from the atmosphere. Hence CCS and NBS, and hence the investment opportunity which we are now developing.  The sums of money are eye-watering, billions become trillions very quickly in terms of global need, and moments like the Moroccan earthquake and the Libyan flood emphasise the scale of work needed.

But this should not deter us.  We have already started taking the small steps, making the small changes, that build up to entire system change.  This has to be our mantra, while our politicians and multinationals struggle and strive to make sense of it at a macro level.  Start small, and we might get there.  Rely on them to get the big answers right, and they may still be arguing as the waves or flames overwhelm us.

Critiquing Carbon Credits and Carbon Trading

As some, reading this, might think: what about carbon credits and carbon trading?  Carbon credits are at the moment the main financial measure by which those who are working with NBS projects in particular are sourcing the financial support they need.  This is not least because the projects have no sustainable commercially viable business model for which to raise conventional private investment.

But carbon trading has not grown in the manner originally expected.  It has attracted criticism which has compared it to offsetting, and discouraged uptake of the various schemes both voluntary and compulsory.  Its detractors draw attention to two problems in particular.  First, carbon credits are predicated on the continuation of carbon emissions.  They are, say their critics, sanctioning the worsening of the precise problem we suffer from, which is too much CO2 in the atmosphere.  Second, in applying the apparent “credits” to practical projects, they come upon the problem that there are no ready solutions.  There are no satisfactory remedial measures in CCS or NBS, so the application of the “credits” to material solutions of the problem which have anything other than enormously long-term impacts on what is an immediate and urgent problem is non-existent.  Carbon credits are a token, they argue, intended to allow the sectors of our global economy responsible for the worst of the damage done to our ecosystems to continue to do damage.

The controversy surrounding carbon trading is not helpful in generating the value that might otherwise have been accessible.  We need to find more direct and certain ways of solving the problems we face.  Let’s use our investment brains and capabilities to encourage innovation in the technology of CCS, and NBS, as well as recalibrating the commercial models that can make both happen at a far greater scale than at present.  The investment specialists reading this will both know what I mean, at the same time as not being sure how to do it.  This is the reason organisations like Scottish Nature Finance Pioneers exist – to try to make sense of a commercial challenge that looks daunting.  It is not beyond our reach.  We can all work together, as in many cases we already are, and make it our business to accelerate the development of CCS and NBS, and to reduce the CO2 we are causing to enter the atmosphere until we can reverse the trends we have created.  Join us on the journey!