Chapter 2: How much should you spend on carbon removal?
As part of our ‘Carbon Removal: The First-Time Buyer’s Guide to CDR’ series, we explain how to overcome the initial challenges you may face when starting your CDR journey and how to make the process easier. This is Chapter 2; you can find Chapter 1 here.
Three key tips from this article:
Once you have your business leader on board with sponsoring CDR (as per Chapter 1), you need to start thinking on how much you should spend on your carbon removal. While it would be great to purchase carbon dioxide removal (CDR) credits at a 1:1 ratio to your company’s emissions, this would simply be too expensive for most companies to maintain. That shouldn’t mean that you do nothing though - instead, you can create a contribution portfolio that is connected to your residual emissions. So what emissions should you include in building your portfolio?
Scope 1: these emissions should definitely be included in a contribution budget - they are directly in your company’s control and should be accounted for until the moment that you can fully remove them.
Scope 2: as scope 2 emissions means that you are using non-renewable energy. Your priority here should be a complete transition to renewable energy sources. Until the point that you can procure renewable energy for all of your power needs, you should include scope 2 in your contribution calculations.
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Scope 3: for most companies, scope 3 is their biggest source of emissions and therefore requires the most creative solution to connect your emissions to a financial contribution. One way of taking responsibility for your scope 3 is splitting them between the emissions that are in your control versus out of your control, and emissions considered business critical vs considered not-critical. For example, take business travel – COVID taught us that your company can stay afloat without travelling as a norm. While you might feel that business travel helps your business to be successful, it is not the difference between your business surviving and not, so this could be included when it comes to calculating your contribution budget.
When it comes to scope 3 suppliers that are critical to your business – for example, take your data centre servers – your business wouldn’t survive without them and there are not an abundance of substitutes for the products that you already buy. These could be considered “out of your control” and not included for the purpose of your contribution calculations. Instead, you should focus your efforts on working with and pressuring your suppliers to reduce the carbon footprint of the products that you have to purchase. This will still be part of your emissions reduction strategy so it cannot be completely ignored but will not play a part in your contribution budget.
Once you have decided what emissions you will be including for your CDR portfolio, the next job is to decide how much you will spend. While you could purchase credits removing carbon equal to the quantity of carbon you have emitted, this could perverse your choice of credits towards the cheapest options, which might not be the most impactful nor the most scalable. As the CDR market is still at a nascent stage, a lot of the technology that we will need to avoid the worst of the climate crisis is currently priced quite highly in its development phase. It is vital that these high prices do not mean that the projects go unfunded – these could be the projects that reach gigatonne scale the quickest and might have the steepest downward cost curve as they scale – so we need to ensure that there are mechanisms in place already to direct money towards them from the outset.
Therefore, we recommend that you set an internal price per tonne of carbon emitted by your business. This is the theoretical cost of a tonne of CO2 emitted by the business, and, therefore, how much it should spend to compensate for it. This internal price of carbon can be used solely for the sake of your portfolio budget or you can use it as a decision-making factor for new projects, as explained in this piece. From a portfolio point of view, once you have agreed on this internal price, you simply multiply it by the amount of tonnes that you are accounting for in your scope and you have the budget that you can spend on CDR.
A common internal price that is used is $100/tonne, which follows the guidance of John Doerr in his Speed & Scale plan. Doerr argues that, in order for the CDR space to reach the scale that the earth requires, it will need to hit the $100/tonne price by 2030. By choosing $100, you are anchoring your approach to leading global science. From there, you look to invest your budget in the most impactful and scalable projects rather than seeking to purchase a particular tonnage.
Visit opna.earth to learn more about procuring high-quality carbon removal or speak to our team, Matthew Caudle at hi@opna.earth to learn more about how we can help you meet your ESG and sustainability goals.