Carbon storage portfolios for the transition to net zero

Abstract:

To achieve global temperature stabilization goals, such as those set out in the Paris Agreement, current projections suggest that between 7 and 16 gigatons of CO₂ removal annually could be required by the second half of the century. Relative to what is required, there are currently significant shortages, particularly for geological storage options. Carbon removal projects have different risk characteristics in terms of releasing CO₂ back into the atmosphere. Natural climate solutions like forestry face reversal risks from wildfires, droughts, and land-use changes, while technologically focused projects such as direct air capture with geological storage offer greater permanence but face delivery risks around scalability, cost, and technological maturity. Additionally, costs vary by orders of magnitude between forestry offsets and engineered removal technologies. 

The development of carbon dioxide removal (CDR) today is constrained by these dual challenges of risk and cost differentials, compounded by limited societal willingness to pay premium prices for higher-permanence solutions. Most current carbon markets treat different removal approaches as near fungible substitutes despite their fundamentally different risk characteristics. In this paper, we develop a portfolio approach to manage carbon storage project risks, with the potential to select CDR options available today, while maintaining the ability to stabilize temperatures over multi-century periods through “collective” buffer pools. These risk models work on similar principles to insurance, where a small number of payouts maintain a relatively stable overall market.