An investor guide to negative emission technologies and the importance of land use

The report analyses the growth in corporate climate commitments and probes some of the key assumptions in major climate scenarios to uncover opportunities for investors – particularly in forest related nature-based solutions – while also highlighting the risks and uncertainties associated with some negative emissions technologies. It finds:

• Negative Emission Technologies (NETs) are the next investment frontier and offer trillion-dollar upside opportunities for investors.
• Within NETs, Nature-based solutions (NBS) to the climate crisis focused on reforestation and afforestation are the most viable near term opportunity and could generate US$800 billion in annual revenues by 2050 with assets valued well over US$1.2 trillion, surpassing the current market capitalisation of the oil & gas majors.
• Investments in avoided deforestation will present additional opportunity as measuring, reporting and verification (MRV) mechanisms and compensation schemes reach scale. However, reputational risks may dampen investor enthusiasm unless forest laws are vigorously enforced or tightened to end deforestation.
• Technical solutions, such as Direct Air Carbon Capture, Use and Storage (DACCS) and bioenergy with CCS (BECCS), are ones to watch longer term and could generate an additional annual revenue of US$625 billion by 2050.

An ‘inevitable’ part of achieving Paris

The report shows that alongside deep decarbonisation, all climate scenarios rely on so-called negative emissions technologies (NETs). In 2018, the International Panel on Climate Change (IPCC) set out four representative pathways that align to a global temperature rise of 1.5oC. Alongside deep decarbonisation, all rely on negative emission technologies.

• Even the most ambitious in decarbonization terms, P1, relies on carbon removal to sequester 2.5 GtCO2/year in 2050.
• In the IPCC’s ‘slower’ P4 scenario, total negative emissions are 16 GtCO₂ in 2050, roughly around half of CO₂ emissions from combustion of fossil fuels today. The reliance of the climate scenarios on NETs increases further in the second half of the century.

Beyond the models – corporate commitments are driving demand

In less than a year, there has been a three-fold increase in the number of companies committed to net zero, from 500 recorded in 2019 to 1,541 in 2020. The pace of ambition is particularly marked among the highest emitting sectors and those worst hit by the pandemic – in oil & gas, steel, cement, automobile, and food.

Companies have already started to channel their resources to forest-related NBS projects

To fulfil these commitments, companies will require deep decarbonization efforts, with residual emissions balanced by investment in carbon removal activities. This has driven demand for natural and technological solutions that actively suck carbon from the atmosphere, which in turn is driving the demand for nature-based carbon credits. From 2017 to 2018, the value of forestry and land-use-related credits traded in the voluntary offset market tripled to US$172 million, increasing the share of forestry and land-use-related offsets in the total voluntary offset market by 23%, from 52% to 64%.

Many companies have already started to channel their resources into forest related natured based solutions to help achieve new net-zero targets (Figure 1).

Bioenergy: unrealistic and dangerous assumptions

Bioenergy with carbon capture and storage (BECCS) is the leading negative emission technology in all Paris-aligned scenarios, because of its double gains through energy generation and CO2 sequestration. But producing high levels of bioenergy to the degree assumed necessary is likely to push the world to its planetary boundaries in terms of water and land availability. In some of the less ambitious pathways to Paris (IPCC P4), negative emissions by BECCS exceed 16 GtCO2/year by mid-century. Yet this is over three times the estimated sustainable scale, when other land use requirements such as food are taken in to consideration.

To limit such negative side effects, most studies suggest that BECCS needs to be limited to a sustainable scale, around 0.5 – 5 GtCO2/year (2). To avoid these blind spots, the report provides decision makers with the transparency they need on the use of negative emissions technologies in net zero pathways, as well as a realistic scenario that fully integrates land use systems.