Carbon ‘insets’ tackle emissions by unleashing the power of capitalism

Back in 2018, Gene Gebolys’s biofuel company got an unexpected inquiry. Could the group bring a batch of sustainable aviation fuel from its California refinery to Davos Switzerland so that elites attending the World Economic Forum could refuel their private jets for a lower-carbon return journey?

The cost and carbon impact of transporting that much fuel to the Alps made the plan laughable. But the request had Gebolys thinking. Green-minded customers are often willing to pay more to use environmentally friendly products, but they often are not located in the right place to access them. There ought to be a way to connect the two.

Six years later, his company, World Energy, is helping to pioneer a new method of reducing the overall carbon emissions in aviation. While not perfect, it suggests a way to speed decarbonisation in some of the toughest sectors.

World Energy uses waste fats, oils and some renewable energy to make fuel that the UK government says reduces carbon emissions by up to 70 per cent. Although it can be used by today’s planes without special equipment, the sustainable aviation fuel is more expensive to produce than ordinary jet fuel, meaning conventional buyers, such as airlines, are reluctant to pay for it.

But other companies that want to cut the carbon footprint of flying their employees and equipment around can choose to pay the cost difference. They receive abatement certificates when World Energy’s product is added to regular aviation fuel in the ordinary refuelling process.

“Insets allow markets to do their work. They unleash capitalism . . . so you can sell a product to a customer who actually wants that product,” Gebolys says. Nine companies, including Boston Consulting Group, have signed deals with World Energy extending as far as 2032 and 11 more are in negotiations.

The certificates sound a lot like carbon offsets, the controversial voluntary credits that companies buy to prove that they have helped cut emissions somewhere else, often by planting trees or distributing cleaner cooking stoves.

But there is a crucial difference that avoids some of the problems that led the world’s leading arbiter of corporate climate targets to declare carbon offsets were mostly “ineffective”. The certificates are “carbon insets” — they reduce carbon in a traceable way from the relevant supply chain, rather than through some unconnected activity.

World Energy uses digital ledgers to track the physical fuel and prevent the double counting and outright fraud that have given offsets a bad name.

The US Treasury department said using insets was preferable to offsets for corporate buyers in its recent paper on voluntary carbon markets.

The approach encourages investment into green production because a multiyear corporate contract essentially locks in demand. It seems to be catching on. JPMorgan Chase, Netflix and other corporate buyers committed in April to purchase nearly 50mn gallons worth of certificates, which would channel close to $200mn into the sector.

That kind of certainty is badly needed at a time when some big companies are paring back or reconsidering their decarbonisation plans. Shell recently paused work on a giant biofuels plant while it reconsidered the economic merits of the project.

Sustainable aviation fuel certificates and other insets have their critics. Some environmentalists warn that they could set back the ultimate goal of curbing global warming because they remove pressure on companies and people to change their behaviour. With certificates, companies voluntarily pay more to fly rather than flying less. They also can be subject to the same fraud and abuse as offsets.

But the underlying method has real potential for decarbonising the heaviest industries. Right now, the most promising way to make green steel uses furnaces fired by electricity and hydrogen gas rather than coal. That works best when there are ample supplies of renewable energy nearby. If the resulting green steel is not conveniently located for the automaker or construction company that wants to use it, buying a decarbonisation certificate is better for the planet than paying to ship supplies around the world.

Long term, these markets can only do so much. If we are to keep global temperatures from becoming unmanageable, carbon-intensive industrial plants must be retired and replaced. But at least this is a start.

© The Financial Times Limited 2024.
All Rights Reserved. Not to be redistributed, copied or modified in anyway.

Money.it has hosting rights to certain limited Financial Times articles. This is not a live feed of Financial Times content.