“Carbon Management”: Opportunities and risks for ambitious climate policy

Conceptual clarity: Dare to differentiate

So far, terms have been used very differently in the context of carbon management. However, clear definitions are an important starting point for future regulation. Carbon management usually includes the following three types of process chains: carbon cap­ture, transport and storage (CCS), carbon capture, transport and subsequent utilisa­tion (CCU) and CO₂ removal from the atmo­sphere (CDR).

Umbrella terms such as carbon manage­ment that emphasise commonalities are politically attractive. They allow complex technologies to be clearly communicated. In this specific case, the term also serves to integrate CCS, which has long been contro­versial, particularly in Germany, into a new narrative. In addition, it offers the possibility of delaying conflicts between political and industrial actors with different priori­ties regarding CCS, CCU or CDR for the time being. In order to identify the opportunities and risks of carbon management for ambi­tious climate policy, however, a differentiation must be made between its three com­ponents and their respective strategic roles in climate policy.

The contentious issue of residual emissions

With the operationalisation of net-zero targets into tangible policy measures, so-called residual emissions are becoming a major topic, both in climate policy and research. The term now frequently appears in position papers published by relevant stakeholders. It has also found its way into the German coalition agreement – the government programme agreed by the ruling parties (Social Democratic Party, The Greens, Free Democratic Party) when they formed a government at the end of 2021 – and the EU legislative process. Yet, it often remains unclear how individual actors define key terms (including residual emis­sions, process emissions, and hard-to-abate or unavoidable emissions). So far, neither uniform usage nor shared definitions have been established.

This is particularly problematic because the definition and expected volumes of residual emissions have significant impli­cations for climate policy ambition, policy designs and distributional effects between economic sectors. To prevent ambiguities in policy debates, in ongoing strategy devel­op­ment processes and in future regulatory initiatives, we propose the following con­ceptual distinction (see Figure 1).

We define residual emissions as a quantity that simply describes which emissions actually enter the atmosphere in and after the net-zero year. We distinguish them from emissions that are considered hard-to-abate. Different actors, each with their own motives and justifications, are currently classifying certain types of emissions as hard-to-abate. The reasons are manifold. In political debates, the following three justi­fications are being combined in a variety of ways: firstly, the biological or chemical characteristics of certain processes (e.g. methane emissions from livestock or CO₂ emissions from clinker burning in the cement industry); secondly, emissions that are politically and economically difficult to abate (e.g. in connection with the risks of deindustrialisation and carbon leakage) or strategic infrastructures in the energy, food and health sectors as well as in the military; thirdly, technical constraints and insufficient technological progress (e.g. emissions from long-haul aviation and shipping or limited CO₂ capture rates when using CCS and CCU).

The analytical distinction between resid­ual emissions and those that are characterised as hard-to-abate provides an important clarification. By drawing upon this differ­entiation, the policy challenges posed by residual emissions in and after the net-zero year and the political battles over hard-to-abate emissions can be addressed separately.

Furthermore, highlighting the various justifications indicates that emissions considered comparatively easy to avoid in climate-economic models or other techno-economic analyses may well be hard-to-abate for political reasons, due to path-dependencies and the relative importance of individual economic sectors. Finally, the distinction between residual and hard-to-abate emissions makes it clear that the conflict over the latter is political in nature and cannot be settled by introducing an unambiguous definition. Conceptual clarity and clear differentiations are important, but they should not raise unfounded hopes that these conflicts will be resolved. The political disputes over what count as “legiti­mate” residual emissions in and beyond the net-zero year will intensify in the future.

Three roles for carbon management

In order to minimise ambiguities in the political debate and future regulation, it is also important to distinguish between the different strategic roles that carbon man­agement can play in climate policy in rela­tion to hard-to-abate and residual emissions. If, for the sake of reducing complexity, we leave aside the overlap of process chains that occurs in some applications, carbon management can play three roles in climate policy on the path to achieving net-zero emissions (see Figure 1).

CCS offers the possibility to reduce emissions that are hard-to-abate. For example, if CCS is used in cement and lime production – the most prominent examples of non-energy-related process emissions – CCS can be used to reduce the volume of emissions that are difficult to avoid. The use of carbon in CCU process chains, however, can – de­pending on the life cycle of the product – delay emissions into the future and, in addi­tion to possible substitution effects, thus contribute towards achieving the net-zero target, at least temporarily. Emissions that are neither reduced by CCS nor delayed by CCU or occur in their process chains must be counterbalanced by carbon removals. Only this third role of carbon management makes it possible to meet a net-zero target. This underscores that the entire portfolio of carbon management approaches is an im­portant building block for achieving climate targets. At the same time, it shows the importance of thinking about carbon management approaches in the context of their different climate policy roles.

The three roles – reducing and delaying hard-to-abate emissions as well as counterbalancing residual emissions – are each linked to different political and economic interests, actor alliances and regulatory challenges. If the connection between hard-to-abate greenhouse gas emissions, carbon management and residual emissions is not made explicit, carbon management initia­tives will increasingly be criticised for ex­erting delay tactics that undermine ambi­tious climate action. The extent to which the individual approaches are used to achieve climate targets in the net-zero year and beyond will be largely determined by how successfully conventional emission reductions are implemented in the next 20 years. The scale at which carbon management is operational by then will depend primarily on how regulation and integration into existing climate policy instruments progresses and who – which EU member states, sectors, companies, etc. – invests in building the necessary capture, transport and storage capacities.

Opportunities and risks for ambitious climate protection

Both opportunities and risks arise for ambi­tious climate action in the context of the numerous ongoing processes for developing carbon management strategies and future legislative procedures.

The opportunities lie primarily in the fact that carbon management can establish itself as an important approach to shaping the interface between industrial and cli­mate policy. Various, partly competing policy goals – such as emission reductions, en­vironmental protection, the security of energy supply, economic growth and resil­ient supply chains – could be negotiated simultaneously. Carbon management poli­cy could thus become an important plat­form to allow political tensions and emerg­ing distributional conflicts to play out and facilitate the recognition of synergies. In a similar way, this also applies to the inter­face between agricultural and climate policy, which will become increasingly important and contested in the course of the debate on residual emissions (SWP Comment 40/2022).

Furthermore, actively addressing the carbon management issue could be the first step towards establishing new forms of international cooperation. In addition to technology development and the creation of new markets, an active carbon management policy also offers the EU and Germany the opportunity to shape benchmarks and standards – for example, through the certi­fication of CO₂ removal methods or by establishing CO₂ injection capacity targets in the Net-Zero Industry Act at the EU level. Furthermore, multilateral negotiations – for example within the framework of Article 6 on international cooperation under the Paris Agreement, or the G7 and G20 formats – offer forums for increased cooperation. International cooperation is also a relevant dimension, as it enables exchanges on the different strategic roles for carbon management. In countries with large – and in some cases growing – coal-fired power plant fleets or high coal, gas or oil exports, CCS and CCU are discussed primarily as an option to secure fossil busi­ness models: a strategy that is often seen as undermining the climate goals of the Paris Agreement.

At the same time, all three elements of carbon management potentially carry the risk of “lock-ins” into fossil infrastructures (e.g. continued use of natural gas or blue hydrogen) and decreasing the level of pressure to move away from fossil fuels. Specifi­cally, as CO₂ prices rise, climate policy is facing the challenge that busi­nesses have incentives to implement CCS or CCU approaches rather than to pursue conventional emission reductions. A similar situation applies to CO₂ removal: The pros­pect of being able to counterbalance resid­ual emissions in the future through CO₂ removal may lead to lower ambition to reduce emissions. The prioritisation of con­ventional emission reductions is repeatedly emphasised in relevant European and Ger­man strategy papers and is a core component of the political debate. However, how this prioritisation is to be reflected and codified in legislation in the long term is largely unclear.

At the same time, there is also the risk that carbon management approaches will not be scaled up quickly enough due to political restraint and a lack of political or institutional feasibility. However, according to current knowledge, without the develop­ment of appropriate carbon management capacities, net-zero targets will not be achievable, even with ambitious conventional emission reductions. Global and Euro­pean evaluations point to a large gap between the CCS capacities achieved to date and the necessary future growth rates. A similar picture emerges with regard to car­bon removal. Although removals are al­ready being achieved in the forestry sector, neither the regulatory prerequisites nor the support for innovation for scaling up CDR capacities exist yet.

If these two risks – weakened ambitions in conventional emission reductions and overly optimistic hopes for scaling up carbon management – were to manifest, they would have the potential to significantly endanger the achievement of climate tar­gets.

Next steps in carbon management policy

With clear distinctions between terminology and clarification of the respective cli­mate policy roles played by the individual approaches, carbon management initiatives can enable a discussion about how much emissions must be reduced in the net-zero year and what capture, storage, utilisation and removal capacities will be needed by then. This politically uncomfortable debate should be pursued at both the German and European levels. The more residual emis­sions there are in and after the net-zero year, the more removal capacities will be needed and the more difficult it will be to meet the net-negative emissions targets already enshrined in German and European Climate Law.

Firstly, the ongoing strategy development and positioning processes in Berlin and Brussels – in the administration, in indus­try associations, non-governmental organi­sations and companies – should work on establishing conceptual clarity. Which of the three facets of carbon management is being addressed, and which CO₂ source (fossil, biogenic or directly from the ambient air) is being referred to? Furthermore, it is of central importance to clarify for what purpose carbon management approaches are to be used: to reduce or delay emissions that are hard-to-abate or to counterbalance residual emissions? The conflictual debates on CCS so far have shown that the intended role of a given carbon management ap­proach in climate policy not only influences key regulatory details, but also shapes its political feasibility and degree of accep­tance by the public.

Secondly, a platform is needed to develop a taxonomy of carbon management applications in the medium term. We are only at the beginning of a controversial discussion about what counts as the “legit­imate” use of carbon management. The early development of a governance mech­anism that does not administer the port­folio of approaches as an end in itself, but relates them to the objective of minimising hard-to-abate and residual emissions, can help avoid a polarised debate on the neces­sary capture, transport and storage infra­structures. Furthermore, such a platform would provide an opportunity to initiate an early governance framework for achieving net-negative greenhouse gas emissions beyond 2050. Eventually, there must be incentives to further reduce residual emis­sions and expand removal capacity beyond the net-zero year.

Thirdly, carbon management approaches will be necessary to achieve the net-zero emissions target. However, they are no substitute for drastic conventional emission reductions. Rather, they represent an addi­tional challenge to achieving the EU’s and Germany’s climate goals. Tough political struggles lie ahead on how to address the issue of residual emissions at the interfaces of climate policy and other domains such as industrial and agricultural policy. A first step in this direction is the establishment of target designs that also include explicit objectives for minimum emission reductions as well as for the upscaling of CO₂ removal in the intermediate steps up to 2045 and 2050, respectively.

The upcoming political negotiations about the EU 2040 climate target and the expected amendment of the German Cli­mate Change Act are crucial intervention points for the fundamental orientation of carbon management policy. It is important that the portfolio of approaches is not de­vel­oped in a way that undermines the shift away from fossil fuels. An ambitious cli­mate policy should use carbon management approaches strategically to overcome existing technical lock-ins, to disrupt politi­cal inertia and path dependencies, and to trigger innovation at the interface of indus­trial and climate policy that helps minimise and counterbalance residual emissions in the net-zero year.