Why It Matters
Durable long-term carbon removal credit purchase agreements utilize the same structure as long-term renewable energy power purchase agreements (PPAs) to achieve bankability and manage delivery risks. However, the nature of carbon dioxide removal dictates major differences between the two.
The Context
While the carbon removal industry should leverage the tried-and-true solutions to delivery and risk allocation used in renewable energy offtakes, it is important to understand key distinctions between the two types of offtakes.
The Differences
Both renewable offtakes and carbon removal offtakes cover the sale and purchase of environmental attributes – Renewable Energy Credits (RECs) and Carbon Removal Units (CRUs), respectively – that evidence the environmental benefits of each project. But the underlying products differ significantly, requiring distinct contractual approaches. While there are many differences between these agreement types, these are particularly important to understand:
1. Method Variety
There is relatively little variation required to accommodate for wind versus solar renewable energy offtakes. Carbon removal offtakes require more careful tailoring based on the particular method of carbon removal, whether it be nature based (afforestation, reforestation, biochar, mangroves, seagrass, soil carbon sequestration) or technology based (direct air capture, BECCS (bioenergy with carbon capture and storage), enhanced rock weathering, ocean-based CDR, mineralization).
2. Delivery Quantities
Wind and solar offtakes deliver RECs associated with MWhs of energy as-generated when the sun shines or the wind blows. Carbon removal offtakes deliver CRUs based on fixed quantities and schedules due to project-specific removal rates which vary between engineered and nature-based projects.
3. Registry Complexity
REC registries require a straight-forward project registration process because wind and solar projects are known and the output easily measurable. The REC Registry creates a REC on the fly whenever 1 MWh of electricity is generated. CRU registries require complex project and carbon removal specific validation to initially get set up. CRU registries issue a CRU when 1 tonne of carbon dioxide (“CO2”) has been removed based on complex measurement and verification that are registry and technology specific.
4. Reversal Risk
Generated electricity can't be unmade. Sequestered CO2 can escape back into the atmosphere through reversals such as fires, well or pipeline leakage, or soil disturbance. Carbon removal offtakes need to take into account any existing registry buffer pool mitigation within the delivery failure mechanisms to address this unique risk.
The Takeaway
Carbon removal offtakes can benefit from the tried-and-true structure of renewable energy offtakes, with the addition of purpose-built contract provisions that address delivery uncertainty, registry complexity, and reversal risk in ways that renewable offtakes don’t due to the nature of the underlying product.
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