BP’s 2023 Outlook for Global Energy Transition: Key Takeaways

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BP Energy Outlook 2023 unlocks the key trends and insights surrounding the global energy transition out to 2050. 

The 2023 Energy Outlook’s three main scenarios – Net Zero, Accelerated, and New Momentum – are meant to explore possible outcomes for the energy system over the next 3 decades. This will help the oil and gas supermajor to devise a strategy that’s resilient to various ways in which the energy system transitions.

It includes major developments from last year such as the U.S. Inflation Reduction Act and the war between Russia and Ukraine. bp’s chief economist, Spencer Dale, noted: 

“Global energy policy and discussions in recent years have been focused on the importance of decarbonising the energy system and the transition to net zero. The events of the past year have served as a reminder to us all that the transition also needs to take account of the security and affordability of energy. Any successful and enduring energy transition needs to address all three elements of the so-called energy trilemma: secure, affordable and lower carbon.”

2023 Outlook of the Energy Transition

3 Scenarios Exploring the Uncertainties of Energy Transition

The three scenarios are not predictions of what is likely to happen nor what bp would like to happen. Instead, they only capture a wide range of the outcomes possible for global energy transition out until the mid-century. 

Accelerated and Net Zero explore how different elements of the energy system may change to achieve large carbon emissions reductions by 2050, by 75% (relative to 2019 levels) in Accelerated and 95% in Net Zero. Both scenarios assume that there’s a significant tightening in climate policies. 

New Momentum reflects the broad trajectory of the global energy system. It emphasizes substantial increases in climate pledges in recent years. Under this scenario, carbon emissions peak in the 2020s and are around 30% below 2019 levels by 2050.

Net Zero also shows a shift in societal behavior and preferences to support gains in energy efficiency and the adoption of low-carbon energy. The CO2 emissions left in this scenario can be eliminated by either additional changes to the energy system or by deploying carbon dioxide removal (CDR). 

Scenarios in Line with “Paris Consistent” IPCC Scenarios

The pace and extent of decarbonization in Accelerated and Net Zero are broadly in line with IPCC scenarios that are consistent with 2ºC and 1.5ºC.

As seen in the chart above, the fall in fossil fuels and industrial emissions in the IPCC scenario is largely due to a 75% decrease in global coal consumption by 2030. 

The fall in coal consumption in Net Zero by 2030 is smaller compared to the decline in oil and natural gas. This goes to say that coal remains an important fuel in emerging economies where demand for energy is expanding. 

4 Trends Dominating the Future of Energy 

bp’s energy transition outlook for 2023 further reveals the key trends that will dominate future energy demand, including:

A declining role for hydrocarbons
Rapid expansion in renewables 
Increasing electrification
The growing use of low-carbon hydrogen

Key Trends Impacting Future Energy Demand

Consumption of fossil fuels falls down in all three energy transition scenarios in the 2023 Outlook. Their share in primary energy declines from 80% in 2019 to around 55% to 20% by 2050. This is the first in modern history that there’s a continued decrease in any fossil fuel demand. 

Meanwhile, all other three trends show sustained increases in demand. 

Renewable energy includes wind, solar power, bioenergy, and also includes geothermal power. The rise in renewables offsets the falling role of fossil fuels. Their share will go up as much as 65% by 2050 because of stronger policy support for low-carbon energy. 

The big importance of renewables is also driven by the growing electrification of the energy system. The share of electricity in energy use goes up from only 20% to between 35% and 50% by 2050. 

Lastly, the growing use of low-carbon hydrogen in hard-to-abate processes that are difficult or costly to electrify supports the decarbonization of the global energy system. This is particularly true in both Accelerated and Net Zero scenarios. The energy used producing low-carbon hydrogen rises to between 13-21% by 2050 in both scenarios.

CCUS and CDR in Decarbonization Pathways

CCUS Role in Enabling Deep Decarbonization Pathways

Carbon capture, use and storage (CCUS) plays a central role in supporting the transition to a low-carbon energy system by:

Capturing industrial process emissions
Acting as a source of carbon dioxide removal
Abating emissions from the use of fossil fuels

In all 3 scenarios, around 15% of the CCUS operating in 2050 is used to capture and store non-energy process emissions from cement production. CCUS achieves 4 to 6 GtCO2 by 2050 under Accelerated and Net Zero, with only 1 GtCO2 in New Momentum.

By region, the greatest use of CCUS with natural gas is in the US, followed by the Middle East, Russia, and China. In Accelerated and Net Zero, over 70% of the global deployment of CCUS in 2050 is in emerging economies, led by China and India. 

This requires a very rapid scale-up of CCUS in these countries relative to their historical levels of oil and gas production, which can be used as an indicator of the geological suitability and engineering capability to develop industrial-scale CCUS facilities.

CDR is Necessary to Reach the Paris Climate Goals

Climate scientists at IPCC stated that carbon dioxide removal (CDR) is necessary to achieve the Paris climate goals. CDR includes bioenergy combined with CCUS (BECCS), natural climate solutions (NCS), and direct air carbon capture with storage (DACCS). 

BECCS offers the benefit of creating useful energy and negative carbon emissions. But what limits its full potential is the sustainability of the biomass used and its other uses.

NCS conserve, restore or manage forests, wetlands, grasslands and agricultural lands to increase carbon storage or avoid GHG emissions. They can have co-benefits, such as promoting biodiversity, but it can be hard to ensure and monitor their permanence.

DACCS is a process of capturing CO2 directly from ambient air and then storing it. This CDR tech is scalable and offers certainty on additionality and permanence. But their costs are high relative to other forms of CDR. 

The IPCC 1.5ºC scenario includes a rapid scale-up of both NCS and BECCS. Together, they will reach over 7 GtCO2 per year by 2050. 

The 2023 Energy Outlook is to inform bp’s strategy and to contribute to the wider debate about what shapes the energy transition to net zero. But it’s only one source among many when considering the future of global energy markets. And the oil and gas giant is also using other external analysis and information when deciding on its long-term strategy. 

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ArcelorMittal and Microsoft Back MIT Green Steel Firm With $120M

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The green steel technology firm that spun out of Massachusetts Institute of Technology (MIT), Boston Metal, raised $120 million in its latest funding round led by steel giant ArcelorMittal and participated by Microsoft.

The steel industry is raking in about $1.6 trillion in annual revenue. But that’s in exchange for 7% to 9% of the global carbon footprint, says the World Steel Association. 

The industry is, in fact, the largest emitting manufacturing sector because it’s very reliant on coal to produce steel. And bringing it to net zero emissions by 2050 isn’t cheap – costing the industry between $215 to $278 billion. 

But using green solutions to make clean steel can help reduce the cost. This is exactly what the MIT spinout company Boston Metal proposes through its unique electrolysis process. Its technology attracted large companies wanting to decarbonize the industry.

Ramping Up Boston Metal Green Steel 

To meet the Paris Agreement, emissions from steel and other heavy industries have to fall by 93% by 2050. Hence, steel manufacturers need to reduce their emissions in large amounts.  

Good thing MIT technology experts were able to show that it’s possible to make steel without emitting CO2. And that’s when they created a new company to scale the technology in 2013. Four years later, a steel industry veteran with four decades of experience, Tadeu Carneiro, became Boston Metal’s CEO. 

In the next year, the tech company raised a $20 million Series A round led by Bill Gates’ climate investing firm Breakthrough Energy Ventures. In its latest funding, Boston Metal secured $120 million in a round led by steel giant ArcelorMittal. To date, it has raised a total of $220 million to support tech development.

ArcelorMittal’s VP Irina Gorbounova noted the EU Emissions Trading System (ETS) already puts a price on carbon emissions and that they expect other regions to follow. She said that:

“Zero or near-zero carbon emissions steel will become a reality. The only question is how quickly we can make that journey happen. If steel companies don’t decarbonize, they will not stand the test of time.”

Microsoft’s $1 billion investment arm Climate Innovation Fund also took part in the funding round. The fund supports ramping up the development of carbon reduction and removal technologies. The tech giant aims to be carbon negative by 2030 and hit net zero by 2050.

With its Series C funding, Boston Metal seeks to ramp up green steel production at its pilot Woburn, Massachusetts facility. The firm will also use the money in support of building its Brazilian subsidiary where it will manufacture various metals. 

Making Steel Without Carbon Dioxide

In a traditional blast furnace steelmaking process, iron ore is combined with coal that’s baked and converted into coke. This process releases significant CO2 emissions via these ways: 

carbon in coke and limestone creates CO2 as a byproduct
fossil fuels used to heat the blast furnace
coal used to power plants and ovens releases CO2

Approximately 70% of the world’s steel is made that way, which generates 2 tons of CO2 for each ton of steel produced.

Boston Metal will change that with its patented “Molten Oxide Electrolysis” (MOE) process. It takes advantage of clean electricity to transform low-grade iron ore into high-purity molten iron. 

This single-step method eliminates the need for secondary steel processing that emits CO2. So, there’s no CO2 involved but only includes common oxides such as silica, alumina, calcium, and magnesium. These “soup of other oxides” mix with the iron oxide where electricity passes to make iron and oxygen without producing waste. 

But the availability of clean electricity will largely impact how fast the MOE process can be implemented by steelmakers. Otherwise, its purpose of “greening” steel production will be to no avail. 

There are other alternative processes present to make green steel. 

One is the green pig iron production processed using low emission technologies and inputs. It uses renewable input of biomass called biochar. Like MOE, it also eliminates the need for secondary processing like sintering and coking. 

Another steelmaker is greening production by replacing coal with green hydrogen. This process will reduce CO2 emissions by over 90% compared to traditional steelmaking.

The Boston Metal’s CEO remarked:

“We believe in the future, we will have abundant and reliable and green and cheap electricity in order to use this process and manufacture green steel.”

Boston Metal will not be a steel manufacturer itself but will license its green technology to steel companies. Its MOE process has the potential to help steelmakers and the industry reach net zero emissions. 

The company will start building its demonstration steel plant in 2024 and a commercial facility in 2026.

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Wildfires Cost Over $148B and 30% of Emissions

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A new report by Dryad Networks unveiled the hidden costs and impacts of wildfires, its carbon emissions, and how early detection can prevent huge economic losses and save lives. 

Wildfires endanger people’s health and nature, affecting 6.2 million people and causing decades’ worth of damage to biodiversity. They also cost the global economy hundreds of billions of dollars each year. 

More remarkably, the report estimates that wildfires can be a major source of global carbon emissions (30%) by the end of the century. 

Carsten Brinkschulte, CEO of Dryad Networks commented: 

“It is clear from the report findings that the world needs to wake up to the full impact of wildfires and it is time for governments to shift the focus of investment onto detection and prevention – not just suppression.

The Underestimated Impacts of Wildfires

Within just one decade, 8 of the worst wildfires on record have happened. And they’ve become even more widespread, burning about 2x more tree cover today as they did two decades ago. 

Still, the full impact of wildfires is largely underestimated. 

The new report by ultra-early detection IoT firm Dryad, “What lies beneath – the hidden truth about wildfire” – looks closely at the unseen impacts of wildfires. It focuses on these key areas:

full environmental impact 
human health hazards 
financial costs to governments and 
what could be avoided with early wildfire detection.

Hidden Costs: Emissions & Biodiversity

Wildfires account for about 6 to 8 billion tons of carbon emissions, according to estimates. That means it contributes 20% to the total global GHG emissions. It equates to how much the transport sector also emits. 

But more alarmingly, wildfires’ impact on climate change can get worse. They can be the source of 30% of emissions by 2100, the report says.

Wildfires also damage biodiversity significantly. 

In fact, the fires killed or displaced around 3 billion animals in Australia in 2020 alone. While in Europe, wildfires destroyed ⅔ of the Plaine des Maures Nature Reserve during the Gonfaron Fire in France last 2021. 

Unfortunately, it takes decades for fauna and flora to recover from the damages of wildfire.

At the UN COP15 biodiversity conference last year, nations agreed to protect nature and biodiversity hotspots 30% of land by 2030. 

Impacts on Health and Economy

According to the World Health Organization (WHO), “wildfires and volcanic activities affected 6.2 million people between 1998-2017”. This resulted in 2,400 attributable deaths worldwide from suffocation, injuries and burns. 

WHO also says that, since that period, the “size and frequency of wildfires are growing due to climate change”. That means hotter and drier conditions are further increasing the risk of spreading wildfires.

On top of environmental and health damages, the financial impact of wildfires is also very high, worth billions of dollars. 

For instance, a study by University College London stated in the report showed that California’s 2018 wildfires alone cost the U.S. a whopping $148.5 billion. Capital losses and health costs within the state amounted to $59.9 billion. 

The report noted that employing traditional wildfire detection methods fail to reduce the risks of the disaster. Detecting fires through human sight may take up to 6 hours or more. 

Within those hours, a wildfire may have already spread and cost the state or country billions in firefighting. In the U.S., for example, the cost of fighting wildfires is around $3.7 billion in 2022. 

Companies that use carbon credits from forests created a buffer pool in case of wildfires. But the buffer pool is far from being enough to cover the losses. 10-20% of the total credits from forests fill the buffer pool.

California, in particular, has a huge forest carbon offset program that credits carbon stored in forests. These carbon credits are sold for those who seek to offset their emissions. As well, a study suggested that California’s buffer pool also severely lacks capital to keep up with the increasing wildfire events.

Interestingly, insurance giant Swiss Re pointed out how the cost of global insured claims due to wildfires has risen to around $10 billion per year. The insurance giant also projected that figure to go up, from 6% in 2020 to over 13% by 2030 as seen in the chart.

Dryad Early Wildfire Detection Tech

For Dryad’s CEO Carsten: 

“There should be no hidden costs for wildfires. All countries must work together to share data communicating the full impacts of wildfires to ensure the extent of damage caused is fully understood. This will unlock the critical level of investment and attention needed on detection and prevention to address the issue of wildfire once and for all.”

In this regard, the Iot company created an effective technology that can detect a wildfire very early – within the first 60 minutes. That’s before the open fire has even developed. 

Dryad’s early fire detection system “Silvanet” is pending patent. It uses low-cost solar-powered sensors and IoT mesh gateways. It also offers cloud-based big data platform for analytics, monitoring and alerting.

The tech can be placed even in the most remote locations but still transmit the first signs of fire to firefighters. It can detect the exact location of the fire, which substantially enhances response times.

In terms of cost, Dryad’s detection tech can be less than $50. It can help get rid of almost all the impacts of wildfire if deployed on a commercial scale.

Take for example the case of Camp Fire in California in 2018. The company estimates that if early detection happens, their technology could have saved 5.5 million hectares of land, 2,500 homes and 26 lives from harm. Not to mention the expensive firefighting cost of $150 million or more. 

Only with an early detection system in place, billions of tonnes of emissions, billions of dollars of financial losses, millions of hectares burnt, millions of animals, and thousands of lives could have been spared from wildfires. Billions of carbon credits could also be created.

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Tesla Carbon Credit Sales Reach Record $1.78 Billion in 2022

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Tesla’s carbon credit sales are making headlines again as it reached a new record in 2022. The company reported that Q4 carbon credit sales jumped 47% year over year.

Tesla has been generating revenue from the sale of carbon credits for at least 8 consecutive quarters.

These credits, also known as carbon offset credits or carbon allowances, are a way for companies to offset their carbon emissions by investing in renewable energy and other carbon reduction projects. 

Tesla has been selling carbon credits to other automakers. In 2019, the company made headlines when it reportedly earned $357 million from the sale of carbon credits to other car companies that did not meet emissions standards set by the California Air Resources Board (CARB).

This allowed these companies to comply with regulations without having to make significant changes to their own operations.

Tesla has seized the net zero market through many revenue streams including vehicles, solar installations and carbon credits. But the rise of Tesla’s carbon credits sales over the years has proven a steady contribution to revenues and profits.

Rising High: Annual Tesla Carbon Credit Sales

In 2018 Tesla sold $419 million in carbon credits. The big move came in 2020 with $1.58 billion in revenues from the sale of credits. Tesla then stunned the carbon markets with its landmark $679 million credit sales in Q1 of 2022. 

This represents a significant portion of Tesla’s overall revenue and highlights the value of the company’s clean energy operations. Tesla’s carbon credits are generated through its clean energy business.

The company operates a solar panel installation business and also sells energy storage systems. These operations generate carbon offset credits through the reduction of greenhouse gas emissions (GHG’s).

Not Just Carbon Credits, Tesla is a Net Zero Leader 

Tesla has been a leader in the electric vehicle market since its founding in 2003. The company’s mission is to accelerate the world’s transition to sustainable energy.

In addition to producing electric vehicles, Tesla also operates a solar panel installation business and sells energy storage systems. These operations generate carbon offset credits through the reduction of greenhouse gas emissions. These credits can be sold to other firms, such as automakers, that struggle to meet emissions standards set by regulatory bodies like CARB. 

Tesla has sold carbon credits to a number of car manufacturers, including Chrysler, as a way for them to comply with the standards. It’s reported that Chrysler bought US$2.4 billion worth of Tesla’s Carbon Credits, accounting for the majority of the company’s sales in years past. It’s unclear who the major buyers were in 2022.

Credits Help Offset Scope 1, 2 and 3 Emissions

Reducing greenhouse gas emissions requires addressing both energy generation and consumption. This is what the transportation and energy sectors have been prioritizing to directly reduce their emissions.

Companies like Audi, Porsche and Daimler-Chrysler are accelerating their net zero and electrification plans. Audi, for example, aims to have 30 electric vehicle models by 2025 and aims to have 40% volume share of the EV market by the same year.

Tesla designs and manufactures a complete energy and transportation ecosystem, focusing on affordability through research and development, software development and advanced manufacturing capabilities. 

Tesla itself has an emissions footprint that it addresses. Here’s how Tesla’s own Scope 1, 2 and 3 emissions looked from their 2021 Climate Impact Report:

You can read about Tesla’s net zero commitments in their 2021 climate impact report.

Tesla’s Role in the Carbon Credit Market

The carbon credit market is a way for companies to offset their carbon emissions by investing in renewable energy and other carbon reduction projects.

Companies that exceed emissions standards set by regulatory bodies can purchase carbon credits from companies like Tesla that are generating carbon offset credits through the reduction of greenhouse gas emissions. By doing so, they can comply with regulations without having to make significant changes to their own operations.

The sale of carbon credits has been a significant source of revenue for Tesla and highlights the value of the company’s clean energy operations. As the world continues to focus on reducing carbon emissions and fighting climate change, the market for carbon credits is likely to grow. 

Tesla’s leadership in the electric vehicle market and its commitment to sustainable energy position the company well to continue to generate revenue from the sale of carbon credits in the future.

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Clean Energy Transition Investment Hits New Record – $1.1 Trillion

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Global low-carbon or clean energy transition investment jumped 31% in 2022 with a total of $1.1 trillion, drawing level with capital for fossil fuels, according to BloombergNEF report. 

Both figures broke new records in global investment in the clean energy transition. These “firsts” are driven by the energy crisis that hit the world last year as well as policy actions that enable the deployment of clean energy technologies much faster.

The research firm accounts each year how much money companies, financial firms, governments, and individuals invest in low-carbon energy transition. BNEF reports the results in its Energy Transition Investment Trends.

Setting New Record: Investment by Sector 

There are 8 sectors covered in the report including:

Renewable energy
Energy storage
Electrified transport
Electrified heat
Carbon capture and storage (CCS)
Hydrogen 
Nuclear power
Sustainable materials

Out of those eight, only investment in the nuclear power sector didn’t set a new record as it stays almost flat. While the rest reached a new record investment level. 

The sector that got the highest investment share is renewable energy – wind, solar, biofuels, and others. It set a record of $495 billion committed in 2022, up 17% from 2021. 

Remarkably, the electrified transport sector (investment in electric vehicles) is almost at par with renewables. The sector received a 54% increase from prior year – $466 billion.

The least achiever is the hydrogen sector, getting only $1.1 billion which represents 0.1% of the total investment. Yet, given the growing interest and strong policy support in the sector, hydrogen is the fastest-growing. It attracted an investment of more than 3x in 2022.

In fact, government subsidy programs this year will help ensure that the global green hydrogen industry will turn into a large-scale renewable power source.

In the U.S., the Inflation Reduction Act offers tax credits to clean hydrogen producers. The second largest emitter has an $8-billion program that will fund regional clean hydrogen hubs in the country.

Other similar programs also exist in the EU, UK, Germany, Canada, India, and China. Their common goal is to promote clean hydrogen industry.

When it comes to clean energy investment share by country, China takes the lead. The largest emitter got almost half of the global total investment in low-carbon energy transition, bagging $546 billion. 

The U.S. took the second slot with $141 billion while Germany secured the 3rd place, again. France took over the UK’s previous 4th slot as the latter fell down to 5th place. 

Closing the Investment Gap: Clean Energy vs. Fossil Fuels

BNEF also reported estimates on global investment in fossil fuels. The figures include every aspect, from top to bottom, of fossil power generation. 

For the first time, the total estimated amount poured into fossil fuels exactly matches that of the clean energy transition – $1.1 trillion. 

Last year, large banks favored fossil fuel financing over decarbonization goals. Three of them have invested a total of $789 billion into fossil fuels from 2016 to 2021, and $199 billion was for 2021 alone.

The new report stirs attention as it seems to turn the tide in global investments. And despite the energy crisis last year, the transition to clean energy appears to catch more eyes. 

According to the Head of Global Analysis at BNEF, Albert Cheung, instead of slowing down, “energy transition investment has surged to a new record as countries and businesses continue to execute on transition plans.” He added that:

“Investment in clean energy technologies is on the brink of overtaking fossil fuel investments, and won’t look back. These investments will drive short-term job creation and help to address medium-term energy security objectives. But much more investment is needed to get on track for net zero in the long term.”

Indeed, under BNEF’s 2050 Net Zero Scenario, the world needs an annual investment on energy transition of $4.55 trillion in this decade. It means the 2022 achievement must triple and more to tackle climate change. 

One notable area that’s part of the $1.1 trillion investment is climate-tech corporate finance. It involves new equity financing raised by climate-tech companies, which is down 29% from 2021.

2022 was not a good year for global equity markets as the report noted. Still, venture capital and private equity funding went up 3%.

Clean Energy Factory Investment

BloombergNEF’s report also shows how much goes to manufacturing facilities for clean energy. The amount went up from $52.6 billion in 2021 to $78.7 billion in 2022. 

As the chart below indicates, facilities for batteries got the biggest share worth $45.4 billion. Solar factories came next with $23.9 billion investment.  

BNEF’s figures only account for successfully commissioned factory projects.

By geography, China remained at the top in manufacturing investments last year – 91%! And that’s despite huge efforts from other nations to attract low-carbon energy investors.

In the US, for instance, there were a series of commitments for new or expanded clean energy factories in the past months. They’re not, however, included in the report.

Looking forward, the research firm said that between 2023 and 2026, clean energy factory investment only needs an annual average of $35 billion to meet the Net Zero Scenario. 

In other words, “manufacturing capacity for clean energy technologies is unlikely to be the major bottleneck to achieving net zero”, said BNEF’s Head of Trade and Supply Chains research. 

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Voluntary Carbon Credits Market Can Be Worth $1 Trillion in 2037

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The total value of carbon credits traded in the market to help entities achieve their net zero goals can be worth $1 trillion as early as 2037, according to a recent report by BloombergNEF.

Verified emission reduction credits or carbon credits are traded in the voluntary carbon market (VCM), equivalent to 1 ton of carbon reduced or removed. Under its current structure, the VCM is “not built for success”, BloombergNEF said. But the research provider also noted that:

“More rigorous definitions of quality and greater emphasis on carbon removal could solidify market confidence, lift prices and drive demand.”

The VCM Growth (2021 – 2022)

Investments in VCM projects grew to $10 billion in 2022, up from $7 billion in 2021, a new report has found. Yet the market failed to grow last year as BNEF reported in its Long-Term Carbon Offsets Outlook. 

Firms bought only 155 million carbon credits as offsets, down 4% from 2021. The major reason being is the fear of reputational risk from buying low-quality credits. 

But carbon credits supply jumped by 2%, with a total of 255 million carbon offsets generated globally. Remarkably, the supply of credits from “avoided deforestation” fell by a third from 2021 to 2022. 

There were accusations of greenwashing in buying carbon credits from nature-based projects that had questionable environmental impact. REDD+ projects, in particular, are still under criticism after analysis claiming they produce “ghost credits”.

In a different market analysis by AlliedOffsets, the lack of growth in the VCM is due to a slowdown in retirements of carbon credits. 2022 has seen slowing growth in retirements after last year’s explosion as seen in the chart below.

Voluntary Carbon Credits Retirement

Source: AlliedOffsets

In particular, retirements of renewable energy and forestry credits declined in two consecutive quarters as shown below. This is the first time that it has happened in VCM history.

 

BNEF VCM Projections Under 3 Scenarios

The Voluntary Credit Market Scenario

The BNEF modeled supply, demand, and prices for carbon offset credits under three different scenarios by 2050. Under each scenario, demand grows at various rates, and so do the prices. 

In the first scenario, entities can buy any type of carbon credits to meet their decarbonization goals. In this case, they’ll need about 5.4 billion credits each year in 2050. There’s oversupply of credits and 8 billion of them will be produced annually, mostly from avoided deforestation. 

As shown in the graph above, carbon prices in the VCM scenario will go up to only $12/ton in 2030 and $35/ton in 2050. The total market value would only be $15 billion each year in 2030. Still, that’s a 650% increase from the $2 billion valuation in 2022.

2. The Removal Scenario

Under this second scenario, carbon credits from projects that actually remove carbon from the air only count. Those from avoided deforestation or clean energy projects are not part of the supply. 

As such, supplies will be short in 2037 as carbon removal technologies, e.g. direct air capture (DAC), are still expensive to scale up. Carbon prices for removals are far way higher than in the VCM scenario at ~ $250/ton. Annual market value will be as high as $1 trillion. 

But as DAC and other carbon removal tech receive more investments, costs will go down below $100/ton by 2050. 

Yet, high prices may prompt some firms to put their money in other net zero strategies over carbon offsetting. Or worse, it may force them to neglect their climate goals entirely if carbon removal credits remain too costly for them to offset emissions.

3. The Bifurcation (Two Market Branches) Scenario

The debate on what makes a carbon credit high-quality continues to this day. Stakeholders – investors, companies, and non-profits – believe that defining quality involves a set of criteria. The major ones include additionality, permanence, and co-benefits (benefits apart from reducing emissions).

In effect, the third BNEF’s scenario emerges from this debate – the bifurcation or splitting of the market into two branches. 

In a smaller branch lies the less liquid market for high-quality carbon credits. These include credits from carbon removal technology projects and nature-based solutions in Oceania, Africa, and North America.  

Demand for high-quality carbon credits peaks at 433 million only in 2030 and 1.3 billion in 2050. And buyers will also have a smaller supply compared to other scenarios, at 1.4 billion and 3.2 billion in the same periods. Carbon prices reach $38/ton in 2039 before falling to $32/ton in 2050.

In another branch is the larger market for low-quality credits from energy generation and nature-based solutions in Latin America and Asia. Prices will be at only $12/ton in 2025 and peak at only $22/ton in 2050. 

Entities relying in this market for offsetting their emissions may have to deal with greater reputational risks. 

Overall, the outcomes of this third market scenario may change depending on what constitutes low- and high-quality offset credits. What will help clarify quality tiers are simplifying and standardizing carbon credit buying.

Standardization in Carbon Credits Market 

Standardization can drive more market liquidity and help stakeholders better decide on their offsetting strategies. Carbon exchanges, technology providers, and private sector initiatives are working hard to achieve this. 

But buyers may become more confused if many groups are addressing the issue separately. 

Kyle Harrison, Head of Sustainability Research at BNEF and the report’s lead author remarked:

“Buyers need transparency, clear definitions around quality and easy access to premium supply, or future years will resemble what we saw in 2022. These changes will send demand signals to the projects making the greatest decarbonization impact and in need of the most investment.”

He further added that standardization is the carbon credit market’s space race. Only by resolving this matter can the carbon market grow by several orders of magnitude.

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Abandoned Oil Wells and Carbon Credits

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You’ve probably seen dozens of pictures before that look exactly like the one above.

An active oil field littered with pumpjacks, all churning out oil by the barrels…

But have you ever stopped to think of what happens to these oil wells when the oil is gone? When the oil and gas companies pack up and leave for greener pastures?

If you haven’t… then you’re not alone.

Because as it turns out, most oil companies haven’t, either.

Abandoned oil wells have rapidly become one of the major headline issues in the world’s fight against climate change.

The Original Pump and Dump

When oil wells on land are drilled, holes are bored into the ground that often go miles down. These holes are cased in cement to prevent leakage, all the way down to the bottom of the well where the oil is.

As you can probably imagine, oil wells can be pretty expensive to drill.

However, it’s even more expensive to clean up afterward when they’re no longer profitable.

Here’s the thing: oil wells don’t produce a constant amount of oil. It’s not like a faucet you can turn on and off.

Oil well flow rates vary depending on a number of factors, including how much oil is left in the reservoir.

Generally speaking, an oil well produces the most oil when it’s first drilled.

The Lucas Gusher in Texas. Taken by John Trost in 1901

If you’ve seen any old photos like the one above…

Pictures like these were usually taken when a new oil well had just breached a new oil reservoir under high pressure.

Over time, however, as more and more oil and gas is pumped away, flow rates will continuously decrease.

At some point, there won’t be enough oil coming out anymore to offset the costs of keeping the well running. This is known as a well’s “economic limit”.

Now, this oil well isn’t empty. There’s still plenty of oil and gas left down there. It’s just not coming up fast enough for the oil company to make any money off it. So, at this point the well is usually shut down – or “plugged”.

Quite often, oil companies will do this simply when oil prices are unfavorable, as opposed to only when flow rates have fallen too low. Temporary plugs are placed in these wells so that they can be reactivated at a later date.

However, sometimes these wells are forgotten afterwards. The owners may have gone bankrupt, lost their drilling rights… Or they may simply have walked away from the well, leaving them neglected. Abandoned.

But just because they’ve been abandoned doesn’t mean they’re out of sight, out of mind. Many of these abandoned wells leak, potentially contaminating the surrounding groundwater or soil.

And one of the most concerning things these wells leak is methane – a deadly greenhouse gas that’s the second-largest contributor to climate change, right behind carbon dioxide.

Methane gas is up to 86 times better than CO2 at trapping heat in the atmosphere in the first 20 years after it’s been released. So, targeting methane emissions is an important part of the fight against climate change.

There are over 3 million abandoned oil and gas wells in the U.S. They collectively emit the equivalent amount of putting an extra 1.5 million cars on the road every day.

Reuters estimates that, when taking into account major oil-producing nations with a poor track record like Russia or Saudi Arabia, there may be as many as 29 million oil wells abandoned internationally.

That’s why these abandoned oil wells – also known as orphan wells – have turned into a major problem in the fight against climate change.

One Man’s Trash…

Now you’re probably thinking: why do these oil companies get to just walk away from oil wells like that? Why even do it in the first place?

Well, as it turns out…

Cleaning up an oil well is expensive. Potentially more expensive, in fact, than drilling the well in the first place.

The process of plugging a well begins with dismantling the pumpjack, alongside any other equipment that may still be left on the surface.

Then – and this is the hard part – they have to inspect the casing of the well for leaks and other defects.

A casing is a series of hollow steel pipes surrounded by a cement shell. It supports the well hole and protects against leakage. It keeps the oil that’s being pumped up from getting out and contaminating the surroundings.

So, as you might guess, the casing needs to go all the way down to the bottom of the well.

In the years that a well has been abandoned, the casing will have been deteriorating, as cement will over time. Especially since the impurities found in crude oil are often corrosive.

Any defects in the casing need to be repaired first, to ensure that no more oil or gas leaks out. This is generally accomplished by cleaning out any oil or gas that could cause corrosion, and then pouring more cement.

When the condition of the casing is deemed satisfactory, the well is then filled with water or another non-corrosive liquid. The well casing is then cut, typically one meter below the surface, and then topped with a vented cap.

The cost of plugging an abandoned oil well can run anywhere from $20,000-$40,000 all the way up to $1,000,000. That depends on how deep the well goes and what condition it’s in.

Oil wells for fracking, for instance, are expected to run closer to $300,000 on average to plug. That’s because their long horizontal nature makes them harder to deal with than traditional oil wells. 

The problem is, while oil and gas companies are required by law to set aside a chunk of money for each well they drill to plug it later, this amount of money is based on the cost to plug a traditional oil well. This required amount is as low as $10,000 per well in some areas. But on federal land, caps at a maximum of $150,000 for all wells drilled nationwide.

And for many of these abandoned oil and gas wells, the owners lack enough money to cover the actual costs of plugging each well… or worse, there’s no more owners left to chase down for the money.

Which is why the government’s been stuck with the bill.

… Is Another Man’s Treasure

They’re a major environmental disaster… but at the same time, they’re also an opportunity for some.

In November of 2021, the Biden administration launched a $4.7 billion program to plug abandoned wells as part of the Infrastructure, Investment and Jobs Act.

Through this program, qualifying states can receive federal grant money to find and plug abandoned wells, as well as reclaim the land surrounding them.

Phase one of the program is already under way. $560 million was awarded last August to 24 different states, with more on the way.

In addition to this, since plugging abandoned wells eliminates methane emissions, any abandoned wells not already covered under a government program are a potential source of carbon credits for companies willing to take on the burden of plugging them.

The Biden administration may be willing to take the fight to abandoned oil wells in the U.S., but what about the other 29 million scattered around the world? Some of them are even very close to home, such as right across the border in Alberta, Canada.

There’s a big opportunity here for the right companies in the right places to make a ton of money.

Canadian-based DevvStream (DESG) last year announced an agreement with TS-Nano to plug abandoned wells and generate a stream of carbon credits.

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Amazon to Start Trading Renewable Energy in India

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Amazon received the green light from Indian authorities to start trading renewable energy sources in the country.

After securing a category-III energy trading license, the e-commerce giant is building up a series of wind and solar energy projects in India. A category III license allows the company to trade electricity of up to 4,000 million units annually. 

Amazon has signed a total of 720 MW worth of energy purchasing agreements in India. It has also signed agreements with partners such as Vibrant Energy, ReNew Power Global, Amp Energy India and Brookfield Renewable. Amazon will handle all its energy trading through its new subsidiary, AEI New Energy Trading Pvt. Ltd. 

In September last year, ReNew Power signed a deal with Amazon to supply 210 MW of solar power. The 210 MW solar farm will be located in the northern state of Rajasthan. By operational capacity, ReNew Energy is one of India’s largest renewable energy companies.

The solar farm is one of Amazon’s three solar renewable energy projects in India. The second one is a 100 MW project in partnership with Amp Energy. The third project is a 110 MW project with Brookfield Renewable. 

These three solar farms can produce a total of 1,076,000 megawatt hours (MWh) of clean energy annually. This would be enough to cover the electricity consumption for around 360,000 medium homes in Delhi. 

Additionally, at the end of last year Amazon announced two more utility-scale renewable energy projects. Partnering with Vibrant Energy, Amazon will develop two hybrid solar-wind projects in Karnataka and Madhya Pradesh.

These projects have a total capacity of 300 MW. The company now has a total of five utility-scale renewable energy projects in progress in India. 

India’s Net Zero Goals

In recent years, India has set ambitious net zero goals and ramped up efforts to decarbonize different sectors. In November 2022, India submitted its Long-Term Low Emission Development Strategy to the United Nations Framework Convention on Climate Change (UNFCCC) at COP27. 

India has committed to reaching net zero carbon emissions by 2070 and increase its renewable energy capacity to 500 MW by 2030. In addition to developing renewable energy projects

Amazon’s Renewable Projects Across Asia

As the largest corporate purchaser of renewable energy in the world, Amazon has a strong commitment towards decarbonizing the planet. Besides India, Amazon has also invested in green and renewable energy projects in Indonesia, Japan, Singapore and Australia. 

In the Asia-Pacific region, the company has over 50 renewable energy projects in the works. Amazon’s portfolio of renewable energy projects across Asia have a total capacity of 1.6 GW. 

In 2021, Amazon launched its first renewable energy project in Singapore. It is a 62 MW solar plant that would have the potential to generate 80,000 megawatt hours (MWh) of clean energy annually. This would be enough to cover the electricity consumption of over 10,000 homes in Singapore. 

Last year, Amazon also announced its first renewable energy projects in China. They are a wind and solar farm that have a total energy capacity of 200 MW, and can generate 496,000 MWh annually. This would cover the energy needs of over 250,000 homes in China.

Amazon’s Decarbonization Strategies

Beyond developing renewable energy projects, Amazon Web Services (AWS) has also invested in massive climate-based data collection efforts around the world. AWS set up the Amazon Sustainability Data Initiative (ASDI), providing greater access to large climate-based datasets to help researchers and scientists. 

The company also partnered with Verra to introduce a new carbon credit label called ABAQUS. The new label aims improves on additionality and durability considerations of long-term decarbonizing initiatives.

Verra is a non-profit company that has been a leader in creating and upholding environmental standards, especially with regards to carbon emissions.

This is in the midst of reports that Amazon’s carbon footprint grew in 2021, with a 40% increase since 2019. In 2021, the retailer had emitted a total of 71 million metric tons of carbon emissions.

In 2019, the company founded The Climate Pledge, to lay out its net zero commitments. The goal is to reach net zero by 2040, 10 years ahead of the 2050 goal set by the Paris Agreement. 

The pledge, signed by over 300 businesses, covers three key aspects of decarbonizing:

Eliminating carbon using decarbonizing projects (e.g. renewable energy)
Carbon emissions reporting, with better regularity and accuracy (e.g. via initiatives like ASDI)
Using credible carbon offsets (e.g. ABAQUS)

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UK Considers £300M Climate Bailout of British Steel

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The UK government is considering a plan to channel a £300 million ($372 million) climate package to help British Steel reduce its carbon emissions and save it from collapsing. 

Once a giant UK steel manufacturer, British Steel has been hit hard in recent years. Three years ago, the Chinese Jingye Group bought the steelmaker, making it the 3rd owner in four years. 

A final decision has not been made to date and is set to be announced in the coming days.

Saving UK British Steel

The investment deal will help the Chinese-owned steelmaker to become more eco-friendly by transitioning from blast furnaces to electric arc furnaces. The company’s site is in Scunthorpe, northern England.  

The government aid will also help protect jobs at the Chinese-owned steelmaker, employing about 4,000 people directly. 

The Department for Business, Energy, and Industrial Strategy said in a statement:

“The government recognizes the vital role that steel plays within the UK economy, supporting local jobs and economic growth and is committed to securing a sustainable and competitive future for the UK steel sector…”

Negotiations about the deal are ongoing so the business secretary can’t comment yet about it. But the official considers “the success of the steel sector a priority and continues to work closely with industry to achieve this.” 

British Steel has been seeking urgent financial support after it was heavily affected by soaring energy and carbon prices. UK public officials have been urging the Chancellor to come into rescue. 

They’re saying that the fall of the steelmaker will also impact the government. It can lead to alarming decommissioning liabilities and may undermine steel production in the UK. 

The decision comes after the UK steel industry’s struggles were revealed. Another steelmaker, Liberty Steel, decided to cut its production in Britain and stop operations in some sites. All that’s due to the high energy costs threatening lay-offs. 

Add to that the decrease in demand last year over the fear of recession taking on the region. Consumption from major customers such as construction companies and manufacturers also fell. 

And so the need for intervention from the government. 

Shifting Away from Coal to Electric

But there are some strings attached to the British Steel package deal. 

One is to protect jobs at the company. Another condition is that Jingye Group has to invest at least £1 billion in British Steel by the start of the next decade. 

But the general goal is to help the company reduce its carbon emissions by shifting away from coal.

The traditional way of producing steel using coal represents about 70% of the world’s steel production. This produces about 2 tons of carbon for every ton of steel produced. 

Electric arc furnaces (EAFs) produce the remaining 30% of the steel. EAFs emit lower levels of carbon than blast furnaces as they can run on renewable power. They are best used on recycled steel. 

Report shows the need to act now to bring the steel industry to net zero emissions. And according to the analysis, the biggest factor for the industry to be successful in its climate goals is to switch to EAFs.

Another option is producing steel using green pig iron. It’s iron ore that’s processed using low emission technologies and inputs such as biomass called biochar.

Using biochar for green pig iron eliminates the need for sintering and coking. The technology is also 10% – 15% less cost-intensive than traditional blast furnace systems.

But these alternatives call for about over one trillion investment opportunities in the industry. And the UK steel industry must shift away from coal and embrace low carbon alternatives to stay competitive. 

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