The European Commission has granted approval for Germany to provide €902 million ($987mn) in state aid to Swedish battery manufacturer Northvolt AB. This approval marks the inaugural application of a new rule allowing European Union nations to match foreign subsidies to prevent investments from diverting outside the bloc. 

Battery startups are drawing in record-breaking investments, reflecting the growing potential of the sector. Last year’s global venture funding is about to exceed the records set in the last 2 years. 

READ MORE: Battery Startups Attract Mega-Investments

Northvolt is Electrifying Europe

2023 marked by a global drop in venture investments, but the figures in the battery sector are defying the trend. This underscores the urgency highlighted by recent climate change projections, emphasizing the critical role of advanced battery technology and sustainable production in addressing environmental challenges.

Northvolt’s plan involves constructing an electric vehicle battery production plant in Heide, Germany, with an annual capacity of 60 GWh. The state aid approval ensures the project moves forward in Germany instead of the US. The battery-maker had considered establishing a lithium-ion facility in Canada under the Inflation Reduction Act (IRA). 

The state aid initiative, known as the Temporary Crisis and Transition Framework, is part of an effort to fortify European manufacturing in strategic sectors, such as batteries, wind turbines, and solar panels, amid intense global competition. It allows national governments to match subsidies if there’s a risk that a project is likely to be taken elsewhere.

Margrethe Vestager, the EU’s competition commissioner, highlighted the importance of enabling states to match aid to secure investments within Europe. 

Likewise, German Economy Minister Robert Habeck clarified that the German state aid doesn’t entirely match the subsidies offered by the IRA. Still, it is sufficient to encourage Northvolt to pursue the new plant in Germany. 

The aid comes in the form of a €700 million grant and a €202 million guarantee. 

Habeck rejected the notion that the matching aid mechanism primarily benefits wealthier EU nations only. He further emphasized the importance of European solidarity and acknowledged the escalating global competition, particularly from China and the US. He specifically noted that:

“We need a more robust industry for the new sectors — semiconductors, batteries, electrolysers, hydrogen. But this means that climate action and industrial production fit very, very well together.”

The EC has also approved a €2.9 billion French scheme supporting the production of devices needed for the transition. These include batteries, solar panels, wind turbines and heat pumps.

EU’s Strategic Move in Battery Tech

The demand for battery power would grow to 2,035GWh by 2030 from 185GWh in 2020 , a whopping 11x increase. About 90% of that comes from transportation alone. 

In terms of size, the global battery market was estimated at over $107 billion in 2022 and can potentially hit around $475 billion by 2032, according to a market research.

Northvolt’s plans for the Heide plant include the production of 800,000 to 1 million EV batteries annually starting in 2026. The battery manufacturer also aims for full production capacity achieved by 2029. 

The Stockholm-based manufacturer is the first European company to produce a battery cell from a gigafactory. This term is used to refer to large-scale manufacturing facilities dedicated to electrification. 

In a 2023 industry report, three remarkable financings exceeded $1 billion and Northvolt is one of them. The company secured $1.2 billion from investors in 2023 to support its expansion in Europe and North America. 

The battery titan has a factory in Northern Sweden, the largest factory in the country’s history. This plant can generate 60GWh of batteries a year when operating at full capacity. The company also has a facility in Poland.

Anders Thor, Northvolt’s vice president of communications and public affairs, hailed the European Commission’s positive decision. 

He highlighted its significance not only for Northvolt’s planned battery production but also for the broader European battery industry. He anticipates final voting procedures from local communities.

RELATED: Canada Commits $9.7 Billion to Propel Volkswagen Battery Plant

As Northvolt gets the green light in state aid from Germany, the battery giant is set to revolutionize the energy landscape. The approval underscores the EU’s commitment to fostering strategic sectors, driving sustainable production, and combating global competition. Amidst heightened climate concerns, this landmark decision propels Europe toward a resilient and competitive future in advanced battery technology.

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A Thai electric bus operator announced the sale of the initial carbon offsets under a new system established by the Paris Agreement to a Swiss fossil fuel group. Their deal marks a significant milestone in the implementation of the 8-year-old United Nations climate accord.

The Paris Agreement, formulated in 2015, permits governments and corporations to offset a portion of their greenhouse gas emissions by funding initiatives that mitigate climate pollutants elsewhere. 

These offsets are converted into carbon credits, each representing the reduction of one metric ton of carbon dioxide (CO2) emissions. 

Unlocking Carbon Offsets with Thailand’s Electric Bus

In December, Switzerland’s KliK Foundation, representing fuel importers, finalized the inaugural purchase of 1,916 carbon credits from Thailand’s Energy Absolute. This groundbreaking transaction demonstrates the potential of a nascent market for carbon credits.

Switzerland stands out as an avid supporter of bilateral credit trading as stipulated in article 6 of the Paris Agreement. The recent transaction is part of a broader pact inked between Switzerland and Thailand in the first months of 2023.

Although the credits obtained will eventually be used in government strategies, private entities are responsible for executing the project. South Pole, a prominent Swiss firm recognized as one of the global leaders in trading carbon credits, coordinated the project. The seller has encountered controversy in the past year, stirring discussions and debate within the industry.

RELATED: South Pole Cuts Ties with Zimbabwe Carbon Offset Project Kariba

Energy Absolute is responsible for generating the credits by deploying a fleet of 4,000 electric buses in Bangkok. The electric units replace the conventional petrol-fueled vehicles, avoiding the release of CO2 which produces the offsets.

Image from Nation Thailand

Though the exact value of the credits sold wasn’t disclosed, the Thai firm said that the credit price exceeded $30. Their partnership is shaping the Paris Agreement market, pending finalization of the UN rules at COP28 in Dubai last year. 

The evolving nature of these regulations means that both Energy Absolute and KliK, along with regulators in their respective countries, can influence this burgeoning market. However, it also presents the risk of needing to revise their agreement once the final UN rules are out. 

Switzerland’s Emission Trading Strategy

KliK’s managing director, Marco Berg, emphasized the complexities involved in being pioneers in this area, citing substantial effort and costs. 

The Swiss government mandated fuel importers to offset a progressively increasing percentage of their emissions. They can do that either domestically or through Paris Agreement-compliant credits, leading KliK to engage in this transaction.

KliK has committed to purchasing offsets for up to 1.5 million metric tons of carbon dioxide emissions until 2030 from Energy Absolute. That’s only a fraction of the 20 million credits it expects to purchase by the decade’s close.

In comparison, Switzerland aims to offset roughly 40 million Mt of CO2 abroad through 2030 to fulfill its climate objectives.

Despite their utility, some environmental advocates criticize carbon offsets, contending that they promote pollution instead of focusing on its eradication. 

They doubted the integrity of the credits, claiming they’re not additional, meaning the project would still pursue without the offsets. 

But an independent carbon market consultant, Mischa Classen, disputed the claim. Classen noted that Thailand lacks a specific policy directive that supports private bus operators in transitioning to electric vehicles. 

Moreover, a spokesperson representing the Klik Foundation said that the additionality issue is purely speculation. They further noted that Energy Absolute relies on the financial backing provided through the purchase of credits to ensure the project’s viability.

Additionally, a spokesperson from the Swiss Federal Office of the Environment (FOEN) emphasized that only offsets leading to additional emissions reductions would receive approval. They highlighted that thorough verifications are conducted in collaboration with the environmental authority of the host country. 

Overcoming Paris Agreement Roadblocks

Despite ongoing uncertainties regarding the regulatory framework governing this mechanism, Switzerland persists in advancing these agreements.

RELATED: Proposed Methodologies for Carbon Projects Under Paris Agreement’s Article 6.4

Discussions about article 6.2 of the Paris Agreement faced a deadlock during COP28 due to a contentious disagreement over carbon offset integrity. The European Union advocated for stringent regulations, while the USA pushed for greater flexibility. 

Although negotiators aim to broker an agreement during COP29 in November, countries have the liberty to proceed with their agreements under the initial rulebook formulated in Glasgow.

Classen underscores that Switzerland’s inaugural transaction contributes positively to the growing consensus among nations with genuine interest in Article 6. He added:

“It is the final result of a long, hard process and it is not a decision you can just switch on or off. You need well-designed bilateral agreements setting minimum standards and a lot of political labor to establish carbon market regulations. The case of Thailand shows that it’s possible.”

Anticipating a substantial portion of its emission reductions by 2030 to be achieved through overseas projects, the Swiss government continues its efforts in this direction.

READ MORE: Nations Strike First-Ever “ITMO” Emissions Trading

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Debate surrounds the challenge of mitigating emissions from hard-to-abate sectors to achieve net zero by 2050. Critics argue the short-term cost of such measures might be high, preferring more effective decarbonization routes.

Carbon removal startup Parallel Carbon claims its pioneering technology addresses both challenges by capturing CO2 directly from the air while generating low-cost green hydrogen.

The company aims to launch a kilowatt-scale demonstration project by 2025, with carbon removal credits (CDR) already pre-sold. The credits sold covered the startup’s first year of operations, helping them get off the ground and build the project. 

How Parallel Carbon’s Dual Technology Work

Parallel Carbon’s technology employs hyper-reactive minerals and achieves both carbon removal for under $100 per ton of CO2 and clean hydrogen production for $1 per kilogram. Their approach combines Direct Air Capture (DAC) and Water Electrolysis processes, powered by solar and wind energy.

Beyond providing durable carbon storage, this approach generates high-quality CDR credits and green hydrogen to facilitate industrial decarbonization. Here’s the company’s technology in an overview. 

Their electrolyzer produces hydrogen by splitting a neutral-salt electrolyte into an acid and an alkali without generating chlorine gas. This system works similarly with the chlor-alkali process, minus the chlorine gas.

Simultaneously, a mineral sorbent in DAC extracts CO2 from the atmosphere, releasing it by dissolving in the acid. This captured CO2 can either be stored geologically or used in industrial processes. The sorbent is then regenerated with the alkali for subsequent CO2 capture.

Notably, though the electrolyzer may operate intermittently, surplus acids and alkalis sustain the mineral sorbent’s recycling. This ensures continuous direct air capture even during renewable power unavailability.

Addressing DAC Efficiency and Cost Challenges 

Parallel Carbon’s CEO Ryan Anderson highlights their technology’s flexibility, designed as a flexible industrial load operating on intermittent power. This aligns with clean hydrogen production tax credit requirements, ensuring minimal marginal electricity emissions for direct air capture’s carbon accounting.

Though this technology demands more energy input than conventional electrolyzers due to the simultaneous DAC, its reliance on low power prices potentially poses a challenge.

Estimated energy costs for this process, with renewable electricity at $30/MWh, amount to $1.50 per kg of H2 and $50 per tonne of CO2. Anderson foresees flexibility in cost allocation between hydrogen production and CO2 capture due to the dual product nature. He further noted that:

“For most direct air capture, operating with clean power is a necessity — I think that’s very challenging for other direct air capture technologies…over 90% of the energy for the process goes into the electrolyzer.” 

They target a cost of $400/tonne of CO2 captured and $2/kg of H2 produced by the late 2020s. They also intend to further lower costs to $100 and $1, respectively, by the early 2030s.

The startup, having secured $3.6 million in seed funding led by Aramco Ventures, aims to field-test a scaled stack producing 50 kg of hydrogen and capturing one tonne of CO2 daily by early 2025.

Parallel Carbon has pre-sold its carbon dioxide removal credits for operations beginning in 2025. As corporations eye 2030 climate targets, the voluntary carbon market has gained traction, although scrutiny surrounds carbon removal effectiveness.

Driving Costs Down and Ambitions Up 

Apart from the growing carbon credit market, DAC also largely benefits from highly lucrative government support in the United States.

Anderson emphasizes the measurable CO2 removal capability of direct air capture, ensuring high-quality climate action. However, he doubts industries’ preference for carbon removal over other decarbonization methods. Anderson had formerly worked as an analyst on carbon capture and storage for research firm BloombergNEF.

This skepticism is fueled partly by the expectation that the market will have a relatively limited quantity of high-quality credits available over the next 10-15 years.

RELATED: Voluntary Carbon Credit Buyers Willing to Pay More For Quality

Moreover, government subsidies like the 45Q tax credit incentivize carbon capture. Despite complexities in claiming multiple credits, Anderson sees potential for separate companies to leverage distinct tax credits.

The 45Q tax credit offers incentives of $85 per tonne of CO2 for point-source carbon capture that’s permanently stored. It would be $60 if the gas is used in industry or for enhanced oil recovery. 

Then the credit increases significantly to $180 (or $130) if the capture is from direct air capture. But for DAC to qualify for these incentives, it needs to capture a minimum of 1,000 tonnes of CO2 annually.

Anderson also estimates that even without subsidies, carbon credits from DAC are currently sold for over $600/tonne of CO2.

Looking ahead, Parallel Carbon eyes a commercial pilot in 2026 capable of 100 tonnes hydrogen production and 1,000-2,000 tonnes of CO2 capture a year. The DAC company is also planning a Series A fundraising round to propel its vision forward.

Parallel Carbon pioneers technology that captures CO2 from the air, generating low-cost green hydrogen while directly addressing emissions challenges. Their innovative approach offers durable carbon storage and facilitates industrial decarbonization. With promising advancements and investments, they aim to revolutionize carbon removal and hydrogen production, positioning themselves at the forefront of sustainable innovation.

READ MORE: Carbon Removal Startups Are Finding More Places and Funds to Store CO2

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Retiring carbon credits can be a powerful tool for individuals and businesses to offset their carbon emissions and contribute to a greener future. By retiring these credits, we can ensure that the emissions reduction achieved is permanent and not double-counted, creating a more transparent and effective carbon market. 

This approach not only helps combat climate change but also encourages the development of sustainable practices and technologies. 

If you’re into knowing about how the process works, this article will explain everything you need to know about carbon credit retirement. Let’s begin by explaining how these credits work.

Understanding How Carbon Credits Work

Carbon credits are tradable certificates that give entities the right to emit a tonne of CO2 or its equivalent. They are generated by projects that reduce or remove CO2 from the atmosphere like planting trees. 

The credits serve as a permit, allowing the holder to neutralize their emissions. In that way, they work like renewable energy certificates (RECs) which are also a market-based instrument that certifies the holder owns a megawatt-hour of electricity from a clean energy source. 

READ MORE: What are Renewable Energy Credits vs. Carbon Credits

Essentially, RECs are a type of carbon credit alongside many others. These credits come in two major categories: compliance and voluntary markets. 

In the voluntary carbon markets, carbon credits are also called offsets. Emitters voluntarily bought them to offset their greenhouse gas emissions. 

In the compliance markets, businesses’ emissions are ‘capped’. If they go beyond that cap or limit, they’re fined or they can buy carbon credits corresponding to the amount of their excess emissions. 

The Lifecycle of a Carbon Credit

Retiring carbon credits involves a series of stages. But let’s focus on the last three crucial steps that ensure the integrity of the credits, the process of trading them, and what it means to retire them. 

The verification process is critical for ensuring the accuracy, transparency, and integrity of reported project data. Verifiers have to confirm a project’s compliance with the carbon program’s eligibility criteria. They validate the collection of project monitoring data as per program requirements and verify the accuracy of emissions reduction calculations based on approved methodologies.

After a project has undergone the verification processes, it becomes eligible for registration within the program. In other words, the credits they generate are now available for trading. 

Carbon credit trading has become very popular today among individuals and organizations and various carbon exchanges began to emerge. This is happening for a simple reason: Reducing GHG emissions is a global initiative and the carbon market offers great opportunities for entities seeking to cut their emissions.

You can buy or trade carbon credits for retirement purposes through various platforms. There are a couple of online carbon credit marketplaces and spot exchanges to choose from. 

Here are the top four carbon exchanges this 2024 that you can consider. You can also try popular marketplaces like the one that Salesforce launched or that of Alcove’s.

Lastly, let’s move toward the end goal of carbon credit trading – retirement. 

The Retirement Process Explained

Carbon credit retirement also means their death. 

A carbon credit is retired once its benefit has taken place. That means it has been used and the carbon benefit it represents has been claimed by the entity that bought it. 

Retiring your carbon credits requires you to ensure that they are removed from the marketplace and labeled as ‘retired’ in any records or registry. The retired credits must serve their emission reduction purpose only once to prevent double counting. 

Take note that retirement only occurs once the impact has happened. This means retiring your carbon credits depends on what type of credit you purchase. 

If you’ve bought ex-post carbon credits, you can retire them right after your purchase. You can then instantly get the proof of retirement.

For ex-ante and pre-purchase carbon credits, retiring them won’t happen immediately after you bought them. That’s because their impact hasn’t yet occurred and their retirement should be in the future. You should know when the timeline would be from the seller or the marketplace where you purchase the credits. It may take months or even years, depending on the specific project you invest in.

Impact and Benefits of Retiring Carbon Credits

By buying carbon credits, entities help fund efforts that support decarbonization elsewhere. These initiatives often yield positive benefits to the environment and local communities. More importantly, each credit retired helps quantify the actual environmental impact of those projects.

When it comes to the impact of retiring carbon credits on investors, be it individuals or companies, it has two major effects. 

First, it preserves the integrity and effectiveness of emission reduction projects. It prevents double counting or reusing of the credits by multiple entities. This further guarantees transparency and accountability in the carbon markets. 

In effect, carbon credit retirement instills confidence among companies regarding the impact of their purchases or investments. 

Thus, secondly, retiring carbon credits helps build a good reputation and enhance brand value of your company. Take for instance the case of large businesses supporting various carbon reduction projects.

Giant technology companies like Microsoft and Apple have been investing millions in carbon offsets from projects that either reduce or sequester carbon from the atmosphere. 

As they do that, they’re not only addressing their emissions but also dealing with their corporate sustainability. 

The Role of Carbon Credits in Corporate Sustainability

So, how do carbon credits become the new currency of ESG investing to meet environmental obligations and corporate sustainability? 

READ MORE: ESG Investing with Carbon Credits – What Investors Need To Know

In the U.S., the coin of the realm is dollars while in the EU, it’s Euro. In the ESG world, it’s the carbon credit. Carbon credits are taking a small space on the ESG goals of businesses. 

But as more companies are pledging to reach net zero, these credits are also gaining more momentum in ESG investing to ramp up carbon emission reductions. And slashing emissions has now become a critical element of corporate and environmental responsibility to help fight climate change. 

Corporations use carbon credits to reach their net zero, carbon neutrality, or carbon negative goals. As such, research firms estimated that the carbon market will grow as much as 30x more by 2030. If that happens, the market will be as huge as the NASDAQ stock market by the decade’s end. 

According to the independent firm Katusa Research, the overall carbon market (compliance and voluntary) could be on equal footing as the oil market.

Source: Katusa Research

The burning of fossil fuels emits carbon dioxide, contributing to climate change. Different corporate climate goals mean different things. 

Achieving carbon neutrality means balancing emitted and removed CO2. Daily actions like driving emit CO2, but walking or using renewables can reduce it. Carbon credit offsets fund CO2 removal projects. 

Carbon negative goes beyond neutrality, removing more CO2 than emitted. For instance, Microsoft aims for carbon negativity by 2030, promising to remove all emissions since its founding. H&M and Ikea also strive for “climate positive,” akin to carbon negativity efforts. Their strategies involve sustainability investments and reduced emissions.

Best Practices in Carbon Credit Retirement

Now, that you know how carbon credits work, the importance of retiring them, and the processes involved, there’s one more thing left to keep in mind. What are the best practices to follow when retiring carbon credits?

We summarize them in two essential points: selecting the right carbon credit projects and transparent reporting of the retirement. 

As mentioned earlier, there are plenty of projects generating carbon credits. There are 170+ of them as per the Ecosystem Marketplace report. 

So, you must choose the ones that suit your purpose very well. If you’re into nature-based initiatives, you may pick from the different forestry and land use projects, i.e. REDD+. But if you’re operating in the power sector, you may want to go for renewable energy such as supporting solar or wind projects.

Regardless of your choice, be sure to be informed of the existing standards and methodologies for that project. This is crucial so that your carbon credit investment would count by actually reducing emissions. That entails being transparent in reporting your retirement. 

Transparency is one of the biggest concerns plaguing the carbon market right now. Questions were raised as to the effectiveness of carbon projects in delivering their emission reduction promises. This caused a rapid decline in voluntary carbon credit prices, particularly the nature-based offsets. 

Yet, current and future innovations in carbon credit markets show that they are here to stay and will continue to play a significant role in curbing GHG emissions. 

The Future of Carbon Credits

Recent innovations such as the launch of insurance products that protect carbon credits indicate that the market is heading in the right direction. Application integration like the case between Alcove and Shopify is another important market development that tackles transparency in credit retirement.

The use of blockchain technology is also considered a solution to make carbon credit retirement easier to track. Add to this the big players entering the market to further address transparency in tracking the lifecycle of each credit. For example, the NASDAQ exchange launched an innovative technology to revolutionize the industry.

Nasdaq’s new approach uses smart contracts for secure transactions and promises to bring much-needed standardization to attract investors​​.

Moreover, announcements by countries to integrate carbon markets into national registries also suggest that trading and retiring carbon credits would become the standard in curbing emissions and fighting the climate crisis.

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