Human

The key to reducing carbon emissions

 By Andrew Burger

Petroleum and natural gas exploration, production and refining businesses are under the gun to reduce greenhouse gas (GHG) emissions amidst increasing local, national and international pressure in the wake of the UN climate change accord agreed to in Paris this past December. Market-based mechanisms, such as emissions reduction credit markets, are considered among the most effective and most equitable means of doing so…

(Cover illustration by www.startribune.com)

Petroleum and natural gas exploration, production and refining businesses are under the gun to reduce greenhouse gas (GHG) emissions as average annual global temperatures set record highs and local, national and international pressure increases in the wake of the UN climate change accord agreed to in Paris this past December. Market-based mechanisms, such as emissions reduction credits, are considered among the most effective and most equitable means of doing so.

Persistently low market prices and the push to reduce greenhouse gas (GHG) emissions has led utilities in the U.S. to increase their investments in new natural gas-fired power plants. Seen as a bridging fuel on the way towards a clean energy future, natural gas-fired power generation rose to 33% of a total 4 trillion kilowatt-hours (kWh) of U.S. electricity generation in 2015.

Natural gas-fired power generation poses a variety of risks and threats ranging from the chronic to the catastrophic, however. Natural gas is mostly methane, a greenhouse gas with a Global Warming Potential (GWP) 84-times that of CO2 over a 12.4-year period. In addition, methane helps create ground-level ozone pollution and urban smog that’s toxic to plants and crops and causes respiratory problems, from asthma to heart attacks, in humans.

Detecting methane leakage

Introducing Carbon Credit Put Options

Complicating matters further, no one is really sure how much methane we are pumping into the atmosphere. In recent years researchers have used new, improved mobile gas detectors to sniff out methane emissions and leaks at production well sites, along natural gas pipelines, and across networks of underground distribution lines in major U.S. cities. What they have found is disconcerting – methane leaks are a lot more common and emissions much higher than has been believed or reported.

In concert with the UN, the World Bank Group has taken on a leading role in financing projects and creating market-based mechanisms to reduce methane emissions in developing countries. In May, the multilateral development bank auctioned $20 million worth of UN climate funds in the second of a series of innovative pilot online auctions organized under the World Bank Pilot Auction Facility (PAF) for Methane and Climate Change Mitigation.

Ranging from multinational corporations to small, local businesses, 21 qualified participants from 12 countries bid to buy carbon credit put options in the form of bonds that give owners the right, but not the obligation, to sell carbon credits realized from methane emissions reduction projects in developing countries.

World Bank Pilot Auction Facility (PAF) for Methane and Climate Change Mitigation

Bidding down the premium they would pay from an initial price set by the auction manager, the nine winning bidders wound up paying $1.41 per carbon credit for the right to sell them back to the PAF at $3.50/credit before 2020.

In sum, the projects the auctioned credits help fund could result in methane emissions reductions equivalent to 5.7 million tons of CO2, or the equivalent of removing some 1.2 million passenger vehicles off the roads for one year.

The World Bank intends to expand PAF’s scope and scale. Only landfill, animal waste and wastewater projects were eligible in the second auction. World Bank staff aim to extend the program to encompass methane emissions reduction projects in the oil and gas sector.

about the author
Andrew Burger
Andrew Burger has been reporting on energy, technology, political economy, climate and the environment for a variety of online media properties for over five years.