Month: February 2023

Europe bets on homegrown carbon removals

The EU has set its sights on carbon removal projects. Developing local carbon sequestration capacity and market trust through harmonisation and transparency is the central aim of the Proposal for Establishing a Union Certification Framework for Carbon Removals recently adopted by the European Commission (EC). 

This shouldn’t come as a surprise considering EC’s rollout of the European Green Deal in 2019, which outlines a vision to reach carbon neutrality as a continent by 2050. This feat will require not only dramatically reducing most of its greenhouse gas emissions year after year but significantly scaling up atmospheric carbon removal, required to balance out hundreds of millions of tons of residual, hard-to-abate CO2 emissions.

To date, relatively few carbon projects have been developed on the continent. As of December 2022, less than 1% of all carbon projects listed by four major voluntary offset project registries are located in the EU (see image 1). The Union’s latest move hopes to change that by spurring investment and trust in local carbon removal.

It is expected that more carbon removal credits from local projects will become available and procurement more streamlined once a robust network of third-party verifiers and standardised quality criteria is established.

Image 1: Berkeley Carbon Trading Project’s Voluntary Registry Offsets Database. Version 7 contains all projects, issuances, and retirements through 31 December 2022

Current scenario with carbon removals

While projects that can remove atmospheric carbon already exist, they are still unavailable to most market participants due to high cost, limited supply, and uncertainty around nascent technologies. Despite these factors, leading standard-setting bodies such as SBTi still assert that carbon removals are the only way to neutralise residual emissions. 

Even though removal technologies such as direct air carbon capture (DACC) have been around for years, the entire removals market is still in its early stages. Most operating projects still fall into the avoidance or reduction categories. According to Carbon Direct, only 3% of projects exclusively issued removal credits in 2021, while 13% issued a mix of removal and reduction credits. Why?

In spite of these concerns, demand for carbon removal is expected to grow, driven by a variety of pressures coming from investors, consumers, and legislation. To bridge the gap, massive investment is needed.

Europe’s steps toward a reliable carbon removal market

EC’s adoption of the first EU-wide voluntary framework to reliably certify high-quality carbon removals is an ambitious move. It serves as a foundation to build the carbon removal equivalent of the EU’s integrated framework for issuing, holding and transferring Renewable Energy Guarantees of Origin (GOs). 

Today, GOs are bought, sold, and retired to make reliable decarbonisation claims in a relatively straightforward process due to a system that guarantees credit quality, comparability and security for both renewable project developers and GO buyers. This environment has boosted unprecedented investment in renewables, adding record capacity to the European grid. The European Union is hopeful the same can be achieved with carbon removals in the near future. 

The framework aims to increase the level of trust in the European carbon removal market. Establishing a standardised certification system across member states is expected to attract developers and increase local carbon removal capacity and supply of high-quality removal credits. More precisely, a network of third-party verifiers will ensure that carbon removal credits entering the voluntary market align with the quality criteria laid out in the framework under the acronym QU.A.L.ITY.  

Before it can be implemented across the EU, the framework will need to be discussed and adopted by the European Parliament and the Council. True execution of this ambitious plan, however, will have to wait until its key building blocks are developed. Furthermore, the European Commission will need to:

It is only then that carbon removal projects will be able to apply for EU certification. These projects will need to be audited in order to verify compliance with the QU.A.L.ITY criteria before credit issuance. The compliant EU-certified credits will be registered in a public registry to make all relevant information publicly available, thus reducing the risk of double-counting. 

The success of this framework will depend on the thoroughness and accuracy of the methodologies that have yet to be put forth, as well as the integrity of the future certification system and its checks and balances.

What would the EU carbon removal certification system mean for carbon procurement?

If successful, an EU-wide carbon removal certification system will minimise the risk of greenwashing by way of harmonised enforcement of the QU.A.L.I.TY criteria across all member states. Today, procurement can be a heavy lift for corporates. Removal projects remain sparse, technologies new, and depending on how companies choose to contract for removals, delivery volumes may be uncertain. 

Some removal credits—particularly those from technology-based projects like DACC—are extremely expensive, and many of the potential quantification approaches are still under development. This is why much of carbon removal procurement activity today is led by market pioneers like Microsoft, Google and Meta, who are able to make substantial investments in nascent technologies. 

For the European Union to achieve its carbon-neutral goal, the removals market must grow and mature to accommodate a greater number of purchasers. The adoption of the EU framework is one key step to scaling the removals market and providing buyers with essential quality assurances, but it is only the first of many required steps.

Ensuring quality, market transparency, and a healthy supply of removal credits at an attractive price isn’t going to happen overnight, but once a reality, the established market will have the potential to streamline procurement and make carbon removals more accessible to corporates looking for impactful climate action.  


It will take time before carbon removal credits are as accessible as credits coming from reduction and avoidance projects. The EU, however, seems to be very aware of the challenges it faces on the road to net zero and has chosen regulation at the foundation of its local carbon removal market.

The Proposal for Establishing a Union Certification Framework for Carbon Removals is not a fully developed solution but rather an important first step towards increasing the supply of EU-based carbon removals while standardising credit quality and simplifying procurement.

The age of carbon removals is ramping up, and Europe is determined not to fall behind. 3Degrees continues to support clients in navigating the uncertainty in this rapidly changing market landscape.


U.S. renewable energy market: Pricing trends and projections for PPAs

2022 was an unprecedented year for global energy markets, with levels of volatility and uncertainty that the world had never experienced. In the past year alone, the market experienced cascading impacts from supply chain constraints, resource shortages due to the Russia-Ukraine war, as well as tariff and regulatory uncertainty. Any one of these factors would test energy markets and make renewable energy procurement challenging; but the convergence of all three resulted in a year full of surprises for those looking to procure renewables in the U.S. and globally. As we reflect on 2022 and look ahead into 2023 and beyond, we offer a few insights related specifically to the power purchase agreement (PPA) market for corporate energy buyers. 

U.S. Renewable Energy Market – 2022 in review

On one hand, 2022 was a banner year for operational PPA projects, as many local and global factors, such as those mentioned above, drove an increase in energy prices that resulted in large positive PPA settlements for offtakers. On the international stage, energy supply challenges caused by the Russia-Ukraine war drove up the demand for U.S. exports. Locally, increasingly hot summers and cold winters contributed to higher energy demand. These compounding factors led to the highest energy prices in recent history across nearly all U.S. wholesale electricity markets. 

Most prior projections for 2022 already anticipated higher electricity prices due to increasing demand and lagging supply, however, the actual prices (and thus PPA revenues) in 2022 far exceeded those forecasts. For those buyers with an actively operating project, this lucrative year can serve as a buffer for future uncertainty around the later years of the PPA contract, and can enable them to invest its unanticipated earnings in other renewable energy and emissions reduction initiatives as part of a larger climate goal.

U.S. Renewable Energy Market – 2023 and beyond

Looking ahead, while energy prices are projected to stay elevated over the next 2-3 years, this mainly benefits companies whose PPA projects are already operating or will come online during this near-term period. For organizations seeking to enter the PPA market now, the landscape looks a bit different – PPA prices have risen drastically, supply of projects is low, and contract terms are less buyer-friendly than in the past. Additionally, its questionable whether or not projects that are currently in the contracting process will begin operations within this 2-3 year window in which electricity prices are forecasted to remain high.  

The speed at which the PPA market shifted from being relatively buyer-friendly to being distinctly seller-friendly was a surprise for many in 2022. Given the continued high demand for projects from corporate buyers, it’s unlikely that these current market conditions will change anytime soon. 

Power Purchase Agreements largely came about as a mechanism for companies to procure renewable energy when there are limited local options that result in new renewables being added to the grid. For organizations that signed deals during the period of low PPA prices, these contracts have likely generated revenue, as an added, if unexpected, benefit. However, with those days behind us, the conversation should now refocus on how these projects can help companies meet their climate goals in a way that is more impactful, and possibly financially on par with, purchasing unbundled renewable energy certificates (RECs). 

In the longer-term (beyond 2-3 years), projections show that current high electricity prices will likely stabilize and eventually decline, as increasingly large quantities of low-cost renewables penetrate the electricity grid. This further validates the expectation that PPA contracts signed today are likely to be lower in projected value compared to contracts of the past. PPAs executed in 2023 or beyond will most likely result in a net cost to the buyer over the project term – and in most markets, this cost will likely be higher than the equivalent cost of purchasing unbundled RECs (see graphic below). In the recent past, ERCOT has been the most popular market for PPAs due to having the most attractive economics and relatively streamlined permitting and interconnection processes. However, other markets such as MISO and CAISO may start to regain traction as corporations look to diversify their portfolios away from the ERCOT market.

U.S. renewable energy markets prices

Figure 1: Projected Implied REC value ($/MWh) comparing forward purchases of unbundled RECs in 2025 compared to solar and wind PPAs across 5-6 ISO markets.

In this ever-evolving market, both future electricity prices and supply & demand for projects will ultimately determine and drive the value of PPAs going forward. While the Inflation Reduction Act (IRA) is expected to spur development of projects and therefore increase supply, increased demand from corporate buyers may continue to keep PPA prices high (thereby keeping expected financial values muted). Although we are hoping to see some increased stability in the PPA market this year, it is clear that PPA prices would not go back to pre-2022 levels. Overall, the only certainty is that the future is unpredictable, and, like trying to time the stock market, it is impossible to guess the “best time” to go to market for a PPA. 

While PPAs are not the best-fit option for all organizations, they remain popular since they continue to offer a impactful (i.e. new, local) renewables solution to address large, distributed electricity load. We’re already seeing some buyers pursue PPAs not only for the financial benefits, but also as an important tool to address their scope 2 emissions and meet their increasingly ambitious climate targets. We expect to see this trend increase in the coming years.

If you have questions about whether a PPA is right for your organization or are interested in PPA monitoring services, please feel free to reach out. We’re happy to help. Get in touch today

Our prediction: 2023 will be a big year for greenhouse gas accounting, reporting and target-setting for the financial sector

GHG accounting and target setting for the financial sector

Greenhouse gas accounting, reporting, and target-setting: Current state of play for the financial sector

For many years now investors have been requesting information on climate-related governance and risks from their investees, through means such as the CDP questionnaire. More recently, financial institutions – and their emissions, climate commitments, and performance – have started coming under the microscope.

The UN Principles of Responsible Investing’s membership increased 35% between 2021 and 2022 [1]. Additionally, over 550 companies are members of the Glasgow Financial Alliance for Net Zero[2]. These figures indicate that many financial institutions are now more committed than ever to playing their part in the transition to net zero through sustainable investment.

The reality on the ground is somewhat different though. At the end of 2022, only 47 financial institutions had their climate goals validated by the Science-Based Targets Initiative (SBTi), and of those, only 2 were headquartered in the US[3]. According to the Partnership for Carbon Accounting Financials (PCAF), only 107 financial institutions have reported their GHG emissions under the PCAF Standard[4]. This represents a tiny percentage of the global financial sector.

Challenges remain but guidance is coming out rapidly

Last October the Task Force on Climate-Related Financial Disclosures (TCFD) published the results of a 2022 survey[5] that sought to gain insights into financial institutions’ efforts to implement TCFD recommendations, including general challenges they faced in reporting climate-related information.

Through this survey, 57% of asset owner respondents and 71% of asset manager respondents cited a lack of methodologies to calculate GHG metrics as a challenge. Asset owners reported that it was the greatest challenge of all. This either suggests a lack of familiarity with the principles established by the Greenhouse Gas Protocol and PCAF, or difficulties in applying these principles to real-life financial arrangements. Different types of financial institutions may have struggled to apply the PCAF Standard as well since it was developed primarily for banks.

It was very timely then that in December 2022, PCAF launched the second edition of its GHG Accounting and Reporting Standard for the Financial Industry[6]. This came hot on the heels of the release of the first GHG Accounting and Reporting Standard for Insurance-Associated Emissions[7], so PCAF guidance now covers all major sectors of the financial industry.

Those of us who work in this space are also giddy with anticipation for the release later in 2023 of the Exposure Draft of the Science-Based Target Initiative’s Net-Zero Standard for Financial Institutions.  Once this Standard is published, the industry will have the required tools to accurately measure its financed emissions (using PCAF) and set appropriate targets (based on SBTi guidance).

Greenhouse gas accounting, reporting, and target setting for the financial sector.


Financial institutions play a critical role in the transition to a low-carbon economy

The latest IPCC report concluded that current financial flows fell short of the levels needed to achieve 1.5C pathway mitigation goals across all sectors and regions. Unsurprisingly, the challenge of closing the gap was the largest in developing countries, with the consequent environmental and social justice implications[8]. According to Bloomberg, global investment in the low-carbon energy transition is now on par with investment in fossil fuel projects[9].

However, three times that investment is required in order for us to reach net zero by 2050. 

In addition, many financial institutions have developed and are actively marketing “green” products (such as impact investing and ESG funds) or have issued “green” instruments, such as sustainability bonds. For these financial institutions, having robust science-based climate targets in place is a matter of market credibility (for more on setting credible climate goals, read our whitepaper). Money is fungible and consumers have an expectation that ESG products they invest in are not indirectly funding fossil fuel infrastructure, even indirectly. They increasingly want to know where their money sleeps at night and financial institutions need to be able to demonstrate that.

Given its size and its importance to the global economy, the financial sector must move quickly to close the gap between the status quo and alignment with a net zero future.

How 3Degrees can help your organization’s greenhouse gas accounting, reporting, and target-setting efforts:

We have supported a large number of climate leaders and financial institutions develop climate targets, create implementation plans, and select best-fit greenhouse gas accounting software to support the data collection process. In response to increasing interest from financial institutions in particular, we have developed two academies tailored to their unique needs that provide practical guidance on GHG accounting and target-setting.

With the imminent publication of the Exposure Draft of the first Net-Zero Standard for the financial sector, the SEC’s climate-related disclosure rule expected to be released in March and new regulations in the EU and the UK already in force, now is a great time to make a start on your journey to net zero. One of the many takeaways from our recent projects is that there are multiple nuances and differences between the various pieces of guidance, some of them hidden in footnotes, from which we can draw out the key takeaways for your financial organization.

Even though the Net-Zero Standard for financial institutions is still in development, the key guiding principles of the net zero concept are widely known and some of the technical criteria can be anticipated with a good degree of certainty, e.g., scope coverage and the use of carbon credits. Other reference frameworks are also available to guide companies along the way, such as the UN’s recent recommendations for companies setting net zero targets[10]. We know from our work with clients that the target-setting process can take anywhere between 6 and 24 months from kick-off to target validation, so act now – our planet does not have time to wait. 

For guidance on how to account for GHG emissions and design a credible climate strategy, get in touch today


[3] SBTi
[4] PCAF “Financial Institutions Taking Action”
[5] TCFD 2022 Status Report
[6] PCAF announcement
[7] PCAF Insurance-Associated Emissions
[8] The IPCC AR6 Summary for Policymakers
[10] UN High-Level Expert Group on Net-Zero Commitments of Non-State Entities