The Carbon Takeback Obligation – what it means for fossil fuel producers

Dominique Barker: Welcome to The Sustainability Agenda, a podcast series focusing on the evolving complexities of the sustainability landscape with a view on addressing current issues in a concise format to help you navigate and take action. I’m your host, Dominique Barker. Please join me as we explore today’s most pressing matters with special guests that will give you some new perspective and help you make sense of what really matters. Today. We welcome Professor Myles Allen, who studies and teaches climate at the University of Oxford. He was a coordinating lead author on the Intergovernmental Panel on Climate Change, or IPCC Special report on 1.5 degrees in 2018. Myles also serves as director of the Oxford Net Zero Initiative, and we got his referral from Eli Mitchell-Larson, where we hosted a podcast last summer on carbon removal policy. We’re also joined by Jane Savage. She’s co founder of Producer Accountability for Carbon Emissions or PACE. She’s got 37 years of experience in the Canadian energy industry, and she’s a consultant based in Hamilton, Ontario. On today’s episode, we’re going to be focusing on the carbon takeback obligation. It’s a concept that places the responsibility for the safe and permanent disposal of CO2 onto companies that extract or import fossil fuels. We’re going to explore the economic implications for the global fossil fuel industry and the opportunity for an affordable and low risk route for net zero emissions. Good afternoon, Myles and Jane, thank you very much for joining us today.

Myles Allen: Afternoon.

Jane Savage: Good afternoon.

Dominique Barker: Myles, let’s start with a bit of a background on the carbon takeback obligation. We always like a bit of a setup. Could you give us a little bit of information about what it is and how it’s come to be? And I understand that there’s been a recent report out of the UK that is applicable. Maybe you could just give a bit of an overview on that as well.

Myles Allen: Sure. Well, the idea really comes out of the original physical research we did, establishing the need for net zero in the first place. The point about net zero is that we cannot continue dumping carbon dioxide in the atmosphere indefinitely. Every tonne we put in the atmosphere drives up global temperatures. So the only way to stop global warming is to compensate for any further production of carbon dioxide by burning of fossil fuels with permanent safe carbon dioxide disposal. So we have to stop dumping it in the atmosphere and put it somewhere else. And the idea of the carbon takeback obligation really originated from this observation and us asking ourselves, okay, how can we drive up that fraction of carbon dioxide that we safely dispose of, which is currently about 0.1% globally? We’ve got to get that to 100% to stop global warming. How do we drive that fraction up? And the idea of the carbon takeback obligation is really could we just essentially ask the industry to do it? And the report you just mentioned, actually, we’ve been sort of plugging away at this general concept for a while, but I was particularly excited to read in Chris Skidmore review of the UK’s net zero strategy because in that review, so this was a review that was commissioned by the short lived Liz Truss government and everybody rather panicked at the idea of the Government doing a review of our net zero goal and they thought maybe they were going to backtrack on the whole thing. Well, if that was the plan, it backfired horribly because basically he’s come up with a really strong report. And in this report, crucially, he acknowledges the need for geological net zero.

Dominique Barker: Geological net zero. That’s not a term that we’re familiar with in Canada. Could you just explain what that is?

Myles Allen: Well, you may not be familiar with it now, but you will be familiar with it soon, I hope. Basically, geological net zero means a balance at the Earth’s surface. So a balance in the geosphere, if you like, that every tonne of carbon we extract from the geosphere is balanced by a tonne of carbon dioxide or the carbon content of a tonne of carbon dioxide being put back because a lot of for a lot of people the phrase net zero has come to mean sort of greenwash and blather and excuses for planting trees and saying your carbon neutral, even though you’re still flying around the world in your private jet. And a lot of people kind of see through that and realise that the basic idea of turning rocks into trees, which is what you’re doing in that situation, obviously can’t last. So if we’re actually going to keep using fossil fuels, we need to be ramping up the fraction of the carbon content of those fossil fuels that we put back underground. And the fact that Chris Skidmore has come out very strongly saying, Yep, we need to get to geological net zero, we can’t just rely on the biosphere to mop up our fossil carbon emissions forever is extremely strong because this is, you know, there’s a UK politician, he’s a very well respected politician and this is a review that was commissioned by our government. So it’s going to be very hard for the government to ignore its findings.

Dominique Barker: Very interesting. So we’ll include that Skidmore review of net zero in the show notes, because that sounds like it could be an important development in the UK.

Myles Allen: Be great if some other countries could acknowledge the need for geological net-zero as well.

Dominique Barker: Jane, turning to you, what is PACE and why are you advocating for the carbon takeback?

Jane Savage: Yes, thanks very much Dominique. PACE was founded by a group of executives who worked in the oil industry their whole careers in Canada, and the United States. And we got together to think about climate change, and we kept coming back to one thing that we know, and that is that not only could the fossil fuel industry solve the problem we’re facing, but they should. It’s the production and burning of their products that’s brought us to this kind of critical moment. And that’s where our name, Producer Accountability for Carbon Emissions, came from. You know, producers have developed engineering know how, and they have the financial resources to mitigate climate change, but have importantly up till now lacked the business case to mobilise that know how. And we get that we understand it. So to create a business case, companies who produce fossil fuels really have to be compelled to pay for the harmful effects of their products or stop producing them. So the carbon takeback obligation is a particularly well developed piece of policy that we at PACE advocate for, which does just that. It puts the onus on the extractor of fossil fuels to permanently store the carbon dioxide associated with their oil and gas production.

Dominique Barker: So it’s about the fossil fuel producers really taking on the full responsibility for carbon.

Myles Allen: Can I just sort of interrupt to add to that?

Dominique Barker: Yeah.

Myles Allen: Which is it’s not just talking about the when we say the carbon dioxide associated with their oil and gas production, it’s not just what they produce themselves. The vast bulk of the carbon dioxide associated with their production is the stuff contained in the products they sell.

Dominique Barker: Right. So Scope three.

Myles Allen: Ultimately, we need them to take responsibility for that as well, because people panic at this point. And so how on earth could we do that? Well, you don’t need to do it tomorrow, but you certainly need to be doing it by 2050.

Dominique Barker: So, Jane, if we turn back to you, is this what you’re saying would seem to require a lot more CCS or carbon capture and storage technologies. How do you see those technologies evolving in the fossil fuel industry? And how does carbon takeback differ from other policy proposals?

Jane Savage: Yeah, thanks. I think the technologies are largely in place, to be honest. I think it’s a question of deployment of those technologies and to have and the motivation to deploy those technologies. So yes, they’ll evolve over time as companies get practice in CCUS, and there’s a lot of that going on right now. The carbon takeback is a different kind of a policy than what most governments are thinking about right now. Right now, most governments are thinking about demand-side policy. That is policy that either takes away demand for fossil fuels or just limits its use. So demand-side policy is good and great, but we don’t think it’s going to get us there fast enough. And it also has very wide range of possible outcomes. We’re concerned that the back end of the supply chain, if you will, is not the effective place to do this. So we need quicker to meet net zero by 2050. It has to be quicker and it has to be effective. And so the carbon takeback is a supply side policy that does that, that gets after the issues of emissions in a sort of predictable and effective way.

Dominique Barker: And so, Myles, maybe I could just turn to you. One of the interesting parts of the carbon takeback is that it could spread the cost of removals over the volume of fossil fuel sold. You mentioned the scope three, where it’s actually burned, making it more economic. Could you explain that further and explain the status of the project?

Myles Allen: Sure. So I mean, anybody using fossil fuels today and anybody benefiting from fossil fuel use today, which of course includes people who are making money, selling them and processing Amazon is through their activities, eating into our remaining carbon budget and therefore should be contributing to dealing with the problem by ramping up our ability to dispose of carbon dioxide. Because one thing’s for sure we are going to generate more carbon dioxide than we can afford to dump in the atmosphere. So we will need to build this carbon dioxide disposal industry by mid-century. The only real choice is who’s going to pay for it. The crux of the carbon payback obligation is the idea that everybody using fossil fuels today should partner up and pay to build that disposal industry. So in that it’s different from most incentives for CCS and most obligations for CCS at the moment, which targets very specifically heavy and missing industries and say for example, in Europe we have an emission trading system. And the idea in there is that you, you really focus on your high emitting industries, which are the emission trading system only covers some of our emissions. I think still less than half of our emissions and it’s mostly the heavy emitting industries. And so we’re in effect requiring those industries to start to think about doing CCS. They’re not mostly doing it yet, but we’re sort of forcing them to do it. And that’s if you like. It could be seen as a bit unfair. Why should a steel producer, just because they’re a single source of CO2, have to get rid of it when the whole raft of car drivers who are still generating CO2 and putting it in the atmosphere get away scot free. So the idea of a carbon takeback obligation, it places the obligation upstream at the point the carbon comes into the economy. And so you spread the cost over everybody who’s benefiting from the continued use of fossil fuels, which is the right thing to do.

Dominique Barker: Hmm. That’s interesting. That makes sense. Although I suppose it will make everything more expensive and could add to inflation.

Myles Allen: The reason we have inflation at the moment, predominantly or certainly in Europe, is because of high energy costs. And the reason we have high energy costs is because of a mismatch between supply and demand. So we’ve got persistently high demand and and shortages of supply. Now, one of the reasons we may have shortages of supply in the future and more energy price spikes is if we don’t find enough non-Russian fossil fuel supplies to satisfy demand in ten or 20 years time. And in that respect, some people will say it’s a good thing that governments all over the world are running around and looking for new fossil fuel resources in response to these high prices. But of course, they’re doing that without any reference to the climate consequences. And so there’s a risk there. We could end up with all this new fossil fuel infrastructure and that being incompatible with meeting our climate goals. On the other hand, if you have a carbon takeback obligation in place, then you link new supply with disposing of the carbon dioxide. So that makes it safe to explore for new supply because you know that the CO2 will be dealt with, will be disposed of. It won’t just all end up in the atmosphere. So that’s what governments should be doing, is tying rather than just being embarrassed about bringing on new supply, which is what most of them are at the moment. They should be tying it directly to dealing with the CO2 problem and if they did that, then we might avoid some of these mismatches between supply and demand in the future, and it might even result in lower fossil fuel prices in the long term.

Dominique Barker: And just to clarify, for imports of oil where they don’t necessarily have a takeback obligation, would the UK, for example, put on a carbon border adjustment?

Myles Allen: Well, all you’d impose the takeback obligation on the importer.

Dominique Barker: Right. Okay.

Myles Allen: Obviously, you don’t want to discriminate against your domestic producers. So same rules have to apply to everybody. Anybody bringing carbon into the economy, whether it’s out of the ground or in through a pipe, needs to satisfy the takeback obligation.

Dominique Barker: Okay. And then, Myles, your study on carbon takeback concludes that it’s an affordable and low risk route to net zero emissions, particularly if complemented by conventional measures to reduce near-term fossil fuel demand, which I think Jane spoke to earlier. And I think you’ve just touched on a little bit, but does the current global energy crisis alter your thesis at all?

Myles Allen: No. In fact, I think that paper was very much in response to the current energy crisis. We have this trilemma at the moment. Governments are faced with what they think is a choice between energy security, energy affordability and environmental sustainability. And basically, given that choice, they seem to be dumping the environmental sustainability at the moment. Now, what a carbon bag would offer is a way of making fossil fuel use safe for the climate and therefore allow governments to focus on ensuring secure and affordable supply without worrying about the fact that they might be causing catastrophic climate change.

Dominique Barker: Thank you, Myles. Jane, maybe just turning to you, how will the carbon takeback affect oil and gas producers already working to reduce emissions? And I guess I’d end with asking what advice would you give to the oil and gas producers?

Jane Savage: All right. Okay thanks. There is a lot of work going on in Canada around emissions reductions and on the voluntary side, where there’s an understanding of the need to do that and for competitiveness and other things. But this obligation, make no mistake, is not voluntary, it’s not trivial, and it’s going to require significant deployment of human and financial capital. The important thing here, I think on the advice side, if I may, to oil and gas producers is to learn about the CTBO carbon takeback obligation, this particular policy option, and in particular the intense level of predictability it supplies to their business planning. So this is a very chaotic environment we’re in right now for oil and gas producers. This is hard work. This super hard.

Dominique Barker: Yeah, that’s a fair point. We hear that a lot.

Jane Savage: Yeah. We don’t know what the demand destruction is going to look like over time. It’s very hard to predict. It’s very hard to do strategic planning around capital deployment, human deployment and resource deployment in general. But this CTBO provides a framework, a regulatory framework within which to work over the next 20, 30, 40, 50 years that will provide opportunities for switches in business or profit streams. The opportunities are really quite endless. Climate change is not only a threat, and I think this CTBO really puts that into into focus that we can actually do something here. Corporations can think strategically and the best ones will do very well out of it.

Dominique Barker: And Myles, when you said in our opening remarks, you said if you haven’t heard about it, you will in Canada. Is that because as Canadian producers, as suppliers of energy to the UK, or do you expect our policy to change? Because what is really striking for the audience to understand is that it’s the Conservative government through the Skidmore review in the UK that is asking for what did you call it, geological net zero. When you made that comment, just curious what you meant by that.

Myles Allen: Well, I mean, Canada is a country that prides itself on its climate ambitions. It’s also a major hydrocarbon and coal producer. I think Canada needs to recognize that to stop causing global warming, you need to get to geological net zero. That’s a physical fact. That’s nothing to do with which country you’re in or what policy you’re subscribing to or even what party you vote for. That’s just the way the world works. So I think we are going to have to start getting Canadians minds around this, of this fact and the fact that also, as Jane says, many things are uncertain. But one thing I could predict with certainty, we will be using fossil fuels after the date we need to stop global warming. You know, we’re not going to stop global warming by stopping using fossil fuels entirely. So we need to stop those fossil fuels from causing global warming. And the only way to do that is safe and permanent disposal of the carbon dioxide they produce, which is what it takes to get to geological net zero.

Dominique Barker: Well, this has been a really enlightening conversation. Thank you, Myles and Jane, for taking the time to join our show today. And thank you very much to our audience for listening. Please join us next time as we tackle some of sustainability biggest questions, providing different perspectives to help you move forward. I’m your host, Dominique Backer, and this is The Sustainability Agenda.

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