As Bitcoin approaches the hundred thousand dollar mark and Nvidia makes record profits, another topic deserves attention this week: COP29, the UN climate conference in Baku. In the technology and crypto world, the climate discussion is often seen as set in an alternate universe of stubborn school objectors and shag-smoking hippies wearing leather sandals in hemp pants. Yet that is where the greatest technological challenge of our time plays out: how does humanity remove the CO₂ already present in the atmosphere?
Days after COP29 was due to end, two agreements were reached in the extension: an agreement on a far too low amount that rich countries will pay to poor countries for compensation for damages suffered($300 billion seems like a lot, but is far too little for this problem) and an agreement on the general rules for launching carbon trading markets, better known as carbon credits, almost a decade after the idea was first proposed.
The agreement allows countries and companies to trade credits for reducing carbon emissions to offset their carbon footprint.
The carbon trading mechanism was first formally described in the COP21 Paris climate agreement in 2015, as a way for polluters to pay other countries to reduce emissions on their behalf. But it has proved controversial because of concerns that it will not result in the promised removal of carbon from the atmosphere.
Rich countries responsible
Poor countries are right when they accuse rich countries of not bearing enough responsibility. Since the industrial revolution, mainly Western economies have contributed to the emission of over 2,200 gigatons of CO₂, triggering global warming.
At the same time, poorer countries, often located around the equator, bear the brunt of climate change. Extreme heat waves, droughts, floods and more powerful hurricanes cause deaths, famines and destroyed infrastructure, especially in vulnerable countries. It was therefore to be expected that a group of poorer countries would leave the climate conference furious, as happened yesterday.
Rich countries are therefore obliged both to combat warming and to compensate for the damage done to poor countries. That leads to the questions of how much to pay, on the one hand, in compensation and, on the other, in investing in solutions that prevent global warming.
Climate activists are partly right
Climate activists argue that the only solution is to immediately stop using fossil fuels, the largest source of carbon emissions, and that limiting them is crucial to prevent further warming.
Moreover, they stress that investing in renewable energy is cheaper in the long run than repairing the damage caused by climate change. Quitting fossil fuels also offers important health benefits, such as reduced air pollution and lower medical costs. According to climate activists, immediate action is essential because every ton of CO₂ avoided reduces the likelihood that the temperature increase will exceed the critical 1.5-degree limit.
These demands are logical and justifiable, but completely ignore the fact that an immediate transition to a completely fossil-free world is not realistic. Of course, stopping CO₂ emissions as soon as possible is eminently important, just as stopping the faucet is useful when you want to drain a swimming pool.
But even if humanity were to stop all CO₂ emissions from tomorrow morning, it "only" means that no fifty gigatons of CO₂ emissions would be added annually; but even then, the historical burden of 2,200 gigatons in the atmosphere would remain unchanged. Without removal of that CO₂, warming will continue to exceed the 1.5-degree limit, with all its consequences.
I've been working at the intersection of sustainability and technology for almost a decade now, and I'm still looking for the first meaningful plan from an environmental or climate activist that shows a plan of action for the removal of that 2200 Gigatonnes. The only repeating sound is "stop emissions and plant forests. But that's not realistic and it doesn't make enough progress.
Fossil fuels still necessary
It is both economically and technically impossible to achieve a completely carbon-neutral world within a few years. Fossil fuels are the backbone of the global economy and are unfortunately still indispensable.
Renewable energy is growing rapidly but cannot yet fully meet current global energy demand. In addition, means of transportation such as aircraft, ships and trucks remain largely dependent on fossil fuels.
Low-income countries rely on cheap energy sources such as coal to enable their economic growth, making a sudden transition to renewable energy especially complex for them.
Moreover, in many regions, the infrastructure for renewable energy is not yet sufficiently developed to be widely deployed. Abruptly stopping fossil fuels would therefore lead to economic instability, massive unemployment and energy poverty, especially in the vulnerable countries most under pressure.
In Asia, for example, people react with dismay to arguments, mainly from Europeans, that canonize the train as a mobility solution: of course it is a fine alternative to air travel within Europe, but how do you take the train between the thousands of islands in Indonesia and the Philippines? Not to mention a commuter train between, say, Sydney and Hong Kong.
Five billion Asians don't want a cargo bike
It is often forgotten in the West, but Asia has nearly five billion inhabitants compared to about seven hundred and fifty million Europeans and less than four hundred million inhabitants of North America. You wouldn't begrudge your worst enemy a cargo bike ride across a rolling rice field in forty degrees and eighty percent humidity, would you?
During the first day of COP29, a major breakthrough was announced in the area of carbon credits, the common term for carbon credits where one carbon credit equals one thousand kilograms of CO₂ emissions. This system allows companies, as well as countries such as Singapore and Peru, to pay for projects that avoid, reduce or remove emissions.
In Baku, agreement was reached for the first time on a very vague standardization of these credits, described by the Financial Times as a kick-start for the carbon credit market, increasing transparency and reliability. But years of further detailing (read: negotiation) will be required before a functioning global system can emerge.
Differences between carbon credits crucial
Without better standardization and quality control of carbon credits, all kinds of fraudulent projects and junk credits will remain in circulation. Because there are three totally different types of carbon credits that need to be properly distinguished from each other:
- Avoidance Credits: these are issued for preventing CO₂ emissions, such as by stopping deforestation or handing out brick kilns in Africa. Often these projects turn out to be totally useless.
- Reduction Credits: these reduce CO₂ emissions, such as by implementing more efficient technologies. Think solar panels or wind turbines. Fine to do, but why does emitting less CO₂ deserve a bonus in the form of carbon credits?
- Removal Credits: these are credits issued for actually removing CO₂ from the atmosphere. This is the necessary Holy Grail.
For example, Direct Air Capture uses machines to extract and store CO₂ directly from the air. This solution is still very capital intensive, and the question is whether it is the most efficient technique, measured by energy consumption and capital requirements.
Reforestation offers natural absorption of CO₂, although it comes with risks such as deforestation. For example, forest fires are still frequent, precisely because of global warming, and not all forests turn out to be planted as expected. In addition, they often turn out to be less effective than hoped and expected.
Biochar converts biomass into stable carbon that can be stored for centuries, while Ocean Alkalinity Enhancement treats oceans so they can absorb more CO₂. The greatest potential is most likely in these types of methods used by the oceans, such as that of the Dutch SEA02.
Carbon removal credits fund crucial technology
Because while climate activists see all carbon credits as a license for companies to continue their emissions, the role of removal credits is invaluable. These credits make it financially possible to develop the aforementioned technologies, see the example of Microsoft and Royal Bank of Canada, so that those 2200 Gigatonnes of CO₂ can actually be removed from the atmosphere.
Environmental movements are focused on ethics and activism and lack the ability to assess technological innovations, let alone the economic scalability of those solutions. A striking example of this is the rise of Tesla and the global transition to electric vehicles initiated by Tesla's success.
Example: Tesla
In 2010, no prominent environmental activist would have predicted that Tesla would become the driver of a massive shift to electric mobility. Back then, Tesla was selling less than a thousand cars a year.
Then we look at last month: 1.43 million so-called "new energy vehicles" (NEVs) were sold in China in October alone, up 50 percent year-on-year, setting a new single-month sales record. Nearly 10 million NEVs have already been sold in China this year, up 34 percent from 2023.
Of these ten million vehicles, about 60% had all-electric propulsion, or a fuel cell: that's six million new cars driving around with zero carbon emissions. This unprecedented transition was driven by market forces, technological innovation and strategic government investments(yes, including Tesla) including tax breaks; not activist predictions.
In the last five years, Tesla shares rose nearly 1500%. This shows that there is an investment model for innovative technology. Assessing the possible solutions to remove CO₂ from the atmosphere should be left as much to climate activists as to politicians busy winning votes or oil and gas company executives dreaming of their bonus at night, rather than a livable world.
Academia and the venture capital industry, especially the segment dedicated to financing technological innovations, have the specialists to make the right trade-offs. But where should the money come from for these investments?
CO₂-load possible solution
Introduction of an annually gradually increasing tax on CO₂ emissions could lead to a structural solution, provided that the proceeds of a "carbon tax" could be used to invest in CO₂ removal technology and fund a compensation fund for the poorer, hardest-hit countries.
The climate crisis requires action on all fronts. It is time for rich countries, corporations and activists to work together on a realistic and comprehensive plan that both stops emissions and repairs historical damage.
For anyone interested in this complex topic, Tracer publishes a free weekly newsletter on LinkedIn, in which, to be fair, I also contribute to.
