New CO2 model proposed by FSR – Danish auditors and Copenhagen Economics

New CO2 model proposed by FSR – Danish auditors and Copenhagen Economics

August 17, 2021

In mid-July, the EU Commission set out a range of ambitious initiatives aimed at reducing greenhouse gas (GHG) emissions in the EU to support the goals agreed by member states.

The capture and permanent storage of GHG emissions from energy production will be crucial to addressing the climate issues highlighted by the EU Commission.

We believe that a critical factor for the success of Carbon Capture and Storage (CCS) is the development of verifiable and credible standards for CCS certificates. Such certificates will allow operators to invest in the whole value chain created by the capture and storage of greenhouse gases based on the revenue stream they can get from these certificates.

We have identified two objectives that are of particular importance:

  • The company responsible for emitting the greenhouse gas should be allowed to use external operators to meet their CCS needs. In other words, ownership of all parts of the value chain is not mandatory to get credit for the storage of the GHGs produced in that chain. This will enable a new type of specialised operator to set-up facilities that can capture and store greenhouse gases and sell a certificate to a firm certifying that their emissions have been removed from the atmosphere. In turn, the purchasing company would be able to reduce its base for paying carbon taxes corresponding to the number of certificates it buys, either in the form of the EU ETS system, that explicitly allow such offsets, or in the context of national carbon taxes for companies not covered by the ETS.    
  • It is essential that such a certificate could be traded between EU countries. This would allow a company to seek a CCS solution in another (EU) country, were that to prove the most cost-effective solution. Furthermore, it would allow companies to develop solutions not just within their own borders, but on a wider European and, ultimately, global scale.

Representatives from FSR, the Danish auditing profession, together with a team from Copenhagen Economics, have published an article in the main Danish Auditing magazine describing how such a mechanism could look like and how the verification of the mechanisms could, in the future, be integrated in carbon pricing mechanisms either as ETS or national carbon prices.

For any questions on the report, please contact Partner Helge Sigurd Næss-Schmidt.