The world's first 'carbon-neutral' natural gas deal is a win for everyone

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The world's first 'carbon-neutral' natural gas deal is a win for everyone

The junior trading partners at TotalEnergies SE were planning to wing it in September last by orchestrating the French energy giant's first shipment of 'carbon-neutral' natural gas. It's the greenest-possible designation for fossil fuel and is an important step in making the company's core product more sustainable in a warming world. Nailing down the deal involved googling and guesswork. Total had proposed the trade after learning a client had already purchased two carbon-neutral cargos from rivals at Royal Dutch Shell Plc, according to people who were aware of the deal and asked not to be named discussing a private transaction. One of these insiders said that only after getting the go-ahead did the inexperienced team try to figure out how to neutralize the emissions contained in a liquified tanker full of gasoline First step was to search the internet for worthy environmental projects that could offset the pollution.

Thousands of miles away, a Mozambique volunteer named Kembo Magonyo would spend the spring months clearing stubborn jumbles of branches near the thick border with Zimbabwe. Wildfires tend to leap between the two countries, laying down debris to trees before anyone can respond. This whole bush can be razed on the ground if we don't do what we are doing, Magonyo says, hacking away with his machete. His work is funded partly by a group organized by the total carbon neutral deal.

In the complicated new math of climate solutions, villagers clearing brush in southern Africa can end up redefining networks of global commerce worth billions of dollars. Environmental and technology projects stand as shadow partners of emission-energy trades happening far away.

What Total's gas cargo adds to the atmosphere will kill the machete-wielding villagers? To make it work, however, to make global carbon neutrality first needed to find green projects that backed by an international organization are capable of meeting two requirements: generate carbon credits without costing too much. After struggling to come up with an answer, the team set up a meeting with South Pole, a developer in Zurich, which came recommended by rival traders. That's how $600,000 from a $17 million LNG transaction ended up in part paying for forest protection in Zimbabwe.

The resulting trade looks like a win for everyone. Despite their encouragement, Total has kept its promise to investors to reduce its carbon footprint. The buyer, China National Offshore Oil Corp. cited the shipment as one of the steps it's taking to "provide clean, green energy to the nation." I’m quite optimistic the results of climate change, and all of the science behind the deal say it won’t do much to reduce carbon dioxide in the atmosphere, and will fall far short of neutral.

'The claim that you can sell the sale of fossil fuels as carbon neutral because of a meager few dollars you invest in tropical conservation is not a defensible claim, says Danny Cullenward, a Stanford University lecturer and policy director at CarbonPlan, a nonprofit group that analyzes climate solutions for impact.

Cullenward says: At best, efforts to stop deforestation by stopping wildfires can only increase the additional heat-trapping gas released when trees burn. Rural villagers can't do anything to counteract the large pollution from natural gas, other than making energy traders and consumers feel good in supporting green causes in regions where money is scarce.

Total confirmed in a statement that it conducts due diligence on offset projects and said to make total the cost of offsets with Cnooc. The French company declined to disclose details, including prices paid for carbon credits, citing a non-disclosure agreement. Cnooc didn't respond to requests for comment. Other Companies said they would not count carbon credits in their companywide emissions reports or as part of the plan to reach net zero by 2050. 'While an important tool, the company said, 'offsetting cannot be considered as a substitute for direct emission reductions by corporations, but as a complement.

The use of additional terminologies like 'carbon neutral' and 'net zero' in marketing language introduces scientific confusion Both terms mean balancing any emissions added to the atmosphere with equivalent amount of removal. Most experts agree that removing deforestation isn't the same as deforestation. 'This paradigm, warns Cullenward, 'is encouraging a net-zero engine that doesn't help advance our imaginary goals.

That view isn't reserved for outside critics. The leader of South Pole, which helped develop the Zimbabwe project and sold its carbon credits to Total, doesn't believe forest protection can rectify pollution from natural gas. It's such obvious nonsense, says Renat Heuberger, co-founder of South Pole. 'Even my 9 year old daughter will understand that's not the case. You're burning fossil fuels and creating CO emissions.

As extraction started warming the planet at the moment of extraction from the deep-sea ichthys field off the Australian coast, total's product is warming it also. Every facet of its life cycle produces greenhouse gas. Sending methane through an 890-kilometer pipeline to an export facility could result in leakage of a methane gas, a powerful pollutant trapping 80 times more heat than CO in its first two decades. Chilling the gas into a liquid for shipping wrought additional emissions. Even the tanker that brought the LNG to Shenzhen in southern China burned some of the fuel when sailing.

If Cnooc fired the LNG that he claimed last September, it would have been enough to power the city's countless factories or an electricity grid serving more than 12 million people. This would leave a centuries-long residue of atmospheric CO that the Total traders had to neutralize. Total and Cnooc agreed to set the shipment emissions at 240,000 metric tons of CO the same amount of pollution generated by 30,000 U.S. households in a year.

The figure is, at best, a rough estimate since there are too many variables. 'No one has convincingly produced an accurate calculation, says Fauziah Marzuki, an analyst with the research group BloombergNEF. 'All of these deals are assumptions.

If South Poles team started out as rookies in carbon math, Total's experts arrived as old hands. The company has been producing credits for more than 15 years — long before the corporate world took interest in their emissions erasing power — and operates in dozens of countries. At virtual meetings, according to people familiar with the transaction, South Pole sales representatives laid out options. The cheapest offsets they had were tied to support for renewable energy projects, while the most expensive helped fund reforestation efforts to plant new trees.

Enough Carbon credits to offset a shipment of LNG can cost anywhere between 1 million to $15 million, according to Eurasia Group, a New York-based think tank. Most trades fall on the lower end of spectrum in terms of cost and quality. Traders in Asia who have participated in similar transactions say the offsets involved are usually sold for less than $6 per ton of CO2.

'We've been hearing low single digits, in terms of what companies pay per ton, says Wood Mackenzie Ltd. analyst Lucy Cullen 'Content makes sense from a commercial standpoint. Bill Gates said earlier this year in an interview that he pays about $600 a ton to suck carbon out of the air using cutting-edge technology as a way to offset his personal carbon footprint.

Total decided to source the bulk of its offsets from the Hebei Guyuan Wind Farm Project, located in a Chinese steel-making province surrounding Beijing. A similar logic linked the forest-fire prevention to the wind farm in Zimbabwe. In this case, the electricity generated by the wind turbines would theoretically avoid Hebei's dirty coal-fired power plants. The resulting reduction in emissions, compared to an alternative scenario where coal had been used only, would form the basis for neutralizing Total's gas deal.

Total chose to add additional credits from the project in Africa's Central Kariba region, which was co-developed by South Pole with Carbon Green Africa. Those credits cost more than those from the Chinese wind farm, but on average amounted to less than $3 a ton according to people familiar with the deal. Total declined to comment, citing the confidentiality agreement.

Does China's emissions tariff work that money will help reduce emissions? The Hebei wind farm has been generating clean energy for over a decade, and it is unlikely it would have ceased doing so without several hundred thousand dollars from Total and Cnooc, says Gilles Dufrasne, policy officer at nonprofit Carbon Market Watch.

Verra, the organization that verified the Hebei credits used in the total deal, has updated its policies since last June to exclude large-scale grid-connected renewables. If the wind farm operator tried to register as an offset project today, 'it would not be accepted, says Dufrasne.

When climate scientists think about offsets, a key concept they grapple with is called Additionality. You only release CO if you actually remove CO which wouldn't have been absorbed without your support. It's an extremely hard concept that is prone to abuse. After all, how do you prove something worse would have happened if you hadn't intervened?

Carbon Green Africa, the organizer of the campaign backed by South Pole and Total, is working to defend a 785,000 - hectare wildlife corridor across four provinces. Volunteers are told that keeping fires at bay is more than protecting crops and livestock. It is part of the global mission to reduce global temperatures. By protecting forests from the flames, the project is supposed to keep CO stored in the form of trees.

But projects like this have become a point of contention. They're based on a framework known as Reducing Emissions from Deforestation and Forest Degradation, a program which started under the auspices of the United Nations. The initial goal was to help developing countries trade offsets between governments so that rich countries could financially support climate action by rich nations. After political leaders couldn't agree on how the system should work, project developers started marketing offsets directly to corporations.

Even if an LNG shipment can't counteract deforestation, corporate patronage has helped improve life in Mbire, one of the districts of Zimbabwe that has home to volunteers in the forest protection project. More than a dozen residents spoke positively about the program during a visit by a Bloomberg Green reporter earlier this year.

Theresa Mutseura, a health administrator at Chitsungo Mission Hospital said the project helped set up a biogas digester to power the 65 - bed facility. The only hospital in a region with 33,000 people and just two doctors had relied on firewood previously. Zvionere Chaku, 43, said volunteers with Carbon Green taught her how to farm more expensive vegetables in a small garden instead of clearing land.

Benefits of the program can be measured. The region lost about 0.23% of its vegetation between 2011 and 2020, according to analysis of satellite imagery by Global Forest Watch, compared with a rate of 0.65% before the project began. Economic growth has also been stronger in the districts surveyed by the project compared to similar areas, according to gross domestic product figures provided by the local government.

Last year Mbire paid Z $215 million to Carbon Green with the bulk of the money going towards infrastructure projects such as roads and schools that help boost development. 'The money was a windfall," says Tarcisius Mahuni, who runs the local district council from an office decorated in photos for the REDD program. The funds from carbon credits were more than triple the tax revenue they hoped to collect in local officials.

Mbire's increasing infrastructure must also face impacts of warming temperatures, made worse by the use of fossil fuels. 'We have droughts, floods, cyclones, agriculture and diseases, says Charles Ndondo, Carbon Green's managing director of village operations. 'If I was not concerned about climate change, I would not be running this project.

This puts on display an uncomfortable truth about the global climate movement: powerful multinational corporations can essentially outsource the cleanup of their pollution to remote places in need of help for a fraction of their profits. Doing so is far cheaper than direct means of removing pollution from their businesses. Carbon Green says the project in Zimbabwe reduces 6.5 million tons of carbon emissions each year while getting, at most, $1.50 per ton; sometimes the group gets as little as $0.20 money.

Heuberger, co-founder of South Pole, stands by the sale of credits to support the work in Zimbabwe. In his mind, it is really problematic that Total uses offsets to sell natural gas as carbon neutral. His company tells clients they can use such offsets to 'take responsibility' for their emissions, not to make claims that they have neutralized ongoing pollution. In a statement, Total said the South Pole never raised objections over using the term carbon neutral.

In a way, it comes down to semantics. With corporate climate action becoming more complex as are the norms around net-zero goals increasing. There is growing consensus among top companies that the excess credits used by global — called avoided emissions offsets — should not be used to claim progress towards net zero. That's why executives are increasingly turning to the phrase 'carbon neutral' as a compromise. The term is gained cache as a way for businesses to take credit for supporting environmental projects, even if they haven't effectively removed CO from the atmosphere.

Scientists warn that 'net zero' and 'carbon neutral' are technical terms and diluting their meanings in marketing campaigns could have a catastrophic impact on the global effort to compensate for emissions and reduce greenhouse gas.

The 44 year old Swiss social entrepreneur has spent almost half his life working on environmental conservation projects in developing countries. It's been an uphill battle to obtain funding for the programs, and South Pole is grateful for every dollar companies put into Heuberger projects. It makes sense to him that firms are keen to tout their environmental contributions, especially to worthy efforts to help improve life for African villagers.

But he says that the idea that such contributions can make up for selling fossil fuels will more harm than good. They risk affecting the projects itself, especially as scrutiny of carbon offsets increases. 'These claims are damaging ourselves as well, Heuberger says.

That's in part why much-used registries such as Gold Standard don't certify offsets from most REDD projects and many experts including the Science-Based Targets initiative disapprove of using offsets based on avoided emissions to make net claims. It is possible to claim that some trees are standing today that would have been lost with brush clearing. The evidence provides compelling evidence that extra carbon can be removed from the atmosphere.

Total is writing its own story on the strength of its first-ever sale of carbon neutral LNG. It's the transformation of an old-school energy behemoth into a clean supermajor.

The company invested in the last decade as one of the top LNG producers and has green-lighted new export routes from Mozambique to Russia that are slated to begin operations in this decade. For the last 60 years, a cleaner alternative to coal and crude oil has been viewed as the alternative source of energy. That's given companies like Total confidence in its longevity even in an era of unprecedented climate action.

The price of solar and wind energy is falling much faster than anybody expected. The climate threat is rising from leaky pipelines used to transport the gas, which can release large amounts of methane, the main greenhouse gas, that will be the liquid element in LNG. The latest report released this week by UN-backed scientists calls for reducing methane emissions in the next 10 years if the world is to meet its climate goals.

The International Energy Agency has put forward a timeline for keeping global temperatures from rising over 1.5 Celsius above pre-industrial levels. The use of natural gas would have to fall by more than 50% its current level, meaning no new gas fields or export terminals should be built from now on.

As a European company, Total is in an awkward position as the continent's politicians advance the most ambitious package of climate policies. The goal is to reduce emissions by 50 percent from 1990 levels by the end of the decade. Patrick Pouyanne announced in July that the company would definitely aim to accelerate efforts to cut emissions in line with the European Union if those aggressive climate measures are implemented. Even as those changes are underway, Total and its peers in Europe are working to bolster demand for their core product. Labelling LNG shipments as 'carbon neutral' is one way to satisfy customers who are under pressure from their investors and governments to reduce emissions. Since 2019, at least 16 carbon neutral shipments have changed hands and there is a push by buyers and sellers to do more deals. This is especially true in Asia where two of the world's top importers — Japan and China — have set targets to zero out emissions.

None of the energy companies involved have disclosed the math behind their carbon-neutral claims, and there is no requirement to do so. While Total says it won't erase emissions from the LNG shipment it sold to Cnooc in its carbon accounts, there is no guarantee that Cnooc will take the same approach. The Chinese state-owned company describes the gas shipment as 'net zero carbon emissions' and has indicated that it will rely on similar deals to meet President Xi Jinping's goal of becoming net zero by 2060. The trade was a ‘piloting case” in China's natural gas industry to explore carbon-neutral practices, Cnooc said in a press release announcing LNG delivery from Total.

This sets a troubling precedent says Arvind Ravikumar, an assistant professor at the Harrisburg University of Science and Technology in Pennsylvania who studies sustainable development. A nature-conservation project without clear carbon benefits could be used to cancel emissions for Cnooc and China, the world's largest polluter.

The credits help them remove emissions from their annual report on paper without actually ensuring that the amount of emissions gets removed from the atmosphere, Ravikumar says. 'It seems like they have all fallen in the trap of finding the quickest and cheapest way to appear to do something.