Largest CCS VCM Credit Issuance to Date

Exhibit: Schematic of BECCS Process Sourced from Ethanol Production

Source: University of ND Energy & Environmental Research Center

Key Points: Red Trail Energy’s BECCS credit issuance is the largest technology-based carbon removal project to date. Hints at the economics point to ethanol’s position at the lower end of the CCS cost curve. RTE is a partnership, which limits use of 45Q (affirming additionality for the credits). The issuance adds to momentum in carbon capture project finance.

Largest technology-based carbon removal credit issuance in the carbon markets to date. Earlier this month, Red Trail Energy LLC (RTE), an ethanol producer in North Dakota since 2007, issued 157 thousand (K) carbon credits on the Puro.earth registry. This was the largest listing of technology-based carbon removal credits in the voluntary market (though a registry) to date; it was also the first ethanol plant to produce carbon removal credits. RTE’s credits are based on the first 14 months of operation of the carbon capture program (beginning in June 2022), known in this case as Bioenergy with Carbon Capture and Storage (BECCS). (Note: Puro.earth refers to its credits as CO₂ Removal Certificates, or CORCs.)

RTE CORCs documentation appears to affirm low cost position for ethanol-based CCS. Documentation posted on Puro.earth provides some detail with respect to the cost basis for RTE’s BECCS-based credits, although the detail may be insufficient to characterize total (or per ton of stored CO₂) project costs. The 157K CORCs issued reflects the total CO₂ captured of 180K tons net of the emissions associated with the CCS process (largely electricity). Electricity used for the period was 33.4 Megawatt hours (MWh); if this reflects total power consumption, it would allow for energy costs below $20/ton of stored CO₂. Total capital investment for “buildings, equipment, contractor work and research” was given as $39 Million; if this reflects the total capex, then even assuming no extensions beyond the initial program term of 5 years, it suggests low $40s/ton of stored CO₂.

Additionality may rely on RTE’s status as an Limited Liability Corporation. The additionality audit avers that the project meets Voluntary Carbon Market (VCM) additionality principles, i.e. requires carbon credits to make it financially viable, in part because RTE is a partnership. The entity’s tax status (as a partnership it distributes profit to the partners and is not taxed at the entity level) suggest it cannot benefit from 45Q tax incentives (which for this activity would otherwise provide for $85/ton).

This is by far the largest listing on Puro.earth. Puro.earth, a registry dedicated to technology-based carbon removal projects, launched in 2019. In 2023, its listings totaled 81.5K CORCs (i.e. tons-equivalent) through 362 projects, or an average of 225 tons per project. Also in 2023, 80% of its projects and volume were sourced in biochar, with most of the balance sourced in “wooden building elements.” Puro.earth’s transactions have realized pricing between $110 and $180/ton since the beginning of 2023.

The move comes with momentum in future CCS funding commitments.  There have been notable commitments related to carbon capture support over the past year. These have, however, been structured through directly-negotiated (multi-year) agreements. Examples include:

• OXY-and-Blackrock-owned 1PointFive have over the past year has announced purchase agreements with ANA AT&T (just this past week), BCG, TD Bank Group, Trafigura, and Houston professional teams the Astros and the Texans to purchase Carbon Dioxide Removal (CDR) credits for removals to be delivered by 1PointFive’s under-construction Direct Air Capture (DAC) facility STRATOS.
• Microsoft committed an estimated $200 Million to purchase 315K credits from carbon mineralization startup Heirloom as part of Microsoft’s broader carbon removal portfolio commitments.
• Respira International, a carbon credit investor, committed to buy 50K credits from DAC company Carbon6. This follows Respira’s 2022 MOU with power producer Drax Group to buy up to 2 Million BECCS CDR credits over a five year period to be generated from an as-yet-to-be-built Drax facility in the U.S. Respira intends to resell the credits in the voluntary carbon market.

March 21, 2024