Integrated oils have a game-changing opportunity in seeding new forests. They could potentially offset c15bn tons of CO2 per annum, enough to permit the continuation of 85Mbpd of oil and 400TCF annual gas consumption within a fully decarbonized energy system. The cost is competitive, at c$50/ton. It is natural to sell carbon credits alongside retailing fossil fuels. We calculate 15-25% uplifts in the value of a typical fuel retail business, while allaying fears over the energy transition. Our 21-page note outlines the opportunity.
The advatages of forestry projects are articulated on pages 2-5, explaining why fuel-retailers may be best placed to commercialise genuine carbon credits.
Current costs of carbon credits are assessed on pages 6-8, adjusting for the drawback that some of these carbon credits are not “real” CO2-offsets.
The economics of future forest projects to capture CO2 are laid out on 9-10. We find c10% unlevered IRRs at $50/ton CO2 costs.
What model should fuel-retailers use, to collect CO2 credits at the point of fuel-sale? We lay out three options on pages 11-14. Two uplift NPVs 15-25%. One could double or treble valuations, but requires more risk, and trust.
The ultimate scalability of forest projects is assessed on pages 15-19, calculating the total acreage, total CO2 absorption and total fossil fuels that can thus be preserved in the mix. Next-generation bioscience technologies provide upside.
A summary of different companies forest/retail initiatives so far is outlined on page 21.