Forests can offset 15bn ton of CO2 per year from 3bn global acres. But is there potential to afforest any of the world’s 11bn acres of arid and semi-arid lands, by desalinating and distributing seawater? Our 18-page note answers this question. While the energy economics do not work in the most extreme deserts (e.g., the Sahara), $60-120/ton CO2 prices may be sufficient in semi-arid climates, while the best economics of all use waste water from oil and gas, such as in the Permian basin.
The opportunity and challenges for nature based solutions to climate change are outlined on pages 2-4, explaining the rationale for afforesting deserts.
Precedents for afforesting deserts, including detailed case studies from the Academic literature, are reviewed on pages 5-8.
Water requirements are quantified, based on data from 60 tree species and the forestry industry, on pages 9-10.
The energy economics of desalinating and piping water are presented on pages 11-12.
The challenges of afforestation in the most extreme desert environments are modelled on page 13, showing why it is almost impossible to grow forests in the Sahara. The CO2 costs of supplying sufficient water could exceed the CO2 absorbed by new trees.
Supplementing rainfall in marginal lands is a more compelling economic model (e.g., adding the equivalent of 100mm new rainfall to marginal lands with c300-400mm), as shown on page 14.
The best case we can find is to use Permian waste water. Costs of desalination could be lower than current costs of disposal, while Permian upstream operations on the reforested acreage could be made carbon neutral, per pages 16-17.
A short list of companies exposed to the theme is presented on page 18.
Fuel retailers have a game-changing opportunity seeding new forests,outlined in our 26-page note, then commercializing CO2 neutral fuels with carbon offsets.
Nature based solutions could offset c15bn tons of CO2 per annum, enough to accommodate 85Mbpd of oil and 400TCF of annual gas use in a fully decarbonized energy system. The cost is competitive, well below c$50/ton. It is natural to sell carbon credits alongside fuels and earn a margin on both. Hence, we calculate 15-25% uplifts in the value of fuel retail stations, allaying fears over CO2.
The advantages of forestry projects are articulated on pages 2-7, explaining why fuel-retailers may be best placed to commercialize genuine carbon credits.
Current costs of carbon credits are assessed on pages 8-10, 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 11-14, including opportunities to deflate costs using new business models and digital technologies. We find c10% unlevered IRRs well below $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 15-18. 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 19-25, 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.
What is crucial is to do this right. Cutting corners and flogging low-quality offsets will be a trust-destroying disaster. Hence it is important to screen for high-quality nature-based CO2 removals.
A summary of different companies forest/retail initiatives so far is outlined on page 26.
Our 3 key points on how CO2 neutral fuels with carbon offsets could reshape the oil industry are also highlighted in the short article sent out to our distribution list.
We presented our ‘Top Ten Themes for Energy in the 2020s’ to an audience at Yale SOM, in February-2020. The audio recording is available below. The slides are available to TSE clients, in order to follow along with the presentation.
Please sign up to our distribution list, to receive our best ideas going forwards…
In 2019, Shell pledged $300M of new investment into forestry. TOTAL, BP and Eni are also pursuing similar schemes. But can they move the needle for CO2? In order to answer this question, we have tabulated our ‘top five’ facts about forestry. We think Oil Majors may drive the energy transition most effectively via developing better energy technologies in their portfolios.
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(1). Forests should sequester 5T of CO2 per acre per annum, which is the average figure in half-a-dozen technical papers that we reviewed. However, the rates in these studies vary from 1-25 Tons per acre per annum, depending upon the species, the latitude and the rate of harvesting. Forests grow fastest in their early stages, and so paradoxically, to maximise CO2 sequestration, it may be necessary to cut them down periodically (and then re-plant).
(2). The world emits 1T of CO2 per acre per annum, which means that for forestry to absorb all of the world’s CO2 emissions, an incremental 20% of the world’s land mass must be given over to planting new forests. An extremely high number. Global carbon emissions run at 34bn tons per annum, while the world’s total land area is 37bn acres (c150M sq km).
(3). It matters where you plant. The chart above also shows a problematic skew in the world’s carbon emissions. If developed Asian countries (Japan, Korea, Singapore) wanted to offset all of their emissions by planing forests, they would need to access land areas that are c3.5x larger than their entire territories. Likewise, India and China would need to access areas equivalent to 60-80% of their own borders. To move the needle, large new forests would need to be planted in the countries on the right hand side of the chart. For the full data series, please download our data-file.
There are select opportunities in the mix, which Oil Majors can pursue. Perhaps the largest come from irrigating and afforesting desert areas. Not only are these areas large, but forests in hot areas have a tendency to grow more quickly and release more moisture, which in turn seeds clouds, which in turn reflects more sunlight and cools the planet.
(4). Environmental question marks? Forests clearly sequester CO2, but the precise climate science is surprisingly complex. Leaves absorb more sunlight than other types of land cover, increasing albedo, and warming the planet mildly. Trees can also release compounds called isoprenes, which reacts with nitrogen oxides in the air to form ozone (a greenhouse gas), while lengthening the lifespan of atmospheric methane (another greenhouse gas). Similarly, trees in tropical forests can seem to act as a conduit for soil to convey methane into the atmosphere. This deepens the need for “the right kind” of forestry investment, based on science.
(5). Capital may be better spent elsewhere? Most of the estimates we have encountered point to $20-100/ton of costs for sequestering CO2 using forests. This is competitive with other current forms of CCS (chart below, data here). However, we are also researching next-generation carbon capture technologies, which are much more competitive, below $20/ton.
To illustrate the same point another way, photosynthesis’s energy efficiency is around 0.5-1%, compared to today’s solar cells at c17% and next-generation perovskites reaching c35% (chart below). So ramping up next-genration solar could yield greater decarbonisation per unit of land area.
While we think Majors have a deep role to play in driving the energy transition, it will most likely be though game-changing technologies, which also unlock multi-billion dollar economic opportunities, per our recent note here.
References
Caldecott, B., Lomax, B. & Workman, M., (2015). Stranded Carbon Assets and Negative Emissions Technologies Working Paper. Stranded Assets Programme.
Gorte, R. (2009). U.S. Tree Planting for Carbon Sequestration. Congressional Research Service
Lenton, T.M., 2010. The potential for land-based biological CO2 removal to lower future atmospheric CO2 concentration. Carbon Management 1(1), 145–160.
Lewandrowski, J., Peters, M. & Jones, C. (2004). Economics of Sequestering Carbon in the U.S. Agricultural Sector, USDA Economic Research Service, Technical Bulletin TB-1909
Popkin, G., (2019). How much can forests fight climate change? Nature 565, 280-282
U.S. Environmental Protection Agency (2005). Greenhouse Gas Mitigation Potential in U.S. forestry and Agriculture, EPA 430-R-05-006, Washington, DC.
BP (2019). BP Statistical Review of World Energy
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