The 9th IEEJ/APERC International Energy Symposium
19 April 2024
Grand Prince Hotel Takanawa, Tokyo Japan

Session2:
Build-up of an ecosystemfor carbon circularity

Road to CCS/DAC commercialization- Economics by carbon market -Takashi Hongo
Senior Fellow
Mitsui & Co. Global Strategic Studies Institute1

CCS and Carbon Market- IETA CCS HLC -2

Various standard for carbon credits, accounting, and safety operation

CO2 EOR Guideline)

ISO27914(Geological Storage),
ISO27916 (CCS/EOR)

3

Negative comments and concerns about CCS◆ Effectiveness of CCS
✓
✓
✓
✓
✓

What is CCS? - insufficient information
Is CCS mature technology? - maturity of technology
Is CCS commercially effectiveness? - comparing to alternative technologies
Does CCS consume huge energy? - energy loss
Does Japan have sufficient storage potential? - storage potential◆ Emission Reduction Effects (quantification)✓ Should assure safe and long term containment✓ Should have robust MRV✓ Should have measure for assuring permanence✓ Should evaluation of total reduction effects (considering value chain emission)◆ Environment impacts (pollution, natural environment and social environment)✓ Marine environment✓ Ground water and air pollution✓ Hazard waste✓ Social impacts, such as accident and disaster◆ Others✓ Policy change risk
✓ Impact on local economy (benefit)✓ Large scale accident and its compensation

sourceCollecting information based experienceof 30 CCS experts in Japan. August 2021

4

CCS High Level Criteria◆ Basic element to be reviewed for credits generation – detail methodologies andrequirements are by each standard, ISO, regulation.
◆ Expected use: Support programs for CCS credits, checklist for stakeholders andinformation for regulation settings

Launch event at Asia Climate Summit
in Singapore
Dec. 2023

Revised version
April 2024

5

Basic Structure of IETA HLC
Based on existing methodologies, expert consultationand global reporting standards*, IETA proposes thefollowing criteria to underpin and guide the crediting ofcarbon geostorage activities in carbon markets:⚫ methodological components describing the rules
and procedures for quantifying emission reductions
and removals arising from creditable geostorage
activities. Six key core methodological components
are provided; and⚫ safeguards that identify and manage the specificimpacts and potential risks associated with carbon
geostorage (including carbon reversal). Ten highlevel criteria and supporting ‘checkpoints’ for safe
deployment are provided.
The handling of non-permanence and liability relates
to both methodological design and the safeguards forsafe carbon geostorage (see right). As such,
quantification methodologies must be underpinned by
the safeguards described

METHODOLOGICAL COMPONENTSSAFEGUARDS

Applicability

Political

conditions

acceptance

Project boundary& leakage

Non-permanence& liability

Legal &
regulatory

Baseline

Monitoring
Additionality

requirements(storage)

Monitoring

Impact and risk

(capture, transport,

assessment

injection)

6 Procedures* Including the 2006 IPCC Guidelines for National Greenhouse Gas Inventories, and CCS CDM Modalities andHigh Level Criteria for Crediting Carbon Geostorage Activities

Source IETA
7
https://www.ieta.org/resources/IETA%20Initiatives/CCS%20Criteria/High%20Level%20Criteria%20for%20crediting%20geostorage%20activities%20v1.0.pdf

Demand for CCS/DAC

8

Demand from GX ETS◆ GX ETS: voluntary participation bycorporates✓ 1st Phase: April 2024 ✓ 2nd Phase: April 2026 ◆ Eligible Credit✓ J Credit✓ JCM✓ Additional credits (draft): 5% limit of total
emission.

PM Kishida’s Policy Speech(31 Jan. 2024)
We will promote the legalization of the
carbon pricing system toward its fullscale introduction in FY2026, with aview to making participation mandatory
for large companies and establishing acertification system for individualcompanies' reduction targets.

National Assembly
31 Jan. 2024

Draft policy of additional eligible credits
Japan
International
Projects which GX League participant companies
have been involved in from the beginning ofProject proponent Any
project development* Involvement: 20% or more equity share
Project place
In Japan
Out of JCM partnership country
1 Expected to contribute NDC of Japan; CCU, Blue Carbon (coast line), BECCS, DACCS
2 Satisfy certain quality standard, or involvement of Japanese government in the operation of
Methodology
the program9
3 Priority on the domestic project if there are same type of projects

Potential - Long term demand for CCS/DAC➢ CCS will become increasingly important as a decarbonization technology when fossil fuel use.
In the long term, however, the role of CCS will change as fossil fuel use decreases.
DACCS/BECCS as a negative emission technology will be important.
➢ Demand for CCS/DAC varies by sector – depending on the availability of alternatives
technologies.
SectorRole of CCS/DAC

Power Generation• Significant portion of generation will be replaced by renewable energy
sources. Role of CO2 for power sector will be limited, such as forthermal power as stabilizing fluctuations in renewable electricity.

Low fuel production• CCS is an option for producing low carbon fuelIndustry• Electrification is a mainstream measure in general. Some industry,
such as steel, cement and chemical, will use CCS and hydrogen as
their option.

Ground transportation• FCV is an option, particularly for long-haul trucking

Aviation (ICAO)• LCAF(Lower Carbon Aviation Fuel) and E-Fuel are option of
decarbonized fuel.
• As out of sector measures DACCS and BECCS will be considered.

Maritime• Ammonia is an important option.

10

Case – International Aviation➢ Zero or lower emission fuel plays important role. SAF＋CCS and LCAF are recognized as option.
➢ It is considered offset by credits from DACCS and BECCS will be used.

SAF(SAF + CCS(ethanol production))
E-Fuel(DAC + Hydrogen)
LCAF (Jet Fuel CCS)
Offset by negative emission
credits (DACCS, BECCS)
11LCAF (Lower Carbon Aviation Fuel) and CCS
LCA emission (89gCO2/MJ)
Production emission (15gCO2/MJ)

Crude
Extraction
CCS

Crude
Transport

Fuel burn emission(74gCO2/MJ)

Product
Transport

Crude
Refining

Jet
Combustion

CCS
Hydrogen

gCO2/MJ

12

Scenario analysis – overshoot scenario➢ Overshoot scenario: Emissions exceeding carbon budget for 1.5 degree target but subsequent negative emissions
will decrease the temperature below 1.5 degree.
➢ Not a major scenario analysis in the IPCC 6th ReportGap between net zero scenario and actual emission
OvershootNegative
Emission

13Economics – carbon price14

Commercia benefit of CCS/DAC – carbon price
USD/tCO2

250
200
150

100
50
0
J Credit

EUA

ACCU

VCM

IEA WEOIETA

IEA WEOIEEJ

SurveyPresent

2030

2050

Note:
15
J Credit: RE=high, EE=low, VCM: Removal=high, Nature base=low, IEA: NZE=high, APS=low, IEEJ: power sector: zero emission :high, 70% reduction=low

Conclusion◆ Economics✓ Carbon price is increasing but not enough now✓ Additional revenue is necessary◆ Indispensable option✓ Hard to abate sector – international aviation/maritime◆ Public Acceptance✓ Communication is crucial – IETA CCS HLC

16

Reference - applicability of CCS High Level Criteria in Japan17

Methodological Component
METHODOLOGICALCOMPONENTAPPLICABILI

01. TY
CONDITIONS

02.

PROJECT
BOUNDARY& LEAKAGE

03. BASELINE04.

ADDITIONALITY

NONPERMANEN
05.
CE &LIABILITY

06.

MONITORING

DESCRIPTION
Defines the specific circumstances, attributes and other conditions that apply to eligible geological CO2 storage activities.
These can include the eligible sources of captured CO2 (e.g. which types of CO2 and from which sectors, both of which have
implications for baseline selection; see below), the modes of transport, and the allowable storage media. Geographical andtechnical restrictions can also be applied (e.g. only countries with CCS laws; conditions on geostorage
development/operations).
Defines the emissions by sources and removals by sinks that must be measured and accounted for across thecapture>transport>storage chain (project boundary).
Includes emissions occurring outside of the immediate control of the project operator (e.g. upstream emissions), but which aremeasurable and attributable to the project activity (i.e. ‘leakage’).

Applicability
Japan plan to have
Geological CCS. For
CCS/EOR, emission
from increased
production is took into
account
Emission from capture
and transportation shallbe considered. Hub andSpoke model is planned

Describes procedures and options to establish the baseline scenario and a methodology for calculating baseline emissions.
The emissions from the project activity must be compared to the baseline to quantify the net emission reductions or carbon
removals.
Options include projection-based approaches (e.g. historical emissions, or estimated future emissions, without CO2 capture) or
standards-based approaches (e.g. using benchmark emissions of a comparable activity without CO2 capture).

Before CCS, allemission is toatmosphere.

Demonstration that the activity delivers emissions reductions/removals that would not have occurred absent of the incentive
created by carbon credit revenues. Different approaches and tests exist for demonstrating additionality (e.g. first-of-a-kind(FOAK); regulatory surplus; financial additionality). The primary purpose of CO2 capture is climate mitigation, which generallymeans that most projects will be additional. Novelty also means that FOAK or technology penetration rates can be used to
rapidly demonstrate project additionality. Financial additionality testing may also be used to discern the value of crediting
where other incentives (e.g. tax breaks) or benefits also exist (e.g. commercial CO2 utilization).

CCS has additional
because no revenue
without credits (byUNFCCC）

Methodologies should ensure that geological storage sites are appropriately characterized, selected, developed, managed andclosed level to mitigate against the risk of carbon reversals (quality assurance). Liability to remedy the impacts of any carbon
reversals must also be allocated (liability allocation).
These safeguards can be implemented either by applying geographical applicability conditions (i.e. relying on local laws andregulations) and/or through other effective safeguards (see safeguard criteria 05, 06, 07).
Robust monitoring is needed to measure flows and emissions related to aboveground features of the activity and to check for
CO2 leaks in around the storage site. Results of monitoring are used to (i) quantify creditable reductions or removals and (ii)protect natural ecosystems and human health.
The latter safeguard can be implemented either by applying geographical applicability conditions (i.e. relying on safety
monitoring under local laws and regulations) and/or through other effective safeguards (see safeguard criteria 08, 09).

Site selection, closureplan. monitoring –ISO27914 & 27916
Post closure monitoringis determined byregulation (ISO). CCS
Operation law is underconsideration in Japan
18

Safeguards/Sustainability
SAFEGUARD
AREA

HIGH LEVEL
CRITERIA

01.

POLITICALACCEPTABILI
TY

0
2
.

DESCRIPTIONSIGNIFICANT
AND COSTEFFECTIVEFOR
NATIONAL
CLIMATEMITIGATION

Technologies involving geostorage should be partof a host country's cost-optimized and Parisaligned national mitigation pathway.
The host country mitigation scenarios must havebeen developed cognizant of the UN Sustainable
Development Goals (SDGs).

ALIGNED
WITH
NATIONAL
DEVELOPMENT PRIORITIESAND POLICY
AIMSTechnologies involving geostorage should be wellaligned with the host country's national
development plans, policies and sectoral
programmes (e.g. economic development plans,
energy sector development, industrial
development strategy).

EXAMPLES OF EVIDENCE / CHECKPOINTS• Nationally Determined Contributions (i.e. inclusion of geostorage
within mitigation scenarios and plans)

Applicability

A measure at
Japanese NDC• Long-term Low Emissions Development Strategies (i.e. inclusionof geostorage)• Techno-economic mitigation studies etc• Nationally Determined Contributions (i.e. demonstration ofalignment with broader aims)

A measure at
Japanese NDC• National development plans and strategies (e.g. economic
development plans, energy sector development, industrial
development strategy)

Government
support CCS Pilot
projects in and out
of Japan• Nationally Determined Contributions (i.e. developed with broad
public input)

0
3.

PUBLICACCEPTANCE

Activities should only be credited where the hostcountry government and political stakeholders
accept the need for geostorage (e.g. undertakingof robust stakeholder consultation as part ofnational climate policy development).

• Normal host country public consultation processes andproceduresConsultation isneeded• OECD Best Practice Principles on Stakeholder Engagement inRegulatory Policy

EIA is critical19

Safeguards/Sustainability
SAFEGUARD
AREA

HIGH LEVEL
CRITERIA

0
4.

LEGAL ANDREGULATORYFRAMEWORKFOR SAFE
STORAGE

0
5.

0
6
.

LEGAL BASISFOR INJECTION
AND STORAGE

EFFECTIVE SITE
SELECTIONAND
DEVELOPMENTROBUSTOVERSIGHT
OF SITEOPERATION
AND CLOSURE

DESCRIPTION
Activities credited under international standards
should be compliant with host country laws andregulations. The responsibility for governing thegeological pore space into which CO2 is injected
and stored is typically vested into government(but sometimes the surface property owner). In
some situations, protection of sub-surface
resources may also trigger government permitting
and oversight (e.g. groundwater protection).
Appropriate permission must therefore be
obtained to access and use geologic pore space forthe purpose of storing CO2.
In permitting the use of geological pore space forCO2 storage, the pore space owner should ensure
protection of natural resources and public healthand safety.
The safety and security of storage in a proposed
geological storage site must be appropriately
demonstrated prior to the granting of access anduse permission (through e.g. robust sitecharacterisation and selection reports anddevelopment, operation and closure plans).
Geological storage activities must be operated
respecting the conditions specified in storage site
permits with appropriate oversight of acompetent body (i.e. modes of development,
operation and closure).

Responsibility for CO2 stored in geologicalformations must be appropriately allocated to
0 LIABILITY FOR
ensure that remedial measures are implemented
7 CARBON
in the event of a leak/carbon reversal from a. for
REVERSALHigh level criteria
credited CCSgeologicalactivities
Versionstoragesite. 01

EXAMPLES OF EVIDENCE / CHECKPOINTS• National laws (e.g. constitution; mineral laws etc that indicate
ownership of geological pore space and procedure(s) by whichaccess is conferred to economic operators/private entities).

Applicability

CCS promotion law isunder consideration• CDM CCS Modalities and Procedures (requirements outlined inAppendix B)• National laws and regulations (e.g. mineral or petroleum
development laws; environmental protection laws; dedicatedgeological storage law)

Site selection shallbe an importantcondition at the law• 2006 IPCC Guidelines Volume 2, Chapter 5: Carbon Dioxide
Transport, Injection and Geological Storage (Requirements in
Section 5.10 include reporting of site characterisation andselection, modelling, monitoring plan design, monitoring etc.)• CDM CCS Modalities and Procedures (Appendix B)• ISO Standard 27914:2017 - Geological Storage• National laws and regulations (clarifying the competent authority
and their regulatory powers)

Closure and postclosure monitoring
will be a condition at
the law• Liability arrangements (e.g. national laws on environmental liability;
mineral/petroleum laws; geological CO2 storage law)
• Liability transfer arrangements (e.g. aligned with the cessation ofmonitoring described in the 2006 IPCC Guidelines Volume 2,
Chapter 5)• Non-permanence risk tool (NPRT) applied by registry operator

The law will cover
this too.
20

Safeguards/Sustainability
SAFEGUARD
AREA

HIGH LEVEL
CRITERIA

08.

ENVIRONMENTAL ANDSOCIALSAFEGUARDS

0
9
.

1
0
.

RISK ANDSAFETYASSESSMENT

ENVIRONMENTAL AND
SOCIAL
IMPACTSSUSTAINABILITY

DESCRIPTION
Geological domains are inherently heterogenous,
each having unique characteristics that influence
the safety, durability and non-permanence risk ofstorage. Risks from CO2 leaks therefore need to besuitably assessed and managed on the basis of sitespecific characteristics within a proposed geologicalstorage site, its surrounding domains and the
proposed modes of development and operation.
Inherent uncertainty in geological analysis meansthat this must be based on scenarios of specificfeatures and potential events and processes that
could occur at the specific site in order tounderstand the scale and magnitude of potential
impacts (i.e. risks).
The nature of the impacts of leaking CO2 of anindividual project needs to be understood in thecontext of the scenarios identified in the risk andsafety assessment (e.g. communities, natural
ecosystems).
Measures must be taken to mitigate and mangesuch risks and impacts.

Sustainability impacts and benefits of an individual
project must be appropriately demonstrated (e.g.
tangible co-benefits and/or contributing towards
multiple United Nations SDGs).
Corporate social responsibility should be part ofproject deployment (as appropriate to the projectsetting). For example, implementation could beaccompanied by community support programmes
and knowledge sharing, education and engagement
actions relating to climate change and its mitigation
through geologic CO2 storage.

EXAMPLES OF EVIDENCE / CHECKPOINTS• National laws and regulations

Applicability
A condition of projectapproval• ISO Standard 27914:2017 - Geological Storage (Section 6: Risk
Assessment)• CDM CCS Modalities and Procedures (Appendix B)• National laws and regulations

A condition of projectapproval.
EIA is needed.

• ISO Standard 27914:2017 - Geological Storage (Section 6: Risk
Assessment)• IFC Performance Standards on Environmental and Social
Sustainability (Performance Standard 1: Assessment andManagement of Environmental and Social Risks and Impacts)• CDM Sustainable Development co-Benefits Tool

Consultation withstakeholders,
particularly people nearto project sites, iscritical• ISO Standard 37101:2016 - Sustainable development in communities• Project-level standard requirements for sustainability (e.g. The Gold
Standard requirement to deliver on at least 3 SDGs, including
climate action (SDG 13))21