Incentivizing geostorage for carbon removal with Kim Vinet

Kim Vinet is the CSO at Affirmative Sustainability. Kim is a geologist with a focus on the intrinsic value of carbon and brings nearly two decades of experience in corporate sustainability, spanning energy, policy development, and carbon markets.

Kim's expertise covers the entire emissions lifecycle, from petroleum production to carbon offset project development and strategic advisory on carbon market economics.

We sat down to talk about an often overlooked part of the carbon value chain - geologic storage.

Interested in learning more about the ideas in this piece? Email Kim at [email protected]

Human-driven emissions are growing rapidly, about 40-45 billion tonnes (gigatonnes or Gt) per year, with about 2,500 Gt already built up in the atmosphere. 

There’s a growing consensus that reducing emissions alone won’t be enough - we also need to remove carbon dioxide (CO2) that’s already in our atmosphere. This is where carbon dioxide removal (CDR) comes into play – technologies and processes that extract CO₂ from the air and store it securely away from the atmosphere.

When we talk about CDR, we often think about the novel technologies that pull CO₂ from the air. But the removal isn’t complete until those greenhouse gases (GHGs) are permanently stored and cannot return to the atmosphere. 

Among the most promising CDR approaches is geologic storage – a method of permanently storing captured carbon deep underground. These are complex projects with robust quantification and tracking that need to reliably store emissions for a thousand years or more. 

Achieving permanent storage is critical to unlocking emissions reductions for hard-to-abate sectors, but the economics of these projects can be challenging. We need to do more to incentivize and accelerate these projects, and tools borrowed from the oil and gas sector could be the key. 

What is geologic storage and why does it matter for carbon removal?

Geologic storage (or geostorage) refers to the storage of emissions in underground geological formations. When CO₂ is captured from industrial processes or directly from the atmosphere, we can purify it, compress it, and inject it underground where it is trapped within naturally occurring rock formations.

One of the most promising types of geostorage is using depleted oil and gas reservoirs or deep saline aquifers. These are widely accessible, with somewhere between 1,400–11,000 Gt CO2 of capacity globally and operational costs around $10-80/tonne of CO₂e. Geoscientists and reservoir engineers already know how to operate these types of projects, and they could enable rapid, scalable CDR storage.

Newer storage options include mineralizing CO₂ within basalt rock formations. Costs are lower (around $10-30/t CO₂) because CO₂ is locked into solid rock, which requires minimal monitoring. Estimated storage capacity is huge - between 10,000–250,000+ Gt CO₂e - but just 8% of it is economically feasible and we currently have far less technical knowledge.

Geostorage is a key part of scaling carbon removal. High-integrity CDR projects must not only remove CO₂ from the atmosphere but also permanently store it to deliver a truly net-negative carbon footprint. The reversal risk (potential for CO₂ to leak back into the atmosphere) can be reduced to almost zero when reservoirs are adequately studied and monitored. 

What are the challenges in building out geostorage capacity?

A major bottleneck to scaling up geostorage is up-front capital. These kinds of projects are complex, with multiple stakeholders managing capture, processing, transportation, infrastructure, permitting and other costs. Operators need to build out all of this infrastructure in order to start receiving and storing CO₂, requiring large up-front capital investments. 

Offtake agreements typically flow to CDR developers rather than the geostorage part of a project. Government incentives, while growing, haven't yet created sufficient financial motivation for rapid scaling.

Geostorage projects are logistically complex, and can integrate multiple carbon capture projects that may be using different types of technology. They often require novel joint ventures to manage liability and credit ownership, as well as coordination across project stakeholders like regulators, insurers, local communities, and buyers.

Geostorage faces reputational risks regarding operations, as mishandling injection or selecting the wrong reservoir for storage can result in leaks or micro-seismic activity, potentially damaging the industry’s credibility. 

How can we incentivize more geostorage to scale up carbon removal?

We need to get sequestration capacity on the balance sheet. Oil and gas companies have used reserves-based lending (RBL) for decades to access capital. Banks assess the volumes of reserves against development plans, forecasts, and pricing. Commercial reserve volumes are verified and treated as assets that companies can borrow against. 

This same reserves-based lending model could be applied to carbon storage, unlocking up-front capital to scale CDR project:

1. Geologic reservoirs are assessed for CO₂ storage capacity and commercialization potential

2. Geostorage operators borrow against this verified asset

3. The access to capital finances infrastructure development, acquisitions and operations 

This style of lending not only offers flexible operational funding with purposeful and periodic reassessment but can also provide a strong and clear indication of corporate strategic competency for the subsurface operator, promoting stakeholder confidence.

Putting sequestration capacity on the balance sheet wouldn’t just solve for financing - the verification and due diligence involved could also unlock stronger, more durable projects:

• Ensure the best reservoirs are targeted, minimizing risk of leaks 

• Prioritize areas with concentrated infrastructure and assets at risk of becoming stranded

• Promote clearer definition of ownership rights and legal liabilities between CDR and sequestration companies

• Further develop measurement and monitoring protocols, creating consistency across projects and more accurate carbon accounting

• Potential for insurers to offer tonne-for-tonne deliverability insurance in the form of geologically sequestered carbon

• Potential to limit EOR production through a use-of-funds restriction or no EOR outcome covenant in the financing agreement.

What would this look like in a typical project?

Let’s look at a theoretical project. Carbon Removal Inc. is a DAC developer that has set up a project to remove 1,200 tonnes of CO₂ from the atmosphere each year.

Carbon Removal Inc. uses equity investments and government grants to prove the technology and grow the company. The company has also secured carbon offtake agreements with corporate buyers, which improves the DAC project economics.

Carbon Removal Inc. now needs to make sure that the 1,200 tonnes of emissions they remove are permanently sequestered.

They enter into a service agreement with Emissions Storage Corp. to process the captured emissions and pay Emissions Storage Corp. to purify, compress, transport, inject, and monitor the geostorage of 1,200 tonnes of CO₂ each year for 10 years.  

To establish its geostorage operations, Emissions Storage Corp. needs to make substantial upfront capital investments. Although the well has a total sequestration capacity of 50,000 tCO₂, the initial development costs can only be justified by the revenue from the 12,000 tCO₂ currently under contract.

If Emissions Storage Corp. secured similar service agreements for the remaining 38,000 tonnes of commercialized storage capacity, the project economics of CO₂ injection into this single well would be much stronger. 

The service contract with Carbon Removal Inc. on its own is not enough to substantively change the financial success of the geostorage project. So traditionally, Emissions Storage Corp. has also relied upon additional revenue generated through enhanced oil recovery (EOR). 

Reserves-based lending could significantly improve the economic case for Emissions Storage Corp.’s project by enabling them to access the value of the 50,000 tonnes of verified, commercial storage capacity.

What are the next steps needed to make geostorage operations mainstream?

1) Establish clear regulatory frameworks. We need universally well-defined permitting frameworks that outline process, ownership and liability between all the different actors involved. These will boost market confidence by clarifying the due diligence requirements for site selection, which will minimize reversal risks, and define monitoring parameters. Robust and widely-used emissions accounting methods must be implemented to properly quantify the impact of removals on the climate. 

Tools like the preliminary draft DAC & geostorage federal offset protocol for standardizing carbon credits, trading protocols, and ownership models are also needed. The federal offset protocols clarify ownership by putting the reduction in the hands of the “project proponent”, ensuring responsibility for storage permanence is allocated (for up to 160 years). 

2) Set standards for verified sequestration capacity. To enable third-party verification and underwriting by insurers, the industry needs a universally-accepted framework for quantifying how much sequestration capacity exists in reservoirs. 

Regulators, third-party verifiers and lenders will need to agree upon geostorage quantification metrics. Lenders and subsurface operators would need to collaborate to model and de-risk geostorage project economics. Without these assurances, large-scale sequestration remains financially uncertain, limiting investment and rapid deployment.

3) Finally, stabilise carbon pricing. Unpredictable valuations deter investment and hinder scalable growth of sequestration. Corporations need to determine what they are willing to pay for carbon removal opportunities and then secure long-term offtake agreements. 

Governments can offer sequestration incentives that guarantee credit revenues and decrease financial uncertainty. 

Conclusion

Industry leaders, policymakers, and financial institutions must explore new project financing mechanisms, such as reserves-based lending. Legal definition and open collaboration between regulators, verifiers and lenders will be key to building trust, cutting financial risk, and accelerating the rollout of large-scale carbon removal. 

Lenders who view sequestration capacity as a financial asset will be the first to activate capital, accelerating CDR innovation, driving significant decarbonization, and delivering a return on CDR investments.

Interested in learning more about the ideas in this piece? Get in touch with Kim at [email protected] or check out Affirmative Sustainability.

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