Carbon Management: 3 Challenges to Resolve for a Better Future
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Carbon Management: 3 Challenges and Solutions to Prepare for a Sustainable Future

During COP 28 United Nations Climate Change Conference countries participated in the first-ever global stocktake of actions, taken by the governments to reverse climate change. The results were worrisome: there is a substantial yearly gap of 20.3 to 23.9 gigatons (1 gigaton = 1 billion tons) of CO2 equivalent between current national emissions reduction commitments and the actual levels required to curb global warming by 1.5°C by 2030.It appears businesses have been falling short in carbon management and tighter regulatory action will likely follow to encourage faster transitions.

What Is Carbon Management?

Carbon management is the process of measuring, reducing, and offsetting carbon emissions generated by businesses using emerging technology solutions.

Technologically, carbon management solutions assist in three areas:

  • Capture of CO2 for storage (CCS): fossil, biogenic, and atmospheric emissions of CO2 are captured for long-term geological storage.
  • Capture of CO2 for utilization (CCU): CO2 is captured and substituted for fossil-based carbon in construction products, chemicals, or fuels.
  • Removal of CO2 from the atmosphere: CO2 from the atmosphere and biogenic sources is captured and permanently stored via technological methods.

As of 2024, around 41 commercial CCS and CCUs are already in operation, and another 351 are in development globally, according to the Global CCS Institute. The operating facilities can already store 49 million tons (0.049 gigatons) of CO2 annually. Yet, that’s only 0.13% of the total yearly CO2 emissions (roughly 37.7 gigatons), generated by global industrial activities and that’s not enough.

The agriculture and forestry sector has a major potential to become the key player in the emerging carbon management ecosystem.

The photosynthetic process of plants removes carbon dioxide from the atmosphere, creating new oxygen. As a result of this biochemical process, carbon is sequestered in the biomass and in the soil in the form of organic matter — a key element of soil fertility and health — adding extra benefits for the agro-producers.

According to the European Commission estimates, the untapped soil organic carbon (SOC) stocks in the EU-27 soils range from 34 gigaton (Gt) to 75 Gt — and over 55% of the climate mitigation potential in the agricultural sector lies with better agricultural soils and manure management.

Globally, soil carbon sequestration on agricultural lands could offset 35% of agriculture’s 85 gigaton of the estimated historical carbon debt – the amount of carbon released into the atmosphere due to anthropogenic impact, as modeled by the study. Another research from IPCC suggests that the global technical mitigation potential from agriculture by 2030 is estimated to be up to 6 gigatons of CO2 per year. However, effective carbon offsetting will require more effective cross-sectoral collaboration.

The Current State of the Carbon Management Market Regulations

Regulatory CCS and CSU frameworks are already emerging as countries work toward the approaching net-zero goals, set for the 2030-2050s. In the EU, these include:

  • The Corporate Sustainability Reporting Directive (CSRD). Starting from the 2024 financial year, large companies and listed companies must provide sustainability disclosures in their annual reporting, including investments in the reduction of carbon emissions.
  • The EU Emissions Trading Scheme (ETS) created a cap-and-trade market for trading emissions among companies. Effectively, larger emitters can purchase carbon offset credits from more sustainable peers after exhausting the allocated free allowance. The system already concerns large industrial players and energy companies, but it is set to cover transportation, construction, and other sectors soon too.
  • Carbon Border Adjustment Mechanism (CBAM). Starting from 2026, certain imported goods (such as cement, steel, and ammonia) will be subject to an ETS-linked price under the CBAM.
  • The directive on the geological storage of CO2 (CCS Directive) established extensive requirements for selecting sites for CO2 storage and ensuring secure carbon transportation.
  • The Net Zero Industry Act (NZIA), currently at the proposal stage, sets a target for developing at least 50 million tons of CO2 storage capacity by 2030 in geological storage sites, including depleted oil and gas fields and saline aquifers. The proposed legislation requires EU oil & gas producers to contribute to this pro-rata target based on their oil and gas production rates.
  • The Carbon Removals and Carbon Farming (CRCF) Regulation, adopted on 10 April 2024 as a provisional agreement, established a voluntary framework for certifying carbon removals, carbon farming, and carbon storage in products across Europe. It sets the monitoring and reporting processes, designed to promote sustainable carbon farming and addresses greenwashing concerns.

In the US, several federal programs are already in place, concerning carbon offsetting and reporting. The Greenhouse Gas Reporting Program (GHGRP), applicable to facilities that emit over 25K+ metric tons or more of CO2 per year, requires operations to monitor, report, and verify their emission levels following the provided methodologies. To incentivize the adoption of CCS technologies, the government created Section 45Q Tax Credit — a federal tax credit per metric ton of CO₂ captured and stored. 

The New Source Performance Standards (NSPS), adopted in April 2024, also mandates coal-fired power plants and new base-load gas-fired plants to capture 90% of their CO2 emissions by 2032.  

Besides federal regulations, some states have their own rulings on the matter. California, similar to the EU, has implemented a cap-and-trade program to promote emission trading. 

On a global level, additional regulatory mechanisms exist. China and South Korea have similar programs in place. Indonesia has also established regulations for Carbon Capture and Storage (CCS) projects, particularly in the context of oil and gas production sharing contracts. CSS project operators receive special credits for their participation. 

Fundamentally, emerging regulations emphasize two things:

  • Adoption of carbon accounting practices to quantify the business climate impacts and reporting on respective offsetting activities.
  • The emergence of regional and global carbon trading markets, designed to help sustainable-oriented businesses fund their transformations through carbon certificate trades and large emitters to avoid regulatory angst through financial participation.

Altogether, it encourages companies to pay extra attention to their carbon footprint and start preparations to become an active participant in the emerging market.

3 Key Challenges in Carbon Management

Although many businesses wish to accelerate their journey to net-zero operations, they are facing substantial challenges, primarily in data collection, carbon accounting, and carbon credits trading.

Accurate Carbon Data Collection

Although regulations press for emission disclosures, 70% of UK and EU businesses aren’t yet calculating scope 3 emissions data, according to the Carbon Accountability Report 2023. The majority (91%), admit the need to improve ways of collecting and using carbon accounting data for reducing their environmental impact.

In the manufacturing sector, for example, organizations struggle to integrate internal and external data from various operating systems (MES, IoT platforms, logistics platforms, etc.) and run analytics against available data due to silos. Implementing appropriate data collection practices could help address the issue of measurement.

In the case of agriculture, the two main approaches how to measure carbon sequestration are:

  • Model-based: Using a combination of satellite, weather, and soil mapping data, organizations can create soil carbon analytics models to gain predictive estimates without repetitive sampling.
  • Sampling-based methods like estimating root biomass, tree measurements, or direct SOC sampling require frequent field trips and specialized audits from designated agencies.

Modern approaches to carbon sequestration modeling can provide accurate insights even with limited data, addressing the obstacles of earlier time-series, deterministic models like ​​RothC and Century. Likewise, several simpler analytics models exist to measure the carbon footprint of farming operations.  

Essentially, what both agro and manufacturing businesses need is a better architecture for data collection, management, and analytics.  

For example, Arla, big agricultural cooperative from Denmark, developed a dairy farm carbon measurement tool for its cooperative farmer-owners based on the Dairy Federation (IDF) guidelines on Carbon Footprint methodology and IPCC (Intergovernmental Panel on Climate Change) guidelines. To provide an accurate estimate, the model factors in data on animals, use of fertilizer, waste, and manure handling, use of fuel and energy, and emissions from peat soils, among other parameters.  

The model helped Arla establish a baseline of its carbon emissions: 1.15kg of CO2e per kg fat and protein corrected milk (FPCM) and then work suggest personalized strategies to its suppliers for optimizing their carbon footprint such as improving feed efficiency, land, and fertilizer use among others. By implementing all the generated recommendations, the participating Arla farms in Denmark increased protein efficiency by 4%, yield efficiency by 1%, and obtained feed savings, not to mention the benefits of lower carbon emissions.  

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Real-Time Monitoring and Reporting on Carbon Usage

Establishing an effective carbon data collection process is crucial for carbon accounting — the ongoing process of quantifying the number of GHGs produced and offset from the business activities.

Carbon accounting software helps record and analyze emissions embodied within different operational processes for regulatory reporting. By consolidating data from different sources and running the necessary analytics, carbon accounting tools help track your performance against (self)imposed targets, maintain a clear audit trail, and take data-driven ESG decisions.

Plenty of new and established vendors already offer carbon management software. SAP ERP, for example, has a Sustainability Footprint Management module, which helps analyze carbon data from all connected systems: SAP S/4HANA Cloud, energy management software, and third-party sources to gain end-to-end visibility into your corporate and product footprint. You can configure it to track emission rates for specific products, segments of the supply chain, or the company at large, and embed this data into business processes to inform your strategy.

Over 30 companies in Europe also offer carbon emissions management software, of which 11 were founded in the past three years. DeepKi, for example, developed ESG reporting software for the real estate industry, enabling builders to centralize data collection from 1,000+ sources on one platform and build custom analytics dashboards. Emitwise built a carbon management platform that allows leaders to estimate supplier emission factors and make more informed procurement decisions.

Lastly, if no off-the-shelf carbon management solution fits your operational scenarios, there’s also an option of building a custom product. The Infopulse team would be delighted to help in this area.

Preparing for a Single Regulated Carbon Offset Market

Some industries face greater challenges than others in reducing their carbon footprints due to a much larger scope of transformations. To incentivize progress and reward players ahead in their journey, governments worldwide are implementing emissions trading schemes.

Apart from the EU, 35 other emission trading schemes are now in place and another 22 are under consideration for development, according to the 2024 ICAP Status Report. Jurisdictions, that generate 58% of the global GDP, are already using ETS systems, which produced over $74 billion in revenue in 2023.

As the interest in trading carbon credits are increasing, especially in agriculture and forestry, most likely, a single regulated emission trading market will soon emerge. Especially in the EU, where the European Commission recently announced the plan to make “CO2 a tradable commodity for storage or use within the EU's single market” by 2040.

For businesses, the emergence of a unified ETS would require better capabilities for carbon certificate generation, storage, and management. Currently, most of the market participants rely on third parties for that, with little regulatory oversight given to the process, leaving loopholes for double-trades.

However, this may change as players from the financial services sector take over the trading process and establish new mechanisms for certificate listing, audits, trading, and redemption. Some analysts are discussing the emergence of a European Central Carbon Bank to govern the carbon offsetting market. At any rate, new software systems will be required to support the primary and secondary ETS trading markets.

Conclusion

Net-zero transition requires substantial capital investments from the businesses. However, successful transformations also bring tangible ROI. IMF estimates that the global gross domestic product can become 7% higher after net-zero transition than under current policies. Sustainable companies are already enjoying higher consumer affinity and greater support from investors and shareholders. Over half of investors plan to increase their sustainable investments portfolio this year.

By investing in carbon management solutions today, leaders are building a baseline for future resilience and competitiveness. Contact Infopulse to learn more about different options for improving your carbon management capabilities using digital technologies.

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About the Author

Iurii has 15 years of experience in AgTech industry with strong expertise in precision farming and horticulture digitalization. As a Solution Advisor for AgriFood at Infopulse, Iurii facilitates communication in Agriculture projects, helps clients to determine their business needs, and builds industry knowledge of the company. Iurii holds Master degree for Agronomy, MBA with focus on Marketing and was one of the founders of AgTech Ukraine association. Since 2017, Iurii's main focus has been on IT solutions development for the AgriFood market and Digital Agriculture consulting for startups and international organizations like FAO, EBRD and IFC.
iurii-petruk-chb

Iurii Petruk

Solution Advisor for AgriFood

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