Naoki Matsuo, Kiyoto Tanabe

As the global economy transitions towards carbon neutrality, innovative secondary energy sources are becoming increasingly pivotal. Hydrogen derived from zero-carbon power and synthetic fuels produced by bonding carbon dioxide (CO2) with hydrogen—hereafter referred to as Carbon Capture and Utilisation (CCU) fuels in this article—are expected to complement electricity as critical components in this transition. However, to incentivise the use of these alternatives, mechanisms must be in place to ensure that their adoption effectively translates into reductions in CO2 emissions for users.

With this in mind, this paper reviews the current issues related to the ‘attribution’ of GHG emissions or emission reductions for CCU fuels, reviews the current status and developments of the various relevant schemes, and identifies their challenges. It then categorises and proposes solutions:

CCU fuel characteristics and challenges arising from its counting methods:

CCU fuels are attracting attention for their potential as a new energy source that does not require changes to existing fossil fuel infrastructure and utilisation equipment. Although CCU fuels emit CO2 during combustion, their CO2 is recovered from what would otherwise be in the atmosphere, so long as the carbon content (C) of the fuel is focused on, fuel use does not increase global CO2 emissions. However, as long as the conventional counting rule—emissions are attributed to the physical emitting point—is applied, the fuel users are not incentivised to choose CCU fuels since they are identical to the fossil fuels under the rule. In order to design a system that promotes the use of CCU fuels, it is necessary to consider how to count the CO2 emissions associated with the production and use of CCU fuels, not bound by conventional approaches. In particular, clear international rules need to be set on which countries get the value of the emission reductions when they are traded crossing national borders.

Approaches to international rule-making:

Currently, the IPCC, ISO, EU, Japan and others are working on guidelines and rules directly or indirectly related to the handling of CCU fuels. Based on theoretical considerations and taking into account the content of these developments, this paper proposes the following approach:
• Basically, CCU fuels are counted by the user as fuels with zero emission factor during combustion. At the same time, at the origin of the CCU fuel, the counting method is adopted: ‘CO2 captured and used for CCU fuel synthesis is considered as not captured for convenience’;
• At the national level, possible approaches include (1) rule setting on the National GHG Inventory (IPCC Guidelines and relevant CMA decisions), which is used for accounting for the achievement of NDC targets; (2) adoption of national rules; and (3) transfer of ITMOs through bilateral agreements;
• It is best to set national rules for companies in each country that are also consistent with them; and
• Technically, the key point is how to guarantee “being CCU fuel” in the rules, such as certification of origin, and its emittability of captured CO2 in the baseline.

The potential of CCU fuels can be maximised if the rules are set up in a way that is as easy to understand, common and workable as possible. To this end, instead of simply waiting for the completion of the IPCC methodology report and the subsequent discussions in the CMA of the Paris Agreement, it is desirable to continue to provide opportunities for all stakeholders, including governments and industry, to engage in dialogue and harmonise the rules, and to support discussions in the IPCC and UNFCCC.