The Danish CDR Deal: Clarified and Reclassified

Introducing a New Category of Carbon Removal Contracts: Delivery Agreements

The world of carbon removal (CDR) is constantly evolving, and keeping track of the various types of agreements and contracts is essential for transparency and accuracy.

Recently, the Danish Energy Agency awarded carbon removal contracts to three companies: BioCirc, Bioman ApS, and Carbon Capture Scotland. This award, worth 1.1 million tonnes, was the second-largest CDR deal to date and pushed the cumulative CDR tonnes sold figure on CDR.fyi beyond the 7 million mark. Initially, we recorded these transactions as traditional sales, but a deeper dive into the nature of these agreements, including discussions with the relevant companies, revealed more nuance.

To better convey the complexities of various CDR agreements, we are introducing a new data field for the "Type of Agreement". This field will help differentiate between the distinct natures of different CDR transactions. Going forward, an order will fall into one of three types:

1. Credit Sale:

A Credit Sale will be any agreement for the sale of carbon removal credits. Whether the credits are for future or immediate delivery can be seen in the "Status" category, denoted as ‘Delivered’ and ‘Undelivered’.

2. Delivery Agreement:

Delivery Agreement is a new category covering legally binding commitments to deliver carbon removal tonnes without the immediate sale of credits. The aforementioned Denmark deal is one example of a Delivery Agreement, as is the Danish award to Ørsted for 430,000 tonnes per year for 20 years, of which Microsoft purchased 2,67 million tonnes. Delivery agreements differ from subsidies that are paid out depending on how much is removed, like the US 45Q, but where there is no commitment to deliver a set amount of tonnes. To date, the known instances of these delivery agreements have been contracts with governments, and in most cases, require the sale of credits for the business case to be viable. (Note that the delivery of carbon removal stemming from credit sales in some cases may also be contingent on future, not yet awarded, state support.)

3. LOI/MOU:

Letters of Intent (LOI) and Memorandums of Understanding (MOU) are generally non-binding preliminary agreements that are not legally enforceable final sales or delivery commitments. Historically, they have been classified in the "Status" field, along with the statuses of “Delivered” and “Undelivered”. Going forward, we will move LOIs and MOUs into the Type of Agreement field.

Why the Change?

After discussions with the three suppliers, it became clear that BioCirc and BIoman’s contracts with the Danish government only cover a portion of their removal costs and that they will need buyers for the generated credits to ensure successful deployments. This is not the case with the third actor, Carbon Capture Scotland, who were awarded a higher price per tonne, albeit for a lower volume. They intend to deliver the removal without the need for an additional Credit Sale.

In our leaderboards, we will only display sales from Credit Sale, not delivery agreements. As a result, Denmark will be removed as a purchaser in the leaderboards, and the volume decreased accordingly. Please see our updated methodology page for more information.

At CDR.fyi, we aim to provide comprehensive and transparent coverage of the carbon removal market. The Danish CDR deal is a landmark moment, but it also highlights the need for nuanced reporting in the carbon removal sector. By tracking and reporting on "Delivery Agreements", we all gain foresight into the volume of carbon to be removed, even if it’s not in the form of sold credits. We are confident this approach will ensure we more accurately convey the full picture of the market’s potential and the various paths companies take to achieve their carbon removal goals.

Cover Photo - Original - by Adrian Cuj on Unsplash