Carbon credits and electric vehicles
Updated: May 26, 2022
Trying something new in this edition where instead of three unrelated stories, we are putting together three stories which are sort of related but still follow the format of the newsletter; 1 concept, 1 big company; 1 emerging technology / start-up. Let us know if you like it or not here! Also, we would also love to hear your ideas on how to expand the reader base here. Happy Monday!
What to expect today:
What are carbon credits?
A carbon credit is generated by projects that help reduce, remove or avoid greenhouse gases. They are certificates representing the quantities of greenhouse gases that have been kept out of the air or removed from it. 1 carbon credit = 1 metric ton CO2 emission or equivalent greenhouse gas emission.
There are two types of carbon credits:
Certified emissions reduction (CER): Emission units, or credits, created through a regulatory framework (equivalent to a strong investment grade bond; think AAA rated bonds)
Voluntary emissions reduction (VER): A carbon offset that is exchanged in the over-the-counter or voluntary market for credits (equivalent to a lower grade bond; think BBB rated bond)
A brief history
Carbon Trading started in 1997 when some 180 countries signed the Kyoto Protocol. The Protocol called for countries to reduce their greenhouse gas emissions between 2008 – 2012 to 5% below 1990 levels, an easy target (in hindsight) that was unfortunately never met (George W Bush pulled out of the agreement in 2001 shortly after taking office and then the rest of the countries followed. Sounds familiar? Don’t worry, we will cover the Kyoto protocol and the Paris agreement in detail in a separate post, stay tuned!). The good news is that the Kyoto Protocol laid the framework for creating, certifying and trading carbon credits which are still used today.
How are carbon credits used and how much are they worth?
Companies buy and sell those credits in a voluntary carbon market as a way to offset their emissions — when a credit is claimed, it can no longer be sold. Project developers or companies when undertaking projects which are good for the environment can get certified and receive carbon credits and sell them to companies looking to offset their emissions. The quality of the certificate (the body approving the certificate) determines the prices of carbon credits. In current carbon markets, the price of one carbon credit can vary from a few cents per metric ton of CO2 emissions to $15/mtCO2e or even $20/mtCO2e. Tesla, for example, sold $2.4 bn worth of credits to Stellantis between 2019 and 2021.
Source:Wikipedia,S&P Global Platts
Climate action at General Motors
Back in January this year, General Motors announced that it will completely phase out vehicles using internal combustion engines by 2035 and the automaker will go completely carbon neutral in all global products and operations by 2040.
GM’s sustainability goals
While GM has laid out multiple goals across emissions, renewable energy production, water consumption, waste management and recycling, we want to highlight the emission goals in this edition. There are two primary goals w.r.t emissions:
General Motors commits to reduce absolute Scope 1 and 2 GHG emissions 72% by 2035 from a 2018 base year
General Motors commits to reduce Scope 3 GHG emissions from use of sold products of light-duty vehicles 51% per vehicle kilometer by 2035 from a 2018 base year
(For reference, Ford has an oddly similar target of reducing Scope 1,2 by 76% by 2035 and Scope 3* by 50% per vehicle kilometer. Tesla on the other hand has not reported sustainability goals or their emissions footprint. Tesla is among 15% of the world’s largest companies that do not disclose their overall greenhouse gas emissions, ironic isn't it?)
How big is the impact?
While we discussed the concept of intensity vs. absolute numbers in the last edition, we would reiterate that all emission must be looked at from an absolute calculation and not from an intensity lens. Just look at the second bullet, 51% for light vehicles per vehicle-kilometer. Should have added a couple of more caveats don’t you think? The good news, unlike McDonald’s case last time, is that GM has reduced absolute emissions as well:
Scope 1: 1.2 mil metric ton ( - 29% 2020 vs. 2018)
Scope 2: 2.6 mil metric ton ( - 34% 2020 vs. 2018)
Scope 3: 249.3 mil metric ton (- 6% 2019 vs. 2018)*
(*it can take upto a year to accurately determine scope 3 emissions; for a quick primer on Scope 1, Scope 2 and Scope 3 emissions, check out our Archives)
Source:ABC News,GM Sustainability
Sustainable lithium extraction
As consumers, we rely on lithium-ion batteries to power everything from smartphones to electric vehicles. While demand is soaring, lithium extraction has potentially severe environmental consequences. To extract lithium, miners drill a hole in salt flats and pump salty, mineral-rich brine to the surface. After several months the water evaporates, leaving a mixture of manganese, potassium, borax and lithium salts which is then filtered. Unfortunately, the lithium extraction process uses a lot of water - approximately 500,000 gallons per metric ton of lithium. A typical EV car has about 8 kg or 17 lbs of lithium in its battery pack, equivalent to using about 4,000 gallons of water (for reference, that is roughly equal to water usage of 1 person in India for 4 months).
Lilac Solutions, a start-up in Oakland, California, is in the process of closing a $150 million funding round to develop technology that dramatically lowers the amount of land and freshwater needed to extract lithium from continental brines. The 35-person start-up has developed materials called ion-exchange beads for lithium extraction which has the ability to extract as much lithium from a one-acre system as the traditional method would get from a 10,000 acre system. The company loads the beads into a big tank where a brine resource is located. As the brine flows through the tank, the beads absorb lithium out while rejecting contaminants in the water, like sodium, magnesium, calcium and boron. The system flushes the beads with hydrochloric acid to produce lithium chloride and then converts it into a powder form of lithium, which automakers need to produce their battery cells.
The market for recycling batteries is also heating up. Redwood Materials, a battery recycling company founded by Tesla co-founder and former CTO JB Straubel’s has raised $800m so far.
Source:CNBC,Institute of Energy Research
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CNBC - Inside look at Redwood Materials’ first recycling facility