TL;DR: CO2 is by far the largest contributor to the climate crisis and rightfully the largest market. It might be surprising to some that there is no significant tradable market for 1/4th of the total global greenhouse gas emissions - methane & nitrous oxide (N2O). It’s possible to buy and sell carbon credits (CO2) but not methane & N2O credits. The total market value of the latter two gases is close to $40T. Media coverage and thus research & businesses focus almost exclusively on CO2. The vast methane & N2O markets need to be unlocked now to avert the climate crisis.

Credit price estimates can be calculated using the 20-year global warming potential (GWP-20). E.g. CO2 = 1 GWP-20, Methane = 72 GWP-20 → Methane is 72 times worse for the climate per kg than CO2 over 20 years. Therefore, it should have a 72x higher price. The total market value estimates for methane and N2O are 24.4T$ & 14.28T$ respectively.

Avoidance and removal strategies are listed in the book Speed & Scale. [11] Methane & N2O direct air capture seems hard and far away but might be worth it. To save us from the climate crisis we must research, lobby, educate, sell and especially build.

GHG = Greenhouse Gas, N2O = Nitrous Oxide, Global Warming Potential = GWP - I don’t like abbreviations but these 3 shorten the article quite a bit ;)

CO2 is the greenhouse gas (GHG) with the biggest total negative impact on the climate. It receives almost exclusive media coverage among GHGs and thus research & business focus. GHGs other than CO2 - e.g. Methane, N2O, CFCs - contribute less to global warming in total but are much worse on a per kg basis. It appears that there are no significantly-sized tradable markets for gases other than CO2. It is paramount to put a price tag [USD/kg] on the most relevant other GHGs to open new markets which - hopefully - will incentivize fewer emissions and more removal.

The IPCC (Intergovernmental Panel on Climate Change) writes comprehensive reports on the state of the atmosphere. The panel regularly releases figures on the atmospheric composition and recent changes. Their 2017 report lists 19 GHGs. [2] I’ve selected six of those gases (as seen in the tables below) to calculate their total contribution to the climate crisis (CO2, Methane & N2O) as well as representatives from other groups such as 1st and 3rd generation fluorine-based gases. [6]

In this article, I’ll try to make educated guesses for the following parameters:

As a result, we can assess what could be earned by companies that:

The global warming potential (GWP) is a relative measurement of how much heat a GHG absorbs compared to CO2. Let’s take methane as an example:

Formula: GWP = heat absorption of a particular GHG / heat absorption of CO2

Example: methane absorbs 72 units of heat / CO2 absorbs 1 unit = the GWP of methane equals 72

The IPCC publishes figures on GWP [1]. GWP is measured in various time horizons. GWP-20 refers to the heat relative heat absorption potential to CO2 in a 20-year time period.

The (atmospheric) lifetime is the number of years it takes to restore equilibrium in the atmosphere following a sudden increase or decrease in the concentration of a certain GHG. One can clearly see that lifetime [2] partially affects GWP values. Methane absorbs more heat than CO2 but has a much shorter lifetime, therefore a high GWP-20 but lower GWP-100 since after 100 years many of the molecules already have decayed into other gases.

Note on CO2 lifetime: “Energy cannot be destroyed nor created; it can only be changed from one form to another” - Albert Einstein. In an analogous way, atmospheric CO2, as opposed to many other GHG, doesn’t decay over time. It is merely transformed into other forms over time. 65-80% of CO2 released from human activity equilibrates among the various carbon reservoirs of the atmosphere, the ocean, and the terrestrial biosphere within 200-2000 years. The remaining 20-35% take many thousands of years - almost forever - to be removed by weathering processes and deposition of calcium carbonate. [28], [29]

Should we use GWP-20, GWP-100, or something else as the basis for our price calculations? I suggest using the 20-year global warming potential (GWP-20) to calculate the price per kg. Why?

The logical argument: The next 20 years are critical our last chance to stay below a 1.5°C temperature increase from pre-industrial levels. The market incentives should therefore be aligned with physical reality - the impact of GHGs over the next 20 years.

Put more emotionally: “We are the first generation to feel the effect of climate change and the last generation who can do something about it.” - Barack Obama

I’ve used a CO2 price of 100 USD per ton (0.1 USD per kg) which is close to the price of the European Union's carbon market as of writing this article (April 2022). [4] [5] Currently DAC (Direct Air Capture) is more expensive than that and captured CO2 from cement factories is cheaper. The point is not to calculate a perfect price but to showcase the fair market value of removing those gases.

One can think of these estimates as a logical continuation of quantity instruments like the European Emissions Trading Scheme (EU ETS). In a best case scenario estimates like these would serve as policy recommendation for top-down activities (GHG trading of gases other than CO2) or "pricing/marketing advice" to bottom-up activities (transparent pricing to customers + green premium).

A sensible extension of this pricing model would be a parameter which reflects the social cost of carbon as the relative social & health harmfulness compared to CO2 of a GHG might not match it’s global warming potential (GWP) relative to CO2.

To calculate the total market value, we need data on

*The atmospheric composition of the year 1750 is usually used as a reference for ‘pre-industrial levels’ i.e. before significant changes to our atmosphere due to human activity began.

Example of how I calculated the total market value of all methane humanity has added to the atmosphere to date.

— calculations, feel free to skip this part —

Before we start our calculation, a few useful terms:

The 2017 IPCCC report contains data on global annual mean surface dry-air mole fractions

To get the latest mole fraction figures for the most significant GHGs, I’ve used additional sources listed below.

Calculating the amount of CO2 added to the atmosphere between 2017 and 2022:

— calculations end —

Performing the calculations for our 6 GHGs we get the total number of kg per GHG added to the atmosphere from 1750 to 2022. Multiplying by the price per kg gives us the total estimated market value of these gases shown in the table & chart below.

Note: Our World in Data (OWID) states that 1.5Tt CO2 were emitted since 1751. [33] I’ve calculated the difference between atmospheric CO2 levels then & now (not the total emissions). I think my number (1.09Tt CO2) is lower since it is estimated that a quarter of CO2 emissions are absorbed by the oceans each year. [34] “Tell me how I’ll die so I’ll never go there” - Charlie Munger. It’s good to know where one is wrong. Feel free to send me errata via Twitter @chrisbernkopf

The same numbers in a more visually appealing format:

Note: The market shares (percentages) are not a perfect representation of reality as we have only added selected gases out of the CFC groups. Since most of these gases play an insignificant role in relative terms, we’ve excluded them from our calculations. Please note that I am not saying that e.g. CFCs shouldn’t be banned, illegal production halted and all remaining sources of CFCs safely disposed of. CFCs are really bad (CFC-11 GWP-20: 6,730).

CO2 is by far the largest contributor to the climate crisis and rightfully is the largest market. What might be surprising to some readers is that the total estimated market size for methane and N2O combined is ~$40T. This represents 1/4th of the total global GHG market. The vast methane & N2O markets need to be unlocked now to avert the climate crisis.

Should there be separate markets for CO2, methane & N2O?

Some companies currently offer “CO2-equivalent” carbon credits, meaning customers can indirectly buy methane/N2O offsets. From a scientific standpoint, it doesn't matter if companies sell & buy CO2-eq. carbon credits or methane/N2O credits. I've noticed that many CO2-eq. carbon credit conversions are based on GWP-100. This doesn't seem to be in line with the 1.5°C goal which focuses on the next ~20 years.

While I think using GWP-20 is great as an initial price estimate for GHG credits, the market should decide how to price removal of these gases. I could imagine that methane would be priced lower than what its GWP-20 value would suggest because of its short lifetime and N2O priced higher due to its century-long lifetime. Price discovery of individual GHG credits is not possible if CO2 & other GHG markets are linked via a fixed "FX" rate (CO2-eq.).

As a side note, I think the discussion on CO2-eq. carbon credits is more important for the regulatory market than for the voluntary one. In the voluntary market, rules can be changed quickly because they are not created by governments and since it’s a free market you can sell pretty much whatever you want.

From a marketing/raising awareness standpoint, it could be better to have separate markets since it could be easier to advertise/explain. I might be wrong here since people already understand and are used to carbon credits.

Avoidance (and Reduction)

Where do emissions come from? There are lots of great articles on this subject so I’ll summarize: [10]

The book Speed & Scale [11] lists a host of key results which to avoid and reduce not only CO2 but also Methane & N2O. Some selected examples:

*"There’s one world but two coal worlds" - Prof. Giacomo Luciani. The developed world mostly has coal plant fleets with lifetimes approaching end of cycle, thus easy to phase out fast. The developing world - especially China & India - have coal plant fleets with an avg. age of ca. 15 years and hence are today not even at 50% of their LTV. It seems improbably that they Chinese & Indian grid will be decarbonized that quickly. [30], [31]

Below are examples of organizations doing great things in avoidance, reduction (and tracking). How much should these organizations earn? There are many frameworks to assess the impact and quality of climate projects. [22] Let’s use these 4 parameters: Emissions reduction projects should be: Additional (wouldn’t happen anyway), Measurable, Permanent (100s-1000s of years), Scalable.

*I didn’t factor in any other emissions from cattle farming & what that means per kg of feed sold. Also, until such solutions are available at scale, switching to lower-emissions proteins, especially replacing beef & dairy products, has a big impact on dietary-related emissions.

Removal

CO2 direct air capture seems to be working and cost per ton seems to be dropping. Carbon Engineering [16] is building a 1 megaton carbon capture facility. The price per ton is rumored to be around 200$. Other companies have published price projections rivaling CO2 capture from industrial facilities such as cement plants: Capturing from cement company: 35-40 USD, Verdox - 40-80 USD [17], Prometheus - 36$ after synfuel sales. [18]

Unfortunately, there is Sherwood’s Rule. It states that separation costs tend to scale linearly with dilution. [19] Methane concentrations are 218x lower than CO2 in the atmosphere. According to Sherwood’s Rule, methane extraction from the air should therefore be 218x more expensive than CO2.

There are lots of cheap ways to avoid the majority of methane emissions (see above). Coupled with a short atmospheric lifetime, it’s reasonable to assert that capturing methane is not a priority. There is, however, one edge case: It’s likely that if we surpass a certain global avg. temperature increase threshold - also referred to as a tipping point - natural releases of GHGs would drastically increase. In the worst case, this could lead to a runaway greenhouse effect. [20] Example: Methane is released from sources like the thawing permafrost, which would raise temperature levels which would accelerate methane release creating a dangerous flywheel effect. Hence it is a good idea to develop methane capturing technology as a backup.

It is even harder to capture N2O according to Sherwood’s Rule since it has concentrations 1252x lower than CO2. Yet at a GWP-20 of 289 coupled with a lifetime of 131 years, it’s likely that we will return to 1750 N2O levels much later than CO2, which has working soon-to-be affordable DAC, and methane, which has a 14.4x shorter lifetime (meaning avoidance has an impact much sooner). It’s probably worthwhile trying to search for removal methods even if they are expensive [21], since paying ~125,200 USD/ton long term would be reasonable according to our price estimates (remember: 100 USD/ton of CO2). Until such technology is found, which could take a long time, one could think of removing CO2 below pre-industrial levels to get to 1750 temperature averages quicker.

Note: I believe the goal should not only be to stay below 1.5°C but to return to 0°C ASAP.

Conversion

Out of avoidance, removal, and conversion, the latter seems to be the least important. Nevertheless, there are some short-term strategies that could have some impact. By burning 1kg methane, 2.75kg of CO2 is generated. [27] This replaces 1kg x GWP-20 of 72 with 2.75kg x GWP-20 of 1, meaning reducing the climate impact 26.2 fold. Note that this doesn’t tackle our main methane-related challenges: reducing consumption, plugging supply chains holes, and ending intentional release.

I don’t know enough about N2O and fertilizers to answer if conversion is possible. Feel free to send me interesting things via Twitter @chrisbernkopf

In summary: (1) lobby, (2) build & sell, (3) educate.

It seems obvious that lobbying for regulated and voluntary methane and N2O markets with methane and “nitrogen” credits to incentivize avoidance, capture and conversion is a good idea. Still, many startups which start selling (voluntary market) carbon credits before being approved by the big certification players like Verra and GoldStandard. Their customers trust them and they go out of their way to document why their credits are legit. If the only thing one needs to start selling methane and “nitrogen” credits is building great physical and digital products for customers, educating customers and raising awareness is paramount. In this article, I’ve tried to do my part by showcasing how much value is in those markets.

We need to do everything in our power to curb emissions and capture released GHGs.

Projections estimate that the policies & technologies we have implemented so far have lead us from a 4.1-4.7°C warming path to one of 2.7-3.1°C by 2100. [11] We’ve shaved off more than 1°C already. But in the words of John Doerr “we have no time for a victory lap”. Much work is still to be done, outcomes are uncertain and success is not guaranteed. As Carl Sagan put it, “there is no search party coming to rescue us”. We have to solve this problem on our own.

Some believe that it’s all lost already, that failure is inevitable and there is no need to try anymore. In the face of high uncertainty, hope seems to be a good strategy. Anecdotally, hope’s placebo effect can change the chances of success, sometimes dramatically. Even with high uncertainty if we’ll stay under 1.5°C, isn’t it most rational to try to maximize our chance of success? Then, even the most ardent critic must concede that hope is the best strategy we have.

Until we can’t continue, we can’t give up. It’s time to build 🖖 [32]

PS: I’d love to start an Advance Market Commitment Alliance like FrontierClimate for methane & N2O. If that excites you, drop me a line at @chrisbernkopf

Thank you Art, Christoph, Skander, Megan, Karen, Philip and Markus for reviewing drafts of this article.

Sources

[1] https://archive.ipcc.ch/publications_and_data/ar4/wg1/en/ch2s2-10-2.html

[2] Page 166: https://www.ipcc.ch/site/assets/uploads/2017/09/WG1AR5_Chapter02_FINAL.pdf

[3] Page 167: https://www.ipcc.ch/site/assets/uploads/2017/09/WG1AR5_Chapter02_FINAL.pdf

[4] https://www.reuters.com/business/energy/europes-carbon-price-nears-100-euro-milestone-2022-02-04/

[5] https://ember-climate.org/data/data-tools/carbon-price-viewer/

[6] https://www.linde-gas.com/en/products_and_supply/refrigerants/index.html

[7] https://climate.nasa.gov/vital-signs/carbon-dioxide/

[8] https://gml.noaa.gov/ccgg/trends_ch4/

[9] https://public.wmo.int/en/media/press-release/greenhouse-gas-bulletin-another-year-another-record

[10] https://www.epa.gov/ghgemissions/overview-greenhouse-gases

[11] https://speedandscale.com/

[12] https://www.alga.bio/

[13] https://www.orbillion.com/

[14] https://cdn.catf.us/wp-content/uploads/2021/12/13024754/CATF_EUMethane_Report_Proof_12.10.21.pdf

[15] https://www.youtube.com/watch?v=-xBXwfI1FWM&ab_channel=DWPlanetA

[16] https://carbonengineering.com/news-updates/uks-first-large-scale-dac-facility/

[17] https://verdox.com/

[18] https://news.ycombinator.com/item?id=27824844

[19] https://www.researchgate.net/figure/A-Sherwood-plot-showing-the-relationship-between-the-concentration-of-a-target-material_fig1_51854818

[20] https://archive.ipcc.ch/meetings/session31/inf3.pdf

[21] Practical constraints on atmospheric methane removal: https://www.nature.com/articles/s41893-020-0496-7

[22] https://www.uebermorgen.vc/press/carboncredits

[23]  Cows live 2.5 years before being slaughtered [https://a-z-animals.com/blog/cow-lifespan-how-long-do-cows-live], emit ~100kg of methane/year [https://timeforchange.org/are-cows-cause-of-global-warming-meat-methane-co2/] and average around 250kg of retail beef [http://www.steakboyz.com/howmanysteaks/how-many-steaks-from-a-cow] -> 1 methane-kg per beef-kg

[24] https://en.wikipedia.org/wiki/Perverse_incentive

[25] https://wwd.com/business-news/business-features/as-europe-moves-closer-to-total-pfc-ban-u-s-brands-will-be-forced-to-detox-1203496838/

[26] https://www.eea.europa.eu/ims/hydrofluorocarbon-phase-down-in-europe

[27] https://www.engineeringtoolbox.com/co2-emission-fuels-d_1085.html

[28] https://www.annualreviews.org/doi/abs/10.1146/annurev.earth.031208.100206

[29] https://www.nature.com/articles/climate.2008.122

[30] https://www.nature.com/articles/s41467-019-12618-3

[31] https://www.weforum.org/agenda/2021/09/guest-post-how-world-s-coal-power-pipeline-has-shrunk-by-three-quarters

[32] https://a16z.com/2020/04/18/its-time-to-build/

[33] https://ourworldindata.org/contributed-most-global-co2

[34] https://www.carbonbrief.org/guest-post-the-oceans-are-absorbing-more-carbon-than-previously-thought

[666] Wikipedia