Carbon Credit Market Seizes On a New Opportunity: Plugging Oil and Gas Wells - Inside Climate News

As he toiled away in North Dakota, to keep the methane from leaking from well sites, Tyler Crabtree felt an inner urge to seek out a better way of dealing with climate change. With each passing day, he became more aware of the scale of the problem, and he felt that it was time for the industry to take more proactive measures. Seeking answers, Tyler decided to embark on a journey of exploration to find an innovative solution to the problem at hand.

"I was really surprised to see that many operators don't invest enough money in maintaining a clean environment," he stated.

Afterwards, Crabtree established CarbonPath, a company located in Houston that introduces a different type of carbon credits, known as offsets. These offsets are acquired by sealing oil and gas wells. He came to understand that the majority of wells in the US do not extract a substantial amount of oil, and he recognized a chance to make them stop operation early. By doing so, he hopes to prevent methane emissions from escaping and heating the atmosphere at a rate that is 80 times faster than carbon dioxide. This could prevent a significant amount of fuel from getting trapped under the Earth's surface.

The CarbonPath company is involved in a developing field that combines carbon market funding with oilfield services to seal wells and create carbon credits, which are subsequently sold to companies attempting to meet emissions reduction targets and individuals who want to balance out their own negative effects on the climate. These fresh businesses pledge to offer confirmed, first-rate credits to a carbon market that has previously had significant calculation inaccuracies and unresolved ethical concerns.

Martijn Dekker, who is the chief executive of ZeroSix - a Houston-based company that provides carbon credits for the "early retirement of oil and gas wells" - has noted that the voluntary carbon market is currently facing a lot of inquiries regarding the authenticity of carbon credits. This is a prominent concern, especially within the voluntary carbon marketplace.

CarbonPath uses two distinct approaches to create carbon credits. The initial method entails the authorized closing of marginal wells, which produce a relatively small yet commercially essential quantity of oil or gas and typically emit methane. The CEO of the company, Crabtree, estimates the credit value by reviewing the likelihood of carbon emissions from the remaining fuel underground. A few other firms like ZeroSix and ClimateWells, situated in Austin, have also established parallel methodologies.

According to Crabtree, the solution is based on market forces. By setting a suitable price for carbon and utilizing the voluntary carbon market, you can encourage the closure of these wells before their intended lifespan.

CarbonPath has an additional approach that focuses on orphaned wells which are not currently in use, lack a proper owner who is accountable for them, and potentially could harm the groundwater. Moreover, in several cases, these wells are also discharging harmful gases such as methane and dangerous chemicals. Similarly to the previously discussed marginal wells, the quantity of methane emitted from these locations is either evaluated or estimated, and the carbon offset is based on the proportional amount of methane that is avoided from leaking into the environment.

According to research conducted by the Environmental Defense Fund (EDF), there are over 120,000 wells that belong to orphans in the United States. However, they estimate that there could be as many as 800,000 more wells that haven't been documented yet.

Exploring On A Tight Budget: Surface Level Only

The cost of plugging oil wells is generally around $75,000, which is quite expensive. Usually, as the wells age and become less productive, they get sold to smaller operators. When these operators can't afford to plug the wells, they tend to abandon them.

In 2021, the Infrastructure Investment and Jobs Act allocated $4.7 billion to state agencies to assist with the closure of inactive oil and gas wells. However, the director of the EDF's energy transition program, Adam Peltz, expressed that there is still a significant funding deficit to fully address this issue. He indicated that the amount of money provided is insufficient and the problem is far from being entirely resolved.

In May, CarbonPath introduced its approach for addressing orphan wells and started tackling 42 wells in Colorado. Crabtree expressed his aspiration to witness more oil enterprises donating resources to seal off these wells.

In the meantime, ClimateWells provides credits that help reduce emissions by sealing oil and gas wells ahead of schedule. The CEO of ClimateWells, Reid Calhoon, states that their methodology takes into account the release of both methane and benzene.

For two and a half years, he and his team researched the emissions from abandoned oil wells but concluded that they would only provide carbon credits for shutting down working wells. He was worried that using carbon credits to cover the cost of plugging abandoned wells might encourage companies to keep doing it. Instead, ClimateWells recommends that oil and gas producers plug wells that are reaching the end of their life cycle, preventing them from becoming abandoned later.

In case our program grows, we're convinced that it would put a complete stop to the abandonment of wells," Calhoon stated.

The initial ClimateWells project is currently in progress in the heart of Los Angeles.

According to data provided by the Environmental Defense Fund (EDF), there are over 565,000 marginal wells currently operating in the United States. These wells make up approximately 80% of all wells that are still producing, yet they only contribute to 6% of the country's oil and gas resources.

Prior to launching ZeroSix this year, Dekker held the position of vice president with Shell Oil for a quarter of a century. ZeroSix is currently making preparations to close its inaugural wells in either July or August and has been engaging in discussions with various oil and gas enterprises that are weighing up the possibility of ending operations on their wells prematurely with the aim of obtaining carbon credits, according to Dekker.

There is a significant need for carbon offsets of high caliber. However, Peltz, who works for EDF and considers himself a curious cynic of the feasibility of a carbon market that centers around sealing wells, has expressed his unease regarding "additionality." Essentially, what concerns him is the principle of "additionality" in the voluntary carbon market. This principle dictates that any funds generated through carbon credits must only be used for environmentally-friendly projects that would otherwise be unachievable.

When it comes to marginal wells, Peltz is concerned about the possible “moral hazard” of providing money to oil and gas operators to close them down, when these companies are legally required to close them in due course. Peltz has pointed out that there seems to be a lot of interest in this area, but not enough supervision.

Regarding the issue of abandoned wells, Peltz believes that carbon funding is definitely necessary, as it is the only way these wells will be addressed. This is a straightforward case for why the funding can be considered “additional”. However, Peltz also acknowledges the possibility of overlap with the government's own funds that focus on addressing the most harmful abandoned sites.

The nonprofit organization, American Carbon Registry, has come up with a way to turn avoided methane emissions from plugged orphan wells into offsets, just like CarbonPath. To ensure additionality, the organization's director of engineered solutions, Maris Densmore, decided to solely focus on orphan wells after receiving feedback through peer reviews and public comments.

According to Densmore, who is an expert in environmental geology, the level of methane is calculated and sealed to prevent further leakage. This process is crucial in generating credits, and there is no margin for error in the calculations.

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The approach is presently being utilized to seal leftover wells in Oklahoma. ClimateWells intends to examine how to utilize the same technique from the registry to give out credits.

Apart from the advantages for the climate due to the decline of methane emissions, Densmore suggested that the formation of a marketplace for carbon credits will give "a chance for individuals who seal off wells to have a consistent and trustworthy source of work that they can depend on."

'Permission To Keep Polluting?'

Regarding the carbon market in general, there are numerous skeptics. Barbara Haya, who manages the Berkeley Carbon Trading Project at the Goldman School of Public Policy located in the University of California, Berkeley, believes that it's necessary to start distancing ourselves completely from carbon trading. She thinks that offsets are detrimental as they are excessively overestimating the environmental benefits and acting as permission to keep emitting, which is incredibly harmful.

Although Haya is not knowledgeable about the different ways of sealing a well, she believes that numerous initiatives linked to carbon markets have achieved positive results. However, she argues that they do not recognize the pressing need to address the climate crisis.

Haya, who has been studying carbon credits for two decades, stated that we are facing a climate crisis and cannot afford to make deceitful reductions.

Haya thinks that calculating carbon credits is very difficult and uncertain. This is because they compare the reduction of emissions to a scenario that was never real, such as projected emissions of methane or carbon dioxide. Peltz also has concerns about the funding, including questions about how it is accounted for, if it actually leads to additional reductions, and whether it creates unintended incentives or moral dilemmas.

"I believe that the rush to introduce carbon finance to the well-plugging industry has overlooked and not thoroughly examined these factors," he expressed.

When it comes to selling carbon credits based on well plugging, companies argue that their methodologies have specific criteria in place, ensuring that the offsets are truly "additional" and can be properly verified. The companies state that the wells targeted for plugging currently provide financial benefits to oil and gas operators, and therefore would not be plugged prematurely unless there was an incentive in place.

Dekker stated that he doesn't have much respect for those who seek the flawless answer, as it could consume several decades before being achieved. Moreover, by the time it's accomplished, the Earth would likely be ruined.

The people at ClimateWells are aware of the concern that those who drill for oil will just find new places to drill and undo any progress made by shutting down older wells. This is known in the carbon credit market as "leakage," which happens when emissions are not actually prevented but instead just shifted elsewhere.

However, he explained that ClimateWells uses research from renowned organizations focused on oil and gas emissions to create unique market leakage accounting. Additionally, he emphasizes that the analysis performed on the well operator is incredibly accurate, cautious, and has undergone critical review by scientific peers.

The latest carbon credit firms pay close attention to every detail, including their names and accounting practices, to present their business in the best possible way. Crabtree, for instance, strongly dislikes the term "offset" as it does not truly reflect the company's goal. Instead, he feels that CarbonPath better describes their aim of generating "positive climate projects."

He mentioned that they don't avoid carbon, nor remove it, but they eliminate it instead. They have a technique that involves locking it underground.