The Emerging Carbon Dioxide Removal Market – Eden McCallum Consultant Event

The following is a write up of an online discussion Eden McCallum hosted on the emerging Carbon Dioxide Removal market. It was informed by two expert guest speakers: Tom Previte, host of The Carbon Removal Show podcast and Account Executive at Supercritical, and Devina Banerjee, Associate Policy Director at Carbon Gap.

It is now widely understood that to reach net zero by 2050 and stay below 1.5oC of global temperature rise, dramatically reducing global emissions of greenhouse gases is not enough. As confirmed by the IPCC, we also need to remove carbon dioxide from the atmosphere – at an estimated rate of 10 Gt of carbon dioxide per year. To meet this challenge, the Carbon Dioxide Removal (CDR) market has emerged and – although still representing just 5% of the total voluntary carbon market – is growing and evolving rapidly.

Carbon removal can be broadly categorised into traditional and more novel methods, which fall on a spectrum between nature-based or technologically driven approaches. Generally, we are closer to deployment on traditional methods, which are cheaper but are less permanent; examples include afforestation and soil carbon sequestration. Certain novel methods are more expensive and require R&D investment to be realised, but offer more permanent solutions; examples here include direct air capture and ocean alkalinity enhancement.

Businesses can currently invest in these projects and can do so directly (although this is only for the largest companies as demonstrated by e.g. Microsoft and Shopify); or increasingly via intermediary platforms such as Supercritical. Buyers of carbon removal often invest in a portfolio of projects for two key reasons. Firstly, the market is nascent, and so we are unsure which methods will be able to be scaled effectively; investing in a range of projects will give each the best chance of taking off. Secondly and related, carbon removal is not limited to the current methods; more solutions will emerge.

For businesses, there are key benefits to investing in carbon removal. It is a good risk mitigation strategy; early involvement will provide you with the necessary knowledge and relationships that will be beneficial as the market matures. Businesses have recently caught onto this opportunity: purchases of carbon removal measures between January – August 2023 have already increased by 437% compared to the full year 2022. This growth has been largely driven by “asset light” businesses, such as Microsoft, and typically by companies in industries such as finance, tech and insurance. As carbon removal does mature as a key tool for reaching net zero, these companies are hoping to be market leaders.

To deliver on CDR, policy that promotes investment is essential. In the EU, two routes are being pursued to build a carbon removal market. The first is to establish standards – with a proposed Carbon Removal Certification framework and a Green Claims directive. This could help to build trust in carbon removal units and empower businesses to take action. The EU is also pursuing a net zero industry act (NZIA), and will have new Union-wide climate targets in place for 2040. In the UK, the focus is on building a mature market that is investable. The flagship policy is the Carbon Capture and Usage Storage clusters programme (CCUS): co-locating CCUS infrastructure with clusters of emitters and permanently storing carbon in geological sites. The government is also developing a Greenhouse Gas Removal Business Model, with the goal of providing government support for project developers based on a CFD (DESNZ is currently considering how the reference price for negative emissions will be set). In the longer term, the government is exploring the development of a compliance market for some types of removals within the UK emissions trading system (ETS).

However, only 32 companies with Science Based Targets have purchased durable carbon removal so far: that is just 0.5% of the 6000 companies with such targets. To mature, the market must lean on the policies outlined and stimulate investment on the supply and demand side. On the demand side, “asset light” businesses are well positioned to buy CDR; they are not building physical products but have less control on their scope 3 emissions – carbon removal is a viable and effective option. On the supply side, more intermediaries that enable investment in these projects are required; currently smaller businesses have few platforms that enable them to invest in these projects. This combined investment will accelerate the industry’s growth, and hopefully lead to the development of new technologies, that enable the sustainable, scalable removal and storage of carbon.