CDR investment needs - how big is big?

To get a sense of the scale of ambition needed on CDR, take a look at the piece McKinsey & Company’s Mark Patel recently put out looking at why #carbonremovals have emerged as a crucial way to help meet carbon targets. This includes an estimate by McKinsey that the cumulative investment required to scale the CDR industry to meet 2050 net zero targets is between $6-16tn.

This is a humongous number, equivalent to $240-640bn a year over the next 25 years.

How humongous? I thought it might be interesting to take a look…

🛠 Building an economy the size of China’s in 25 years

At the higher end, this cumulative investment is equivalent to the total Chinese economy today (c. $18tn GDP). In other words, everything that the 1.4 billion people in China produce in a year. At the lower end, it's the much more manageable French economy (c.$3tn GDP), twice over.

Per annum, this is equivalent to investing the equivalent of the entire Swedish economy (c.$600bn GDP) every single year for the next 25 years.

🍎 Investing all of Walmart or Apple's revenue every year

Achieving this number would mean investing roughly the equivalent of between Walmart’s annual revenue (the highest revenue company in the world - c.$600bn) and Microsoft’s annual revenue (the most valuable company in the world at time of writing with c. $210bn revenue).

Remember this is revenue. So everything the company makes in a year. The amount they spend on research is much smaller (Microsoft’s annual R&D budget is reported to be just shy of $30bn a year).

💹 3-7% of growth in assets under management globally

PwC estimates that total assets under management will reach $145tn globally by next year, having risen 6% a year on average since 2016. If global AuM continues to grow at this pace, it will add $8.7tn a year in today’s money.

The CDR industry would need to capture between 3-7% of this growth every year to achieve these numbers. While this may seem a reasonable number, it's worth bearing in mind that at present most asset managers do not have the mandate or the risk tolerance to invest in carbon assets.

🚄 Between a tenth to a quarter of total annual infrastructure investment

Today the world invests some $2.5 trillion a year in transportation, power, water, and telecom systems. Carbon removals would need to attract the equivalent of between 10 and 25% of this amount each year.

Indeed many of the technologies required to scale carbon removals look very akin to infrastructure assets; both functionally (capturing, transporting & storing carbon) and hopefully eventually financially (e.g. steady, predictable cash flows). As the industry matures they may find themselves competing for the same sources of funding in some cases in future.

🗑 Double the amount we currently spend on waste management a year globally

In 2020, the cost of waste management was an estimated $252 billion globally, rising to $361bn when factoring in hidden costs of pollution, poor health and climate change from poor waste disposal practices.

In a crude sense we can think of scaling up removals as cleaning up our climatic waste. To do so at the scale require at least doubling this spend annually.

So why is this important? It highlights the urgency with which we need to get finance flowing into these solutions. The voluntary carbon market is one such mechanism, but at present it's sending patchy and inconsistent demand and price signals to investors. But even if we can get the VCM machine firing on all cylinders, attracting capital at this scale will require huge public and private sector cooperation.

This article is also published on the author's blog. illuminem Voices is a democratic space presenting the thoughts and opinions of leading Energy & Sustainability writers, their opinions do not necessarily represent those of illuminem.