You can’t wait with buying carbon removal
“All companies that plan to use removals in the future should spend a portion of climate budgets on it today.”
2022 saw a lot of progress for carbon removal. Frontier launched their $1 billion commitment. The overall CDR market grew 530% (although dominated by one purchase). The US announced record-breaking support mechanisms for CDR. Lots of new suppliers got started, and many new companies have started buying small amounts of removals. All numbers for the CDR market in 2022 are detailed in the new CDR.fyi Year in review.
The thing that really stuck with me from working on the CDR.fyi report is that the number of larger buyers of CDR is still very low. 16 companies bought more than 1000 tonnes of durable carbon removal in 2022, and the number of big buyers is not growing very quickly. The dynamics are still upside down with more marketplaces than companies that have removed carbon, and even fewer large buyers. Why are so few companies buying carbon removal at scale? I can think of at least five reasons.
One reason is fear. Taking action always carries some risk of backlash. Many companies prefer not to talk about what they do for climate, so-called greenhushing, but also to companies doing nothing. For example, since old-school carbon credits have been so criticized and companies bashed for their carbon neutrality claims, some companies fear that their customers will not be able to differentiate between durable carbon removal and cheap low-quality credits. (I was not expecting this but have heard it expressed from several companies.)
Another reason is a lack of incentives. Companies feel they have little to gain by purchasing expensive tonnes today. The Science based target initiative (SBTi) for example does require permanent carbon removal to fulfill net zero targets, but does not incentivize the deployment of removals before target dates.
Buying tonnes has also been difficult, requiring in-house expertise and direct contact with suppliers. This has been been made easier by marketplaces and buyer’s clubs, but buyers might not feel comfortable with outsourcing quality control until standards are more developed and universally agreed upon. Purchasing carbon removal from companies using new methods has meant taking a leap of faith that not everyone is willing to do. When deliveries are verified against standards by third parties and delivered tonnes are put on registries more companies will likely feel comfortable buying carbon removal.
Last but not least, the high price point of durable CDR and that companies are expecting prices to drop is likely holding purchases back. Sinking prices are dependent on CDR technologies ascending the learning curve. For that to happen carbon needs to be removed. Everyone cannot wait with buying carbon removal, lower prices in the future are conditional on purchases being made now. If a proper market for CDR does not get started today, there risk not being any carbon removal to buy when companies are getting ready to reach their net zero targets.
The voluntary carbon removal market has a very important role to play. It can kickstart new removal methods, grow existing ones from the lab into full-scale deployment and widen the starting field. The world needs carbon removal at scale, both because some emissions are very hard or expensive to reduce, but also to increase the number of mitigation options available and to have the chance to bring temperatures back down.
Many carbon removal companies are dependent on venture capital, but climate investors are slowing down their capital deployment due economic headwinds. It might be harder to raise new rounds.
Investors need to see significant market growth and for investments to find a path to profitability - and that requires scaling sales. If not, the voluntary carbon removal market risks coming to a halt before it even got off the ground. Government spending will keep some companies alive and likely still reach impressive scale, but without the voluntary market, the sector would likely be much less diverse, and perhaps without the best ideas.
Three key recommendations to avoid this scenario are:
- Get more companies, individuals and countries to pre-purchase carbon removal, and give praise to those that do. All companies that plan to use removals in the future should spend a portion of climate budgets on it today.
- Get standard setters like the SBTi to incentivize carbon removal now, for example by requiring companies to set interim targets. (SBTi has announced that they are going to publish more on this topic).
- Speed up the MRV developments and get tonnes and pre-purchases on registries to increase trust and decrease the risk of double counting or ineffective methods being scaled up. All delivered tonnes must be put on a public registry as is the case with old-school carbon credits.
Let’s all fight to make this happen in 2023!
This article is also published on the author's Substack. illuminem Voices is a democratic space presenting the thoughts and opinions of leading Sustainability & Energy writers, their opinions do not necessarily represent those of illuminem.
About the author
Robert Höglund is an independent advisor working with carbon removal and climate policy. He manages the Milkywire climate transformation fund and sits on the board of Mistra sustainable consumption. He previously headed Oxfam Sweden's policy and communications team and took part in the Science-based Target Initiatives' Net-zero expert advisory group.