There is increasing consensus in business operations that, in addition to carbon reduction, carbon dioxide removal (CDR) will play a crucial role in meeting targets along the 1.5o pathway.1 During McKinsey Sustainability’s inaugural Green Business Building (GBB) Summit in Stockholm this summer, we hosted three sessions on CDR: a keynote session, featuring Running Tide CEO Marty Odlin, and two panel sessions, featuring industry pioneers Hannah Bebbington from Frontier, Harris Cohn from Charm Industrial, Carlos Haertel from Climeworks, Angela Hepworth from Drax, Charlotta Liukas from Carbo Culture, Jim McDermott from Rusheen Capital Management, Brandon Rennet from Storegga, Keeton Ross from Patch, Amy Ruddock from Carbon Engineering, and Erik Rylander from Stockholm Exergi. These sessions were moderated by McKinsey’s own leaders in CDR and climate technologies, including Peter Cooper, Emma Gibbs, Thomas Kansy, Mark Patel, and Giulia Siccardo.
In this article, we share key takeaways from these sessions, along with insights on the state of the market today and how we can hyperscale to meet the climatic urgency of the 1.5o pathway.
What is carbon removal?
Carbon removal entails removing CO2 from the atmosphere and storing it somewhere environmentally safe, such as in rocks, in oceans, or underground (via saline aquafers). This removal can be done either chemically (for example, by using a solid or liquid sorbent) or biologically (for example, via plants and kelp).
Although the primary drivers to meet the 1.5o pathway set by the Intergovernmental Panel on Climate Change (IPCC) are carbon emissions avoidance and emissions reductions to a near-zero level, CDR is increasingly being identified as a crucial part of the equation in limiting global warming. As noted by Amy Ruddock, vice president of Europe at Carbon Engineering, “Carbon removals look at addressing any emission from any time, any place, and anywhere and are therefore effectively reversing that emission.”
To restore the atmosphere to a safe level by 2050, the IPCC estimates that we need to remove a total of 100 and 1,000 metric gigatons of CO2 cumulatively on all pathways that limit global warming to 1.5oC. This equates to between two and 20 times the world’s emissions in 2022 and highlights the importance of CDR.
What needs to happen with carbon removal to meet the climatic urgency?
1. Scale up rapidly. The magnitude of the scale-up required is enormous. In a few short decades, permanent CDR needs to scale from tens of thousands of metric tons to metric gigatons, and nature-based removals need to scale from a few hundred million metric tons to metric gigatons, as well. While the pipeline is not crystal clear, the industry’s pioneers are optimistic—not least because science tells us we can’t afford to fail.
2. Collaborate across a portfolio. We need to take a portfolio view of CDR because no one technology can meet the need by itself. Some approaches are still in the lab, and others are ready to scale. Even for those ready to scale, we can expect a significant amount of ongoing technical and commercial risk. Growing CDR at pace despite this risk will require collaboration across the delivery chain to learn fast and bring costs down through parallel development and other innovations, as well as to continue R&D on new CDR approaches.
3. Unlock investment and clarify revenue streams. We will need trillions of dollars in investment to get CDR projects built at the pace we need. Investors are showing strong interest, but we need to find ways to widen the pool and reduce the debt risk profile for project financiers, including through long-term offtake agreements with customers, government support, and innovative use of insurance. An agreed method for tracking benefits for purchasing carbon removals is also required.
4. Make buying easy and send strong demand signals. Revenue will need to grow exponentially to create a yearly trillion-dollar market by 2050. To do this, buyers need to understand the value of removals in their decarbonization strategies and be willing to pay to secure the long-term volumes they will need—which will, in turn, help reduce future prices. Advance market commitments like Frontier’s play a vital role,2 as do marketplaces and standard-setters, in sending a clear demand signal to investors and entrepreneurs, simplifying the transaction process for buyers and sellers, and ensuring the market has high integrity with clear standards. The market should also be liquid and transparent to mobilize finance more easily.
5. Secure government support. Government has a critical role to play in underwriting the development of the CDR industry, including by supporting first-of-their-kind projects and by using compliance markets and climate risk disclosures to stimulate demand. The voluntary market cannot create the CDR market on its own at the pace required. The US Inflation Reduction Act is a welcome example of public policy that is predicted to lead to a tenfold increase in carbon capture by 2030, as compared to the current trajectory without this policy intervention.
What will carbon removal look like in 2030–50?
To meet IPCC targets, we will need to remove one billion metric tons of carbon annually by 2030 and five to ten billion metric tons annually by 2050 across all carbon removal solutions. Considering that we have removed fewer than 10,000 metric tons’ worth of CO2 thus far, the industry needs to scale and develop rapidly. Meeting the necessary targets will likely require more than one form of carbon removal. Increasingly, we will need a set of solutions, both nature-based and engineered. As Carlos Haertel, chief technology officer at Climeworks, said, “Carbon removal has no one silver bullet.”
What does the business community need to know about carbon removals?
Companies will likely need to purchase removals to be on a net-zero pathway. While the Science Based Targets initiative (SBTi) strongly advocates “long-term deep decarbonization targets of 90 to 95 percent” across all scopes before 2050, it also notes that 5 to 10 percent of emissions from companies on a net-zero pathway will need to be neutralized with carbon removal.3 Companies can start to buy CDR by participating in voluntary markets.
Carbon removals also represent a significant investment opportunity. Based on a CO2 removal rate of four to ten metric gigatons of CO2 per annum by 2050, this translates to a market likely worth $1 trillion a year.
Finally, the business community can lead the way in raising public awareness of the need for carbon removal and can encourage more people to join the industry along every stage of the value chain, including collaborating with governments to ensure that frameworks to support the industry are put in place and regulations are established that will help build the market.
What happens when stakeholders convene to tackle carbon removals?
Several positive outcomes result from stakeholders coming together.
Stakeholders engage in a lot of learning and knowledge sharing about the best way to reach net-zero emissions. This also provides an opportunity for the cross-seeding of ideas, as well as a platform to educate investors, talent, and underwriters about the opportunities involved in carbon removals.
The GBB Summit created a welcome opportunity for stakeholders to come together and reflect, recommit, and elevate their ambitions in the journey to achieving net-zero emissions. Systems-level challenges require systems-level solutions, and continued open dialogue and cross-sector collaboration will be crucial to delivering the scale of carbon removals required to address the climatic urgency of the 1.5o pathway.
1 “Climate math: What a 1.5-degree pathway would take,” McKinsey Quarterly, April 30, 2020.
2 “An advance market commitment to accelerate carbon removal,” Frontier, accessed August 11, 2022.
3 “SBTi corporate net-zero standard, version 1.0,” Science Based Targets, October 2021.