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Now the IPCC has recognized that carbon removals are critical to addressing climate change, it’s time to act

Emma Gibbs

Leader of the Strategy & Corporate Finance Practice in the United Kingdom; helps public- and private-sector clients set sustainable strategies and modernize organizations

Builds innovative strategies and operating models for companies to achieve sustainable, inclusive growth

Advises clients across sectors on IoT, analytics, and digital, with a specific focus on the industrial, high tech, and semiconductor sectors

With the scale of the climate challenge coming ever more starkly into focus, governments, investors, and companies are under increasing pressure to take rapid and decisive action. While reducing greenhouse gas (GHG) emissions is paramount, it is becoming clear that reductions alone are unlikely to be enough: it will also be necessary to remove GHGs from the atmosphere to limit the global temperature increase to 1.5C.

Carbon dioxide removals (CDRs) remove CO2 from the atmosphere, through methods such as the growth of organic matter or chemical reactions, and store the removed gas permanently in different forms, such as underground in geological formations or in the ocean. Last year, a report1 produced by the Coalition for Negative Emissions argued that taken together, a portfolio of leading CDR solutions such as Natural Climate Solutions (NCS), bioenergy with carbon capture and storage (BECCS) and direct air capture and storage (DACS) can meet the need for CDR in a sustainable way.

It is increasingly recognized that CDRs are a crucial part of the effort to achieve net zero emissions for many reasons including offsetting residual emissions from hard-to-abate industrial sectors (e.g. aviation, agriculture, shipping, industrial processes) and those that have not yet had technological breakthroughs to operate at zero emissions, as well as taking back already emitted CO2 given the likely overshoot of the 1.5C carbon budget. Ultimately they will be needed to chart a course towards a more stable, cooler climate. The UN Intergovernmental Panel on Climate Change (IPCC) said in its April 2022 report on mitigating climate change: “The deployment of carbon dioxide removals to counterbalance hard-to-abate residual emissions is unavoidable if net zero…emissions are to be achieved.”

Shaun Fitzgerald, Director of the Centre for Climate Repair at Cambridge, underscores this imperative: “We urgently need to devise approaches to remove greenhouse gases from the atmosphere which are truly scalable. More challenging than technical barriers will be implementing schemes that are acceptable to the wider public, affordable, and create equitable wealth and value, ensuring that those most affected by climate change benefit from these solutions.”

The IPCC’s latest report outlines the scale of the challenge, saying that limiting warming to 1.5C translates into around 6 GtCO2 of CDR per year by 2050. To put this into perspective, that is more than the weight of all petroleum produced today, a monumental endeavor. Jason Shipstone, the Chief Innovation Officer of Drax, a developer of BECCS removal process agrees: “Meeting the recent pathways laid out by the IPCC will require total cumulative net carbon dioxide removals of 20-660 GtCO2 by 2100. This will require markets and governments to come together to invest significantly into sustainable business models. While challenging, this could also create an opportunity to build co-benefits including job growth, biodiversity benefits, and equitable growth.”

In addition to being needed to limit warming, the scale of carbon removals projected is on the magnitude of an industrial sector, with strong potential for value creation and growth. As Nan Ransohoff, Head of Climate at Stripe points out, “if we need to remove 10 billion tons at $100/ton, or even $10/ton someday, that’s a $100 billion to a $1 trillion a year market by 2050. In short, the carbon removal market needs to grow very meaningfully.” This represents an enormous opportunity for players across the value chain, from developing and scaling technology, to building facilities, to servicing the supply chain, to facilitating trading of removal credits, and to investing and scaling businesses, while also creating a pathway to net zero for buyers of carbon removals.

We are seeing governments, companies, and investors galvanize behind the cause

Such projections are starting to influence action. Governments, companies and investors are now setting out to initiate what could become a functioning market in CDR. In our report last year, we recommended five substantive actions to create such a market, and in the past year, we have seen momentum in all five areas.

  1. Defining high quality standards for Carbon Dioxide Removal

    The absence of agreed high-quality standards (e.g. permanence, additionality, verifiability, safety) is an enduring challenge to efforts to provide necessary structure to the market, but some recent moves have been made to advance this priority. In December 2021, the European Commission announced that it would launch a certification system for removals, and in March 2022, the newly-established Integrity Council for the Voluntary Carbon Market (IC-VCM) announced plans to publish a comprehensive set of global standards for carbon credit quality, including removals, by the end of this year.

  2. Shaping a robust, liquid, and transparent market for trading CDR credits and generating supply-side financing

    Perhaps most promisingly, there has been a recent explosion of private-sector companies and investors funneling money into carbon removals and establishing advanced market commitments. In April 2022, tech industry leaders Alphabet, Meta, Stripe and Shopify, in collaboration with McKinsey Sustainability, created Frontier, an effort to expand supply in the removals market by pledging to invest $925 million into carbon removal by 2030 subject to stringent quality standards. At the same time, DAC developer Climeworks announced that it had raised $650 million from investors including Partners Group, GIC, and Baillie Gifford, and climate-focused venture firm Lowercarbon Capital announced a $350 million fund raised to invest into carbon removal startups.

    In May 2022, a consortium of private-sector players announced their plan to join the SouthPole NextGen CDR Facility and purchase over one million tons of CDRs by 2025. Concurrently the First Movers Coalition of over 50 companies worth about $8.5 trillion and nine leading governments covering over 40% of global GDP, reinforced their commitment to driving demand for cleantech. This included launching new commitments to purchase carbon removal technologies, including $500 million in purchase commitments from Alphabet, Microsoft and Salesforce this decade.

    In February 2022, carbon removals marketplace Puro.earth launched the Puro Registry, a public registry for engineered CO2 removals with the aim to avoid double-counting and assign unique identifiers to Carbon Dioxide Removal Certificates (CORCs). Meanwhile, financial institutions are taking steps to formalize voluntary carbon markets: in July 2021, a group of banks including UBS, NatWest and Standard Chartered established the Carbonplace platform enabling transparent transfers of certified carbon credits.

    Despite this positive momentum, supply of high-quality CO2 removals is still low today, and while it will certainly benefit from the recent wave of financing, challenges remain in scaling technology rapidly, building robust supply chains and delivering thousands of significant capital projects at pace.

  3. Ensure sufficient national commitments to CDR (in addition to emission reductions), delivered by effective government intervention

    In May 2022, the Biden Administration released a Notice of Intent (NOI) to fund the Bipartisan Infrastructure Law’s $3.5 billion program for a set of regional DAC hubs, ahead of the July 2022 Department of Energy Carbon Negative Shot Summit to bring all hands together to advance CDR. The UK is providing $125 million (£100 million) for similar projects, Norway is spending $3 billion on a plan to capture CO2 emissions for underground storage in partnership with Equinor, TotalEnergies, and the EU has announced a $1.1 billion (€1 billion) fund to support decarbonization projects including carbon removals.

    In 2021, Sweden announced a $3.6 billion (SEK 36.3 billion) reverse auction scheme to purchase BECCS between 2026 to 2046, averaging around $192 million per year, and in April 2022 Stockholm Exergi’s BECCS project received $191 million (€180m million) in funding from the EU innovation fund.

  4. Agreeing on a method for transparently tracking and celebrating corporate claims, supported by clear accounting principles and a narrative that highlights the distinct value proposition of CDR in addition to emission reductions

    In October 2021, the Science Based Targets initiative (SBTi) launched the “Net-Zero Standard” to help companies ensure their targets are aligned with climate science. SBTi’s recommendations emphasise the importance of rapid, deep emission cuts and of neutralising any residual emissions (roughly 5-10%) with high-integrity carbon removals. The UNFCCC’s Race-to-Zero considers removals alongside reductions as a pathway to GHG neutrality.

  5. Enabling multilateral collaboration, accounting, and trade in ways that help solve the CDR challenge globally

    At COP26 in Glasgow in November 2021, the highly-anticipated Article 6 of the Paris Agreement was signed, which created Article 6, paragraph 4, emission reductions credits (called A6.4ERs). These can be bought by countries, companies, or individuals, and mandate corresponding adjustments for transfers between countries to enable trade of carbon credits without double-counting. They also establish a 2% “tax to the climate” and a 5% “tax for developing country adaptation”.

Significant work remains to be done to reach the 1.5C target

While these moves are encouraging, CDRs are at early stages and the scale of the remaining effort is vast. To put the task in perspective, the world’s first large-scale DAC plant with 1 MtCO2/year capacity in the US will not be operational until the mid-2020s. Such a plant will provide about 0.02% of the total CDR capacity the IPCC says is required in 2050, and illustratively, to reach the IPCC’s 6Gt target would mean building two 1 MtCO2.plants per week between now and then. Nevertheless, players such as Climeworks, Oxy 1Point5 and Drax have set ambitious targets to scale capacity rapidly ahead of 2030.

One of the issues holding back wider development is cost: DAC currently costs $250-600 per ton of CO2, depending on the technology, energy source, and scale of deployment. Industrial scaling and technological disruption will be critical to making CDR more cost competitive. Fortunately, there is a boom in startups entering the carbon removal space, exploring solutions as different as electrochemistry-based DAC and “pickling” wood by burying it in highly saline soil. To incentivize their work and bring welcome attention to their efforts, the Musk foundation funded a $100 million XPRIZE for innovative startups capable of demonstrating a scalable CDR solution. The first 15 $1 million Milestone Prizes were assigned in April 2022.

Finally, large-scale deployment is likely to drive costs down. The IEA’s April 2022 report expects supply to increase and cost to reduce as soon as 2030 in regions with abundant renewable energy resources. Strong demand signals from prospective buyers can also help. “By providing suppliers with a strong demand signal, Frontier aims to give more entrepreneurs, scientists and operators the confidence to start building, and to do so with urgency”, says Ransohoff.

Now more than ever, we can see the rapid acceleration of the substantive action needed to reduce costs and scale volumes of removals, in the same way that happened with renewables in recent decades. But with our lives and livelihoods at stake, these actions are just the first steps: the public and private sector need to come together in full force to overcome this crucial part of the climate challenge.

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Authors: Emma Gibbs, Peter Mannion, Giulia Siccardo, Mark Patel

The authors would like to thank: Peter Cooper, Lennart Joos, Stefano De Nicola, Shreya Vora

1 https://www.mckinsey.com/business-functions/sustainability/our-insights/how-negative-emissions-can-help-organizations-meet-their-climate-goals.

2 Assumes 35G barrels of oil/year at 136kg/barrel = 4.76Gt of oil/year

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