The Carbon removal sector needs a new story

From speed and scale to prove and learn

I think most people in CDR feel that a phase shift has happened. The old story doesn’t hold but no new clear narrative has emerged of what role CDR really will take in the real world in the decades to come. Voluntary demand is likely to continue to increase but not explode, compliance demand is slow and may be much smaller than people expect even in the long-run. To me, the new story is more prove and learn than speed and scale.

First, what is likely to happen? Starting with the next ten years

The number of companies buying durable CDR will continue to increase, but there is no reason to think it will explode. The ones buying will primarily be seeking to meet targets. Like operational net zero targets by 2030 for their Scope 1,2 and business travel. Something that would make more companies buy CDR for such operational net zero claims is validation for that practice from SBTi, ISO etc. Regardless, I expect voluntary demand for durable CDR to result in low tens of millions of tonnes delivered per year in the mid 2030s. A possible scenario is that total contracted tonnes temporarily peaked in 2025 or 2026 because of Microsoft’s forward buying spree, and that it will take a while before we reach 30 million tonnes contracted in one year again.

For compliance, the only real driver for durable carbon removal in the medium term is inclusion into the UK and EU ETS. But simple integration of CDR into UK & EU ETS would likely not lead to much, if any CDR demand in the next ten years since ETS allowance prices are lower than even cheap CDR levels. Any CDR included in that timeframe would need to be paid for by governments through contracts for difference or similar. Such government support will enable single millions of tonnes per year, maybe more, in the early 2030s but I think voluntary demand will continue to dominate durable CDR delivered for the next 5-10 years.

Now, in my book, tens of millions of tonnes delivered across multiple methods is an incredible win. That means we proved that CDR works outside of small experiments and learn a lot about how to bring down costs and about which methods have the highest potential to scale to much higher volumes. This has to me always been the primary objective of the early CDR ecosystem.

Of course it is a brutal hype adjustment as the narrative that many painted for CDR was 6-10 gigatonne by 2050 and a linear growth towards that. CDR has been traveling downwards on the hype curve for at least a year and a half. Consequently, I think venture capital investments will continue to fall, this phase favors patient capital. Maybe we’ll hit the trough of disillusionment bottom this year, readjusting expectations, and start aiming for the plateau of productivity.

My estimate for where CDR is on the Gartner hype cycle

Post 2035. What does the plateau of productivity look like?

CDR is probably the cheapest mitigation option for something like 2-5 Gt carbon dioxide per year. It’s hard to say exactly as technology development progresses and local conditions vary.

My long run macro estimate of where CDR is the cheapest mitigation option for CO₂ emissions.

But, that number only matters if the whole world is trying hard to get to net zero, and treats CDR as a valid mitigation option. Currently neither is really true.

Compliance is usually expected to be the biggest driver in the longer run, but only the EU and UK have live net zero plans that would force all CO₂ emissions down to zero. If that happened, CDR might be the cheapest option for 100-200 Mt per year of emissions in those two jurisdictions, demand that would need to be met in the 2040s. (However for aviation and shipping which are part of that number, fuel switch is currently mandated in the EU with no real role for CDR).

If the rest of the world does not follow Europe, I think it is quite likely that the EU does not push full decarbonization for heavy industry. This is driven by a need to keep industrial capacity in the union, not the least to have an industrial base in case war production needs to be ramped up. The cost for both CCS and CDR is not likely going to be able to be pushed to heavy industry. If Europe maintains net zero plans it will likely need to spread the cost of mitigating heavy industry, either through the state directly paying, or through demand side legislation making customers pay, combined with a granular and very heavily enforced CBAM.

If the rest of the world is serious about reaching net zero there will be a lot more CDR demand. US ambitious individual states are things to look at for example. But there is no scenario where we build out gigatonnes of CDR if global emissions are not rapidly falling. Gigatonne scale CDR is conditional on success on emission reductions. That means the primary political fight is for stronger climate policy, not for scaling carbon removal in isolation.

In the light of this, it is actually possible that voluntary demand could exceed compliance demand even in the medium to long run. CDR is cheaper than many substitution options companies have. In a couple of decades I think it is possible (but not necessarily likely) with hundreds of millions of tonnes in voluntary corporate annual demand if the narrative shifts sharply and companies feel buying CDR is expected from them. Almost all companies can afford to buy durable CDR for a subset of their emissions, and some can afford it for all. But in no case I see voluntary demand reaching gigatonnes per year.

CDR is cheaper than many substitution options companies have today. From Climate Change Project companies’ mitigation cost estimates for low carbon inputs.

Finally, the biggest use case for CDR may be to remove legacy emissions to bring temperatures back down, but who will want to pay for that and if so when, are even bigger and more uncertain questions.

What is the new story then?
To me, the CDR sector has two roles. Building, proving and improving a toolkit that the world can use for gigatonne level of removals when it gets serious about reaching net zero. And, providing a way for companies, ambitious regions and countries and individuals to take responsibility for their emissions today while making credible claims. The story is not rapid scale, but proving, learning, and earning trust.

If you are working on carbon removal, nothing in this text should make you put in less effort. We need to keep developing CDR, test new methods, lower costs, find out what works and build demand so that we have the best tools available for global net zero and large scale legacy emission removal. But we need to do it with realistic expectations. The road ahead is narrow.

Unsplash, by by Oleg Oros