The carbon removal industry is in the ‘figuring it out’ phase

Two years ago, the Intergovernmental Panel on Climate Change designated carbon dioxide removal a necessary component of plans to limit warming. While the nascent field was already making steady progress, that movement has accelerated in the years since. And — just as it was in the early days of solar power purchase agreements — Big Tech has been integral to the market’s growth. 

Companies like Alphabet, Salesforce, and Microsoft signed onto the Biden administration’s First Movers Coalition in late 2021, committing to purchase at least 50,000 tons of “durable and scalable” carbon dioxide removal by 2030. 2022 saw the creation of the Stripe-led advance market commitment Frontier, and 2023 brought Amazon into the CDR arena.

It hasn’t all been smooth sailing, though. In the same period, the CDR market has moved through cycles of excitement that gave way to slowing demand and corporate withdrawals, and has been marred by revelations about shaky offset schemes.

“Where we are now is a world of figuring it out in practice,” said Rafael Broze, who manages Microsoft’s carbon removal program. In September, the company committed to purchase 315,000 metric tons of removal from direct air capture startup Heirloom, to the tune of $200 million.

Julio Friedmann, chief scientist at carbon management firm Carbon Direct, said the industry has matured in the last few years.

“It’s matured because people got serious about spending money; because governments of the world got serious about policy,” Friedmann said, pointing to U.S. efforts like the 2021 infrastructure law and resulting DAC Hubs investment, as well as changes to the 45Q tax credit for carbon removal.

“What we’re seeing is this combination of technology, policy, and investment that feed off each other,” Friedmann said. “It stops being useful to say who drives what and who goes first. You need all of them.”

This is the dichotomy of the market: the tech, the policy, and the investment are all progressing rapidly. And yet, progress on the goal outlined by the IPCC — up to 10 gigatons of removal by 2050 — has been minimal.

“We are not even close to that. We need so much more speed to market and so much more cost reduction, so much more investment,” Friedmann said. “We are not on track. And people who can do arithmetic know this.”

Setting the CDR scene

In 2021, the total amount invested in carbon removal was $30 million. By Frontier’s estimates, that number needs to reach $20 billion by 2030. 

“There’s a huge gap,” said Nan Ransohoff, head of climate at Stripe. “We’ve both come a long way and have a really long way to go on the demand side.”

On the supply side, Friedmann said, there are a few ways to contextualize the massive growth required in the coming decades. For instance, we need 1,000 1 million-ton projects (“We’ve got zero right now,” Friedmann said). Or, in terms of mass, we need around three “Goliath” companies the size of Royal Dutch Shell, which moves 300 million tons of carbon each year. 

In reality, the industry probably needs some mix of big projects and big companies, he said, and the number will depend on just how much removal we need.

“If it turns out to be 10 gigatons by 2050, we need 30 companies the size of Shell doing this,” Friedmann said. “That is a big market. That is the biggest market in all of human history.”

The big questions for CDR, said Jamey Mulligan, head of carbon neutralization science and strategy at Amazon, are whether costs can get low enough that the technology can enter the mainstream, and whether the commercial support will emerge early enough and with enough strength. 

“The market hasn't fully answered that question,” said Mulligan. Commercial support for CDR has so far primarily been directed at “demonstration-scale” plants, he added, with small volumes and high prices. 

“What we’re seeing now is some of the earliest of those technology companies are ready to move to a truly commercial scale,” Mulligan said, pointing to Amazon’s September commitment to purchase 250,000 metric tons of carbon removal over ten years from 1PointFive, a subsidiary of Occidental Petroleum. 

The question, he added, then becomes whether early offtake deals scale with the technology.

Last fall, Executive Editor Stephen Lacey spoke with Rafael Broze and Julio Friedmann about the state of carbon removal:

Where are we with the tech itself?

It’s still too early to tell which CDR methods are likely to rise above the rest as cheapest, fastest, and most durable —though, according to Friedmann, we’re seeing “startling” maturation of the tech.

Investors like Microsoft are keeping their options open by spreading investment across a range of technologies. In addition to DAC, Broze said Microsoft’s CDR portfolio will include everything from bioenergy capture and storage to enhanced rock weathering.

“Right now we think that it’s going to be an ‘all of the above’ approach,” Broze said. “There are different approaches that have different macro level pros and cons, and we're going to sound those out over the course of the next several years.” 

“It’s probably still a little early to be picking those in the lead and those behind,” he added.

But while corporate commitments span the gamut of CDR technologies, it should come as no surprise that DAC is a big focus for Big Tech, said Friedmann.

“Direct air capture looks like a tech play, so tech companies have traditionally been enthusiastic about it,” he added. 

First of all, despite yet being proven at scale, it’s a fairly straightforward technology: “It’s very unambiguous what you’re doing,” Friedmann said. “It’s rigorously, technically bulletproof, nobody will come back and say you didn’t capture the carbon or it wasn’t additional.”

DAC’s high price point is another appeal for tech companies, he added, because cost reduction as a result of increased deployment is something tech companies are very familiar with.

Frontier, which to date has contracted $65 million in removal from 30 companies, is seeing “promising leading indicators” regarding the progression of CDR solutions, Ransohoff said. For example, in their most recent cycle of applications, they saw seven times more companies that meet the organization’s 1,000 year durability requirement, relative to their first cycle in 2020. 

The diversity of approaches has also grown substantially in that time, Ransohoff added.

Laying the groundwork for 2050

The CDR market today is largely about building a foundation for the technology’s deployment, said Friedmann: “Ultimately, the only way that we hit these targets is not by rushing to spend a bunch of money today. The way that we do this is we build the capacity to scale exponentially,” he said.

Doing that means understanding development cycles for different CDR methods, and then standardizing investment terms, which are ultimately what gets capacity built, Broze said.

Ransohoff said that ensuring that the infrastructure is ready to go when CDR tech reaches its maturation point is, in part, where policy comes in.

The Biden administration has made CDR a central component of its climate funding in recent years, including through the Carbon Negative Shot Program, a $3.5 billion investment in two DAC Hubs in Texas and Louisiana, and an additional $35 million for reducing emissions from “hard-to-abate” sectors, announced in September.

“All of the work right now is to increase the likelihood that when the right mechanisms are in place, there are solutions to buy,” Ransohoff said.

Given the immense amount of investment Frontier estimates will be required by 2050, “it’s very difficult to imagine the voluntary private market getting to that magnitude,” she added. “We really view private buyers as helping get carbon removal to first base, but we will need policy to get it all the way there.”

Getting the market “all the way there” may be a longer-term effort, but there’s crucial work to be done in the immediate future. 

“We're focused on the next two years — that's where we think the lion's share of the work for 2030 happens,” Broze said. “In those two years, it's about nailing down various sundry important parts of these different carbon removal approaches.”

From Microsoft’s perspective, that includes figuring out how to govern potential enhanced rock weathering deployments and how to mitigate the energy intensity of DAC.

Despite the very daunting barriers the industry must overcome on a tight deadline, Friedmann said the overall tone of the CDR landscape — after two years of tech investments, innovation, and policy movement — should be an optimistic one.

“The progress report is, we’re here,” he said. “We need more of this. We need to be in the zeitgeist of people in a way that is humble and responsible, but we're here. That's a huge change.”