When designing a blueprint for federal purchases of carbon removal services, the Department of Energy essentially had to start from scratch.
Noah Deich, senior advisor for DOE’s Office of Fossil Energy and Carbon Management, said that while there are many procurement models that the government can follow depending on the product and sector, there isn’t an existing program that’s a perfect fit for carbon removal.
“Carbon credits are fairly unique in that there isn’t some other physical good or service associated with it,” Deich told Latitude Media.
The closest comparison, he said, is federal procurement of clean energy. And ideally, scaling carbon removal markets will follow a similar trajectory: from “small and niche” to “table stakes” for large companies with a strong climate strategy, he added.
And other countries’ CDR purchase programs are likewise inadequate as a model for the DOE. The United Kingdom, for example, has rolled out a “contracts for difference” model, in which the government pays the difference between a developer’s strike price and the market price.
“They’re not buying credits, per se, like we are,” Deich said. “They’re really trying to find which of the carbon removal developers require the smallest possible subsidy.”
The closest program is in Canada, Deich said. There, the federal government has authority through a sustainable aviation fuel purchasing mandate that was last month expanded to include CDR as a potential solution.
In the absence of useful wholecloth models, then, DOE is cobbling together a different approach: pulling the program’s outline from the infrastructure law, but creating a largely new system of evaluating its impact.
Structuring the purchase
The primary difference between DOE’s first round of CDR deals and its more traditional, longstanding procurement programs, Deich said, is of course that the CDR purchase is being given as a prize.
That structure is a product of Congress’ direction in the infrastructure law, which gave DOE a dual mandate of setting up supply-side funding for direct air capture pilots, and piloting a CDR purchase program. And the vehicle for funding that pilot is the direct air capture commercial prize, which allocates up to $100 million across a suite of challenges.
Despite the slight difference in structure, Deich said the CDR prize mirrors a traditional purchase fairly closely.
“Effectively, the prize is paying for work completed,” he said. “It’s very similar to paying for CDR credits upon delivery of those, with small up-front down payments.”
Measuring procurement’s impact
At present, the federal government is among the largest purchasers of clean energy in the U.S. (though it is still outpaced by Big Tech). And if the Biden administration has its way, the federal government will transition to 100% clean energy by 2030.
The Department of Defense, for example, is in the midst of plans to purchase just under 3 million megawatt-hours of carbon-free electricity for its facilities, and the General Services Administration has pledged to power its entire real estate portfolio with clean energy by 2025.
However, quantifying the impact of government purchasing programs on emerging technologies is a challenging task, with no perfect short-term solution. The effect of renewable energy purchases made by the Biden administration, for example, are expected to “play out over years, not months,” Heather Boushey, chief economist of the administration’s Investing in America Cabinet wrote last summer.
Today the administration is evaluating the impact of its investments by “monitoring a set of economic indicators” that point to increased private investment and overall growth, she added — though the White House emphasizes that the data allows only for “preliminary, descriptive assessments.”
When it comes to wind and solar, those indicators include planned investments, announced manufacturing plants, and new jobs. According to DOE records, in the months since the implementation of the Inflation Reduction Act and the infrastructure law, the solar industry has seen nearly $17 billion in new investment announcements, 120 new and expanded manufacturing plant announcements, and more than 35,000 new jobs.
Evaluating a new type of purchase
But carbon removal is an entirely new market, and measuring the success of federal purchasing may look different.
For instance, Deich said that one key indicator of the $35 million procurement pilot’s success will be how many credits in the voluntary market are for durable removal, rather than more nebulous, often nature-based, removal pathways. (Earlier this week, the White House also released a new set of principles for that voluntary carbon market, where evidence suggests that “several popular crediting methodologies do not reliably produce the decarbonization outcomes they claim.”)
“We need to crowd in a voluntary carbon purchasing enterprise at a scale that we haven’t seen before,” Deich said. “The entire voluntary carbon market was about $2 billion last year, of which a single digit percentage went to this type of CDR.”
That has to change for CDR to get off the ground, he added.
At the end of the day, the market needs “way more money than the DOE has” to see the requisite projects come online, Deich said. “We basically need everyone to buy a small and growing amount of carbon removal alongside the DOE.”
And part of the impact of this initial, relatively small purchase program, is to help de-risk what is still a more expensive alternative, just like early solar procurements did 15 years ago, Deich said.
DOE’s approximate ceiling price for this first round of purchases is $1,000 per ton of removal, Deich said. “But at the end of the day, I think folks are selling at below cost in many cases, not just to DOE, but to the market,” he added.
As the purchase prize moves into its second phase, the agency will get a better sense of the exact cost per ton from each of their finalists — but Deich has the impression that it’ll be “probably more than $200 a ton and definitely less than $1,000.”
