The Carbon removal market doesn’t exist
Published on https://illuminem.com/energyvoices/dd812162-ba25-4321-95dd-2b0208bc489b June 2022
The market for durable carbon removal does not exist.
What we have is a heterogenous space consisting of hundreds of companies with ideas on how to remove carbon. Many of them have lab results, business plans and some equity funding. A handful has started removing carbon outside of the garage or the lab. Supporting carbon removal companies can involve making pre-purchases delivered from pilot facilities not yet built.
“Currently, buying carbon removal works the same way as supporting creators on platforms like Kickstarter or Indiegogo.”
Currently, buying durable carbon removal works the same way as supporting creators on platforms like Kickstarter or Indiegogo. There you make a pre-payment for a product that doesn’t exist yet to enable its creation. You might make a 300 dollar donation to a book-writing project by an author you really like but that hasn’t been able to get a contract with an established publisher. You will get a copy of the book if everything works out, and others will then be able to purchase it at a much lower price. But it doesn’t really make sense to sell your right to this book to someone else. And if someone paid another creator to write a book, that is not a fungible “book credit” that you would see as analogous to your purchase.
“Any investments require a lot of due diligence and understanding of the supported technologies and companies.“
In the same way, carbon removal companies can use funds from pre-purchases to build and test their technologies. A pre-purchase from one company isn’t fungible with a purchase from another. Any investments require a lot of due diligence and understanding of the supported technologies and companies. That raises a high bar on participation and is one reason why there are only around a dozen large buyers of durable carbon removal. Buying CDR also requires a lot of trust since most companies lack third-party certification or verification.
I think these facts are essential to understand for anyone interested in purchasing carbon removal to understand. Still, it might not be obvious to someone looking at the marketplaces selling removal credits today.
Actors like the advanced market commitment Frontier understand this and are explicit that not all the carbon they pre-purchase might materialise. Precisely like a donation on Kickstarter might end up in you not receiving a product.
When the companies reach maturity, volumes delivered rise, and certification becomes ubiquitous, we might get a real market. Then a ton removed and stored from a direct air capture company might be fungible to a ton removed by a BECCS company. for example.
How long might it take before we have a CDR market? I think it is at least three years away. By 2025 mega facilities like 1point5 and Carbon Engineering’s 1 million ton/year DACCS plant are expected to be operational together with large actors like Stockholm Exergi delivering BECCS. But even then tons removed across different methods might not be directly comparable.
The timing also depends on how much money flows into carbon removal. Currently, existing known pre-purchases are in the $USD tens of millions, but aggregated commitments for this decade reach billions (Frontier, NextGen, First movers coalition, Swedish, US government and others).
Besides pre-purchases and pre-commitments to purchase, a lot of equity has been going into carbon removal. Climeworks’ 650 million raise being the biggest. However, the recent market downturn might have a negative impact on the possibility of getting venture capital for CDR companies.
Like Susan Su pointed out in Carbon Removal Newsroom, companies that can be modular have an advantage. If you have to build a 1 million ton/year facility, costing billions, you are probably going to have a lot harder time finding funding than if you can start with a 1000 ton facility that costs less than 1 million in CAPEX. Those with low-capital costs compared to operating costs are better positioned.
A lot of VC money has been going into software, and today there are more resellers of carbon removal than there are companies actually durably removing carbon. For CDR to grow and a market to materialize, more money needs to go into hard tech solutions, both equity and pre-purchases. And since CDR needs to grow even faster than solar and wind did, we are in a hurry. What is at stake is nothing less than the world’s ability to reach net zero and avoid the catastrophic effects of climate change.