What are carbon dioxide removal entrepreneurs banking on?

All of the innovation and investment to decarbonize our economy - from energy to transportation to heavy industry to agriculture - will not be enough to get us to net zero emissions; removal of CO2 already in the atmosphere will also be required, in the view of the IPCC and others. But just because carbon dioxide removal (CDR) at scale is needed doesn’t mean we’re going to get it. There are some obstacles on the path to creating the big market CDR could become.

Many methods of carbon dioxide removal are already in use and many more are under development. These range from nature-based solutions like reforestation (and many others) to engineered solutions like direct air capture (with numerous technological variants). Hundreds of companies are working on such solutions. Analysis of a database from Net Zero Insights counted over 500 of them, accordion to according to The State of Carbon Dioxide Removal, a report released just last month by a group of universities and research institutes.

Carbon dioxide removal could be a $100 billion dollar market in the U.S. alone, according to “The Landscape of Carbon Dioxide Removal and US Policies to Scale Solution,” a study released by Rhodium Group in April of this year. The global market could possibly be five to ten times larger given the need. But investment in CDR has so far been modest, accounting for just over 1% of investment in climate tech startups, according to “The State of Carbon Dioxide Removal.”

The relatively low level of investment is likely due to the small current size of the CDR market plus uncertainty about when and how it can grow. According to CDR.fyi, which tracks the carbon removal market, just 4.5 million tons of CDR were sold last year. That is a tiny compared to the 164 million credits sold via the voluntary carbon markets (source: BNEF). Demand for CDR credits is hampered by their current high price, which has run from 10 to 100 times greater than the predominantly nature-based credits traded on in the voluntary market.

So what are CDR entrepreneurs and investors banking on? To a large extent, the bet appears to be on major policy support to drive progress and demand. In the U.S. current support includes demand-side policy such as 45Q enhancements under the Inflation reduction act, state procurement targets, low-carbon fuel standards, and others. R&D policy includes $3.5 billion in funding for regional direct air capture hubs under the Infrastructure Investment and Jobs Act.

More support, such as including CDR credits in compliance markets and perhaps ultimately government mandates or direct purchases, may be required to allow this market to develop. Rhodium makes an unglamorous but apt analogy: As a market, CDR “is much more similar to waste management than anything else. Unless private entities are required to manage waste through policy interventions, the government tends to provide the service paid for by taxpayers.”

What do you think is going to drive the development of the CDR market?