How governments can help finance, build and scale the carbon dioxide removal industry

Carbon dioxide removal (CDR) could play a key role in decarbonizing the global economy. It can not only offset "hard to abate" emissions from industries like aviation and shipping, it can also reduce emissions from natural events like forest fires that are exacerbated by continued global warming. Crucially, CDR can also reverse the historical build-up of global greenhouse gas emissions.

CDR removes CO2 from the atmosphere in two ways. Firstly, through the creation or conservation of natural carbon sinks such as forests and mangroves. Alternatively, more durable technologies such as direct air capture and storage (DACS) or bioenergy with carbon capture and storage (BECCS) can be used to remove CO2 from the air and store it underground.

These methods can remove carbon that’s already in the atmosphere, as well as that emitted by sources on an ongoing basis. CDR should therefore be an essential element of global decarbonization efforts, forming part of the transition to a net-zero economy.

To reach net zero by 2050, up to 10 billion tonnes of CO2 must be removed from the atmosphere every year. CDR currently removes 2 billion metric tonnes of CO2 per year, of which 99.9% comes from nature-based CDR solutions such as afforestation or reforestation. Only 0.1% results from durable CDR. In other words, we need to scale durable CDR by a factor of 5,000 by mid-century.

To date there has been limited uptake of these technologies. This is because scalable and durable CDR is still quite costly due to the nascent nature of the technology, the lack of mature measurement, reporting and verification (MRV) standards, and weak support from policy-makers.

To rapidly innovate, implement and scale up carbon dioxide removal technologies to match growing climate risks, companies and governments must invest in carbon removal solutions today to ensure cost-effective deployment at scale tomorrow. Government support in the form of new policy mechanisms, initiatives and investment could help more CDR innovations enter the market. This would also create the confidence and certainty needed to encourage private sector investors to fund CDR projects.

A few governments have started to send demand signals, which should launch a wave of private sector investment across the industry to help it to scale.

The US government is certainly leading the charge. In addition to a tax credit that applies to CO2 use and storage projects and a $35 billion Regional DAC HUBs programme, a first-of-a-kind government procurement programme – the CDR Purchase Pilot Prize – will allocate $35 million in cash awards and purchasing agreements to qualifying projects. And the Carbon Dioxide Removal Purchase programme is already encouraging private sector activity. Google has pledged to match this Department of Energy (DOE) initiative dollar for dollar via a range of projects over the next year.

And more support could be coming: a group of US legislators introduced the Carbon Dioxide Removal Leadership Act of 2024 earlier this year. This legislation would require the DOE to use CDR technologies, as well as setting MRV standards and encouraging DOE investment to help bring down capture costs.

The Danish government's recent deal to purchase 1.1 million tonnes of CDR from three companies – BioCirc, Bioman ApS and Carbon Capture Scotland – is the second-largest CDR deal ever signed and the largest direct purchase by a government. The three companies plan to capture and store 160,350 tonnes of CO2 annually from 2026-2032, for a total of 1.3 million tonnes for the 8-year period.

Under another Danish subsidy scheme, the Carbon Capture, Utilisation and Storage (CCUS) Fund, energy company Ørsted will receive a state-funded subsidy to use BECCS to capture and store 430,000 tonnes of CO2 annually for 20 years from 2026. This is a huge show of support for CDR. Landmark deals like this will help the burgeoning industry to meet its potential by harnessing even more support from both the public and private sectors.

Elsewhere, the European Commission’s Industrial Carbon Management strategy includes a plan to use CDR to cut emissions by 90% by 2040. It has published an impact assessment that identifies the need for around 280 million tonnes of CO2 storage capacity by 2040. The EU offers funding to develop such technologies under existing initiatives like Horizon Europe and the Innovation Fund but says: “to stimulate the development of this market, a combination of public and private funding will be necessary, at EU and national level”.

Canada’s Carbon Management Strategy, published in September 2023, provides a long-term vision for the development and deployment of technology-based carbon management in Canada, including CDR. This is backed by a robust policy and regulatory environment, alongside investment tools that support CDR development. This includes funding for emerging technologies, a rising carbon price that's projected to reach CAD170/t by 2030, the GHG Offset Credit System and the newly finalized Carbon Capture, Utilization, and Storage (CCUS) Investment Tax Credit.

In April 2024, Canada announced that CDR procurement will be included in its Low-Carbon Fuel Procurement Program, which supports emission reductions from federal air and marine operations. This will help advance CDR solutions and create an important demand signal for private markets.

"We are at a pivotal moment for carbon removal," says Drew Leyburne, Assistant Deputy Minister for Energy Efficiency and Technology at Natural Resources Canada. "Governments have a critical role to play in scaling the sector responsibly, and policy-makers will need to be as innovative as those in technology and markets. Canada is committed to remaining a world leader as it delivers on the actions outlined in its Carbon Management Strategy."

These governments are partners of the First Movers Coalition – a World Economic Forum initiative that brings together companies that want to help scale innovative decarbonization technologies. Coalition members and partners are responsible for 90% of all carbon removal credits purchased around the world to date. Each member has committed to contract 50,000 tonnes – or $25 million – of durable, scalable carbon removal by 2030.

In 2023, two coalition members signed the largest CDR deal ever when tech giant Microsoft purchased up to 2.7 million tonnes of carbon removal over 11 years from Danish energy provider Ørsted. This deal comes under the Danish government's CCUS Fund.

Governments can be a powerful engine for moving markets. Through regulation, policy and direct purchases of technology or credits, government action provides clarity and stability for industries.

By signalling demand for innovative CDR approaches and products, public procurement encourages others to seek out and embrace new and potentially breakthrough options. At the same time, it sets standards for carbon removal that could put the field on a more credible and transparent path for decades to come.