The Intergovernmental Panel on Climate Change’s (IPCC) latest report revealed that all pathways to limit global warming to 1.5°C depend on carbon removal. Carbon removal, or CO2 removal, encompasses both natural solutions, such as sequestering and storing carbon in trees and soil, and technology that extracts CO2 directly from the atmosphere.
Exactly how much CO2 will need to be removed depends on how rapidly and by how much emissions can be reduced across sectors, but the IPCC estimates that by 2050, an eye-watering 5-16 gigatonnes (Gt) of CO2 will have to be extracted annually across the planet.
To achieve this Herculean feat, carbon removal methods and technologies will have to be exponentially scaled up; calling for vast new wells of finance to be made available for research, development, and deployment.
Thankfully, the world’s leading tech companies are rising to the task. Earlier in April, an alliance of Silicon Valley titans – including Meta, Shopify, Google, and Stripe – announced they would be buying $925m of carbon removals over the next eight years through a new Stripe-owned company called Frontier. With the previous largest private sector commitment to carbon removal standing at just $15m (from Stripe itself), many have equated the launch of Frontier to the unofficial ribbon-cutting of the global carbon removal market.
Early front runners
There is a bewildering array of approaches to carbon removal. Techniques include reforestation and afforestation, soil carbon sequestration, biochar, biomass carbon removal and storage, carbon mineralisation, direct air capture – and that is just on land. In the oceans, there is also coastal wetlands restoration, seaweed cultivation, artificial upwelling (artificial downwelling, for that matter), nutrient fertilisation, alkalinity enhancement, and electrochemical CO2 removal.
“Everything is speculative at the moment; there are a few horses out in front, but it is way too early in the race to judge,” says Angela Anderson, director of industrial innovation and carbon removal at the World Resources Institute (WRI).
How well do you really know your competitors?
Access the most comprehensive Company Profiles on the market, powered by GlobalData. Save hours of research. Gain competitive edge.
Your download email will arrive shortly
Not ready to buy yet? Download a free sample
We are confident about the unique quality of our Company Profiles. However, we want you to make the most beneficial decision for your business, so we offer a free sample that you can download by submitting the below formBy GlobalData
For now, restoring natural carbon sinks like forests is an effective, cost-competitive approach to carbon removal that can also benefit local communities. However, carbon stored in ecosystems is vulnerable to being released back into the atmosphere through disturbances such as wildfires, which will only proliferate as climate change gets worse.
“Reforestation and nature-based solutions are proven and are some of the least expensive and most readily available investments, so it is important we don’t lose sight of that with all the focus on new technologies,” says Anderson.
Given the sheer scale of carbon removal that is required, however, the climate is also going to need carbon removal technologies. Such technologies are in their infancy and come with both challenges and risks. For example, scaling up crop production for bioenergy with carbon capture and storage (BECCS) can displace croplands, threatening food security and spurring deforestation.
“BECCS is an early leader, but I think the IPCC is a little over-reliant on it,” says Anderson. “We know how to do bioenergy, we know how to do carbon capture, so we just need to put them together, but there are a lot of issues with land competition; it just isn’t clear yet whether there is enough to build the potential demand for BECCS.”
Carbon mineralisation – a range of applications that use reactive minerals in rocks to chemically bind with and store CO2 as a solid – is another fast-developing approach. It is a simple technology and has the advantage of being able to reuse waste materials from industries such as steel. “I know the US Department of Energy is looking very closely to see whether, with greater investment and R&D, it can’t be accelerated,” says Anderson. “It is relatively simple, but figuring out how to do it at scale is the big challenge. Currently it only costs $8 a tonne, which is far less than any of the others.”
The golden child of carbon removal technologies is direct air capture (DAC), which uses machines to react with and capture CO2 in the atmosphere. The technology is developing fast and is well tested in small plants. Along with the simplicity of plucking CO2 molecules directly out of the air, one of the reasons DAC is so attractive is its closeness to industry; there is the possibility of sharing costs with industrial carbon capture projects and CO2 storage sites. DAC’s captured carbon can also be combined with hydrogen to create synthetic fuels, which makes the technology alluring to oil and gas producers and investors.
“But DAC plants are still relatively small, so the at-scale question is still unanswered, as well as the cost question,” says Anderson. “Nonetheless, it is emerging and is one of the areas that Frontier and its investors really see [developing] as the most affordable scalable technology.”
Frontier’s ‘advance market mechanism’
Frontier’s founders are aiming to provide carbon removal start-ups with the kind of quick and affordable risk capital that will allow them, and the wider market, to scale fast enough to play their role in the race to net zero. Frontier has been designed as an ‘advance market mechanism’ (AMC) aimed at accelerating the development of carbon removal technologies by guaranteeing future demand for them.
“The goal is to send a strong demand signal to researchers, entrepreneurs and investors that there is a growing market for these technologies,” says Nan Ransohoff, head of climate at Stripe, who will head up Frontier. “Despite significant progress, the carbon removal industry is not on track to be able to remove the gigatonnes of CO2 we will need to remove every year by 2050.”
The concept of an AMC is borrowed from vaccine development and was piloted a decade ago. The first AMC accelerated the development of pneumococcal vaccines for low-income countries, saving an estimated 700,000 lives. While the market dynamics of carbon removal and vaccines are not identical, they face similar challenges: uncertainty about long-term demand and unproven technologies. AMCs have the power to send a strong and immediate demand signal without picking winning technologies at the start.
“We are not focused on a specific volume in tonnes or price," explains Ransohoff. "Instead we are looking for permanent carbon removal solutions that have the potential to be low-cost and high-volume in the future, even if they are not today.
“Sustaining a market of this magnitude will undoubtedly require policy, but policy takes time and tends to respond to emerging technologies rather than kick-start them. We hope that Frontier can help the field make progress while critical policy work happens in parallel.”
In practice, Frontier will make purchases from high-potential carbon removal companies on behalf of buyers. Over time, it will open up to new buyers to further increase demand and spur new supply. For early-stage carbon removal companies piloting new technologies, buyers will enter into low-volume pre-purchase agreements. For growth-stage carbon removal companies scaling their technologies, Frontier will facilitate offtake agreements. These agreements will commit buyers to purchase future tonnes of carbon removal if and when they are delivered, enabling suppliers to secure the financing to scale their deployments. As the field is still very much in its infancy, most of the money will go towards pre-purchasing initially.
Frontier will only select projects that can store carbon for more than 1,000 years, take advantage of carbon sinks less constrained than arable land, will be affordable at scale (namely cost less than $100 per tonne), and will become a meaningful part of the carbon removal solution portfolio (in other words, capable of storing over 0.5Gt per year).
“Frontier is a terrific development and a very good indication that the private sector is going to invest in this area,” says the WRI’s Anderson. “For years, we have all spoken of the need for serious private sector investment in the carbon removal space and this is a real sign that it is coming to bear.”
Anderson is excited by the concept of pairing investment with third-party verification of a technology’s efficacy and potential impact – something the carbon offset market has struggled with. She sees AMC design as far more effective than the offsets approach that has been used to preserve forests, “which can be beneficial but takes a lot of safeguards and accounting”.
“This way, it provides better assurances that what they are buying is actually going to deliver real captured tonnes,” she says.
Frontier’s predecessor, Stripe Climate, has so far agreed to buy carbon removals from 14 start-ups, including CarbonBuilt, which wants to sequester carbon by capturing it in concrete; the Future Forest Company, which aims to accelerate the natural process of rock weathering; and Project Vesta, which is looking to line beaches with a carbon-capturing mineral called olivine.
Public sector support lagging
The carbon removal market has so far struggled to get off the ground. Few companies have actually attempted to build and scale carbon removal solutions: according to Frontier, as of 2021, fewer than 10,000 tonnes (t) of CO2 have been removed globally.
Part of the reason is that there has been legitimate uncertainty around whether there will be enough demand. “If you are an entrepreneur, why build a company if you are not sure you will have enough customers to buy your product?” asks Ransohoff. “If you are an investor, why invest in a company you are not sure will have revenue?”
For Anderson, the problem comes down to high costs due to the lack of economies of scale, slow infrastructure development, and a lack of social acceptance from local communities of the projects.
The US has taken the lead in providing public support for the industry. The 45Q tax credit allocates $50/t for every tonne of CO2 that is stored underground, and the country's recent infrastructure bill has a provision for four DAC hubs, costing $3.5bn, as well as another $2.5bn for carbon capture infrastructure and $2.1bn for geological storage. “That is a big commitment from the US and I think other governments will be looking to emulate those kinds of policies,” says Anderson. “In fact, the tax credit for carbon capture is expected to be increased by the end of the year.”
There have been increasing efforts to support large-scale DAC deployment in the EU, US, UK, and Switzerland, according to Christoph Beuttler, head of policy at DAC leader Climeworks, which boasts 15 facilities across Europe. Climeworks’s Orca plant in Iceland, launched in September 2021, has a nominal capture capacity of 4,000t of CO2 per year and combines DAC with underground CO2 mineralisation, making it the world's first direct air capture and storage plant. In its early days, Climeworks benefitted from a $5m grant from the Swiss Government to help scale the technology.
“We see an increasingly important role for governments to support the commercialisation and scale-up of more mature DAC companies,” says Beuttler. “Governments need to create incentive schemes that accelerate the deployment of DAC facilities, act as first buyers using public procurement programmes, and set regulatory frameworks that ease permitting and implementation of DAC.”
Indeed, although Anderson sees more and more countries incorporating carbon removal into their long-term climate strategies, they are vastly different in how detailed they are about the kinds of removals, how many tonnes they expect to remove and how it will affect their overall net-zero ambitions.
Above all, the carbon removal market is crying out for an international political framework that sets the standards for carbon removal and reflects the actual cost of carbon, which would give security to investors and allow the market to develop further. “The voluntary carbon market has greatly advanced the carbon removal industry, but the pace based on voluntary measures is not fast enough,” says Beuttler. “If we want to have a real shot at impacting our climate for the better before it is too late, we need more forward investments that pre-finance our operations.”
Auspicious signs for growth
Nonetheless, the carbon removal market looks set to take off in the coming years. The IPCC is clear that there is now no pathway to keep temperature rise even within 2°C of industrial levels without carbon removal. “The median estimate across those models suggests we will need roughly six billion tonnes of annual CO2 removal by 2050,” says Ransohoff. “At, say, $100/t, six billion tonnes of carbon removal annually implies the need for $600bn of customer demand – every year.”
Including Frontier, in the past month, the likes of Elon Musk and Alphabet, along with an array of private equity investors, have committed more than $2bn to carbon removal start-ups. The EU has set a goal of increasing use of the technology a thousandfold by 2030, and the US Department of Energy has launched an initiative called the Carbon Negative Shot, aimed at finding ways to bring the cost of carbon removal down to $100/t over the next decade. Climeworks currently expects the cost of DAC to drop as low as $250–$300 per megatonne of CO2 equivalent by 2030 for a large-scale facility.
“And when nations come together for COP27 to upgrade their commitments this coming year, if they show tangibly that they are manoeuvring their economies towards net zero, you will then see a lot more investment come in for carbon removal technologies,” adds Anderson.
“There are a handful of developments that, if they come together in the next 3–5 years, could see a real acceleration of the market.”