Oct.22, 2021

The COP26 side event brought together the different actors of the carbon removal market triangle: carbon removal credit buyers and investors in negative emissions technologies Stripe, Milkywire and ClimatePartner, tech companies offering removal solutions Carbon Engineering, Climeworks and Carbo Culture, and carbon marketplaces Carbonfuture and a Mitsubishi Corporation and South Pole joint initiative called the Next Generation Carbon Removal Purchase Facility.

Carbon removal credits buyers underlined that both emissions reductions and carbon removal are critical to counter climate change. They said that private sector actors should do both in parallel rather than privileging one over the other. Removing carbon permanently from the air is something only negative emission technologies can do and plays a central role in climate change mitigation. However, no single carbon removal solution can scale to singlehandedly offer a solution that match the size of the climate issue, therefore it is important to support all promising technologies. “We need to develop a portfolio of technological solutions,” said Nan Ransohoff, Head of Climate at Stripe, an Internet company that has been one of the first movers on the carbon removal market.

Price is one reason why carbon removal technologies are not scaling as rapidly as they should to tackle climate change. But early buyers already play an essential role in reducing these costs and it is widely considered that operational experience will allow for a drop in the price of removing a ton of carbon with negative emissions solutions. Early customers can accelerate new technologies down the cost curve”, Ransohoff added.

“By focusing on the catalytic effect of contributions, it opens up the possibility to support nascent solutions and bring down costs,” explained Robert Höglund from Milkywire, an impact platform that connects people and companies directly to climate and development solutions in need of financing. The more carbon removal tech and solutions are deployed, the closer the price will get to between 100$/ton to 200$/ton, say the experts. A price that is often considered to be the tipping point where carbon removals will become an economically relevant solution to climate change. 

Corporate buyers underlined that focusing on investments into carbon removals, rather than the simple purchase of credits, as a way to help scale the new, expensive solutions. Many have indeed operated under a funding model, putting them on par with public actors, launching calls for proposals, and selecting promising nascent technologies for investment, long before they can start pulling CO2 from the atmosphere at a large scale, thus supporting the ramp-up of these new solutions. This has, to a point, had a snowball effect on the market. “Generous future off-takes are very important because to project financiers, lenders and banks, these are the type of contracts they want to see,” explained Henrietta Moon, CEO of Carbo Culture, a carbon tech company that converts residual natural feedstocks into carbon removals and clean heat.

But many other potential project funders want to see carbon removal techs running before they put money towards it. This leaves a hard-to-fill gap in project financing that hinders their rollout speed. While the gap could be closed partly by customers taking multi-year future off-take contracts, the sheer size of the investments needed makes the public sector the best hope for rapid deployment of negative emissions. “We cannot expect any one company to be the driving force behind scaling the market; there needs to be a positive public policy environment,” argued Jacob Bourgeois from ClimatePartner, a leading solutions provider for corporate climate action.

Generally, throughout the world, clear public sector strategies on the volume, the role, and the mix of removal types are lacking, and a recognized certification scheme with high levels of integrity and sufficient granularity to differentiate between the source of the carbon and the permanence of the storage has not yet emerged and needs to be developed promptly. The USA, however, has developed financial support instruments for carbon removals via the 45Q tax credit and the California low carbon fuel standard, and it was underlined that investable policy frameworks such as these are needed in the EU and across the world.

Synthetic fuels using carbon pulled from the air have recently become another market for companies in the sector, notably direct air capture providers. But, here as well, there is still regulatory uncertainty on how to combine existing emissions trading systems and low carbon fuel standards in a way that would allow for Direct Air Capture (DAC) powered synthetic fuels to become a more viable source of revenue. “We need to start thinking about how to design emissions trading systems and low carbon fuel standards so that they incorporate permanent removals and also have a role in helping support Direct Air Capture powered synthetic fuels” said Helen Bray from Carbon Engineering, a DAC technology company that captures CO₂ directly from air, and a second technology that synthesises it into clean, affordable transportation fuels.

Carbon marketplace representatives also proposed a few paths to be explored to develop the carbon removal sector. Financing the removal of gigatons of CO2 from the air, something scientists say will be necessary to keep the worst effects of climate change in check, requires using advanced digital tools, and actively playing a part in creating and maintaining trust.

While not all corporations can do their own due diligence on the carbon credits that are offered to them, most carbon removal tech companies are not sustainable on their own and rapidly require a stable revenue stream. The Next Generation Carbon Removal Purchase Facility launched by Mitsubishi and South Pole, a climate consultancy, was born of the miss-match between demand and supply. It will officially launch in April next year and aims to enable $330 to $800 million worth of certified carbon removal credits.

Another mismatch is the differential between the demand and the supply. Established marketplaces such as Carbonfuture are already feeling the supply squeeze. It has sold out its supply of carbon removal credits for 2021, the equivalent of 6,000 tons of CO2, and has a goal for 2022 to deliver 40,000 tons of removals, a seven-fold increase. It also wants to shift from spot purchases to multi-year procurement.  

The South Pole and Mitsubishi lead Facility, ClimatePartner, and Carbonfuture see their role as providing a practical example for policymakers on how carbon markets should be organised. “In voluntary carbon markets, we need to foster a race to the top in terms of quality and standards,” said Hannes Junginger-Gestrich, Carbonfuture’s CEO, acknowledging that ultimately a viable solution would be one backed by regulation but based on a framework developed by all parties involved. “It is not about competition but collaboration. It is precisely because we do not have a concrete idea on how to solve this problem yet, that we need to work on a solution together”, concluded Akifumi Takigawa CCU head of project sourcing at Mitsubishi Corporation.

Download the presentations from the event.