Buying durable carbon removal works the same way as supporting creators on platforms like Kickstarter
Jul 30, 2022
3 min read
Updated about 1 month ago
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 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. For example, 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.
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 materialize. 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 tonne removed and stored from a direct air capture company might be fungible to a tonne 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 tonne/year DACCS plant are expected to be operational together with large actors like Stockholm Exergi delivering BECCS. But even then, tonnes removed across different methods might not be directly comparable.
The timing also depends on how much money flows into carbon removal. Existing known pre-purchases are in the USD tens of millions, but aggregated commitments for this decade will 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 raised being the biggest. However, the recent market downturn might have a negative impact on the possibility of getting venture capital for CDR companies.
As Susan Su pointed out in Carbon Removal Newsroom, companies that can be modular have an advantage. If you have to build a 1 million tonne/year facility, costing billions, you are probably going to have a lot harder time finding funding than if you can start with a 1000 tonne 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.
Published on https://illuminem.com/energyvoices/dd812162-ba25-4321-95dd-2b0208bc489b June 2022
About the author(s)
CTF Fund Manager
robert.hoglund@milkywire.com
Robert Höglund is a carbon dioxide removal (CDR) and climate policy expert. In addition to managing the Climate Transformation Fund, he co-founded the CDR market overview CDR.fyi, works with the NGO Carbon Gap, and publishes reports and articles on carbon removal and corporate climate contributions. He is a member of the EU Expert Group on Carbon Removals, the Science-based Target initiative's (SBTi) Technical Advisory Group, and the board of the KTH-led research program Mistra sustainable consumption. Robert previously headed Oxfam Sweden's policy and communications team and founded the Climate Goal Initiative in Sweden.
Apr 18, 2024
Milkywire & Klarna launch the Nature Transformation Fund to boost collective action for nature and biodiversity.
Mar 18, 2024
Milkywire, alongside Gold Standard and Murmur, released a guide for Beyond Value Chain Mitigation
Mar 05, 2024
A new study was shared widely estimating the cost of direct air capture to be higher than projected, but we show that the cost of DACCS might actually be lower in the near term than people are assuming.
Feb 28, 2024
Today, the Science-Based Targets initiative (SBTi) launched its anticipated Beyond Value Chain Mitigation (BVCM) guidance, clarifying the role and incentives for companies in financing climate action.
Feb 13, 2024
Milkywire's strategic partner, Acción Andina, has been selected as a UN World Restoration Flagship.
Jan 03, 2024
Plan for scarcity, build for abundance.