In its 2022 report, the United Nations’ Intergovernmental Panel on Climate Change indicated that reaching net zero requires at least some kind of carbon dioxide removal. In other words, deep emissions reductions alone won't bring us to net zero.
With scientists admitting the need for carbon removals and investments in the space rising, Europe has adopted a number of regulatory incentives to ensure that carbon removals can contribute to the EU’s carbon neutral future. Some of these incentives include:
Ahead of COP28 where the first global target for carbon management will be announced, we sat down with 2150’s Gemma Shepherd to discuss all things that the policy community would like to know about carbon removals.
Can you explain how carbon dioxide removal technologies (CDR) work? Do you include CDR companies in your investment strategy?
Carbon dioxide removal (CDR) technologies ultimately work by removing carbon dioxide from the atmosphere and durably storing it in different carbon reservoirs such as rocks/minerals, biomass, soil, oceans, or products. They can be nature-based (e.g. afforestation/reforestation, soil carbon sequestration, mangrove restoration) or engineered (direct air capture (DAC), bioenergy with carbon capture and storage (BECCS), mineralisation, methane oxidation). Although processes vary widely, CDR often works by enhancing biological sinks (e.g. using photosynthesis to convert CO2 to biomass), geochemical sinks (e.g. using mineralization of CO2 into reactive rocks or dissolution of CO2 into the ocean), or using other technical methods (e.g. using certain solvents or sorbents to capture CO2 in DAC).
2150 was founded to support the scale up of solutions that advance the sustainable transformation of cities. As cities represent roughly 70% of global GHG emissions, and given that we see the need for CDR at significant scale by 2050 to offset residual GHG emissions, we are actively looking for opportunities to invest in engineered CDR technologies.
What are the advantages of CDR compared to carbon credits?
CDR and carbon credits can be closely linked, but ultimately CDR is about the net removal of CO2. CDR can be monetised through carbon removal credits, which are distinct from carbon avoidance credits that acknowledge activities that reduce, but not remove emissions. Estimates state we will need anywhere from 5-15 Gt CO2 removal per year by 2050 to stay in line with a 1.5ºC warming trajectory. Following the logic that there are certain hard-to-abate or un-abatable emissions, there is no amount of pure avoidance credits that could get us to net zero. Removal is key.
The advantages of removal offsets over avoidance offsets is also exemplified through announcements from the SBTi, regulators, and price signals. The SBTi is planning to allow the final 10% of emissions reduction targets to come from credit purchases and is discussing only allowing carbon removal credits. Similarly, the European Commission will also consider integrating carbon removal credits into the EU ETS (Carbongap). Finally, carbon removal credits typically trade on voluntary carbon markets at a higher price than avoidance credits, in recognition of their greater value.
That said, not all CDR credits are created equal. It’s important to develop high quality credits that are permanent, additional, have no leakage, use accurate MRV and baselines, are single counted, limit social or environmental risks, and potentially provide co-benefits. It’s also important to think about how that CDR credit is being used. Is it being used to offset mitigatable emissions? Or, is it being used to offset truly hard-to-abate emissions? Or even, is it being used to draw down carbon after net zero is reached?
Do you think that carbon removals will enable the oil industry to sustain its current level of operation?
The potential use of CDR as a mitigation deterrence is certainly worrying when CDR is used to justify continued fossil fuel exploitation. We are seeing fossil fuel majors make investments and acquisitions in DAC recently.
I think we need guardrails to stop CDR from stymieing efforts to mitigate existing emissions. While there is increasingly consensus that a net-zero world includes a sizeable CDR industry, these solutions will need to be focused on the hardest areas to decarbonize. We do not want a situation in which reliance on future carbon removal detracts from acting now to mitigate emissions or even to stop emissions reductions entirely. We also need to ensure abatement technologies are economically viable and accessible to all.
While some actors may try to use CDR as a “license to operate”, we are also faced with a situation where we need CDR to scale significantly from now to 2050 to meet net zero. CDR.fyi estimated that only 45.5 kt of high-permanence CDR credits were delivered in 2022 (not including much higher numbers from reforestation or blue carbon). This is a far cry from the roughly 10 Gt CO2 removal needed by 2050. We believe venture capital has a key role to play now to make sure CDR is there to negate residual emissions by 2050 (and potentially even enable net negative emissions if we have temperature overshoot).
What do you think are the biggest challenges for CDR?
Some of the biggest challenges for CDR are scaling, costs, technical viability, resource use/impacts, and trust. Scaling up CDR from today’s levels to the gigatonnes needed per year by 2050 will require substantial investment and coordination. Certain engineered methods are also currently very expensive. Levelised costs of DAC are ~$500 – 600 / tonne CO2 today (RMI). Ideally, we can bring this closer to $100/tCO2 at commercial scale.
In addition, the technology readiness level of many CDR methods is still relatively low. Some of the most advanced DAC processes are at advanced pilot stage while other CDR methods, like ocean alkalization, ocean fertilization, and enhanced rock weathering, are still at the concept, experimental, or early development phase. We need to make sure the tech can viably scale.
To manage resources and environmental risks, we need to be mindful of competition for land, water, and energy. Some CDR methods, like afforestation and reforestation, require vast amounts of land. Others, like DAC, require vast amounts of energy. For all these reasons, we think a portfolio approach to the global CDR industry will be needed.
Finally, we need to garner trust in CDR. Ideally, this can come from high quality credits and CDR being used as an offset to residual hard-to-abate emissions rather than to delay action to mitigation.
What’s an overlooked piece in the public policy arena on CDR you think people should pay some more attention to?
There is growing interest on if and how CDR offsets could be integrated into compliance mechanisms like emissions trading schemes (ETS). In the New Zealand ETS, forestry carbon removals are already able to fulfill compliance obligations (NZ Gov). Similarly, the UK is looking at integrating DAC and BECCS into the UK ETS (UK Gov). Whether to and how to include CDR in compliance mechanisms and what constitutes a “good credit” is an ongoing debate and it will be interesting to hear how these topics are discussed at COP28.
The U.S. recently announced the world’s largest investment in engineered carbon removal in history with two facilities which will eventually remove more than 250 times more carbon dioxide than the largest DAC facility currently operating. How can Europe keep pace in this field?
The U.S. is definitely becoming a frontrunner in the engineered removal space, both through the DAC Hubs and the 45Q tax credit. Companies such as Climeworks are setting up facilities in the U.S., and many more will follow without similar signals elsewhere. Europe could keep pace by recognising assured incentives for engineered CDR can spur investment. Other potential methods on the nature-based carbon removal space could come through agricultural subsidy reforms and ensuring we follow through with the targets set out in the EU Restoration Law.
This interview is part of our ongoing series Voices of Innovation, where we convene cleantech investors to discuss challenges, opportunities and trends of the cleantech transition in Europe.