Where next for carbon removals? Understanding a market that could prove critical to net zero goals

As the practical realities of delivering net zero have become clearer, the costs of emitting CO2 have risen, and the impacts of worsening climate change have intensified worldwide, carbon dioxide removal (CDR) has increasingly come to be regarded as a key weapon in the climate action arsenal.

Not so long ago, many companies had 'offsetting' lined up as a means of tackling those hard-to-abate residual greenhouse gas emissions they might otherwise have struggled to eradicated from their operations and supply chains. But well-documented controversies that have dogged the fledgling voluntary carbon market in recent years have driven a flight towards projects that can command higher levels of integrity. There has been a marked shift in strategy among a number of leading corporates, which has seen them move away from 'offsetting' and 'carbon avoidance' credits and towards 'carbon removal' projects that can provide more robust assurances that CO2 is being removed from the atmosphere.

At the same time, there has been an increasing recognition among policymakers and businesses that CDR will be needed to achieve net zero emissions, according to Chris Thackeray, an expert in carbon capture and storage (CCS) at consulting firm Baringa.

"To achieve net zero emissions either in a country, or globally, you have to put the ‘net' in net zero," he said. "And that means you have to have negative emissions as well as the reduction of as much of the emissions in the economy as much as possible. We can only get so far with renewables, nuclear and energy efficiency, and all the measures that we want to see to decarbonise... there will be residual emissions in every economy in the world where we will need to do carbon removals."

Thackeray pointed to calculations from the International Energy Agency (IEA), which estimate the world will need in the region of 600 million tonnes a year of CO2 removals capacity by the mid-2030s in order to be on track for net zero by mid-century. For context, that equates to roughly the same amount of CO2 that is emitted by the entire global liquified natural gas (LNG) market today.

Thereafter, global CDR capacity would need to rise significantly once again to between one and four billion tonnes of CDR by 2050, according to the IEA. "We cannot get to net zero with reductions alone - we need to have removals - so it's critical," insisted Thackeray.

His comments came during a webinar last week hosted by BusinessGreen in partnership with energy-from-waste firm enfinium, which saw several leading experts discuss the outlook for the burgeoning market for carbon removals.

Georgia Berry, CDR director at the Green Finance Institute (GFI), highlighted not only the growing interest in the CDR market, but also its expanding diversity.

Firstly, there are engineered approaches, which include bioenergy with carbon capture and storage (BECCS) and direct air capture (DAC) technologies. Then there are marine and river carbon removal projects, which tend to be more nascent, but have considerable potential to soak up large amounts of CO2. And finally there are nature-based solutions on land, such as afforestation and peatland restoration. The likes of enhanced rock weathering and biochar, meanwhile, are sometimes classified as 'hybrid' removals, as they encompass both engineered and nature-based characteristics.

Berry argued "all types of carbon removal are needed, as different projects have different financing types and characteristics, and deliver different benefits".

"We're also seeing a lot of innovation over time, and so I think we will see more and more CDR pathways evolve over the coming years," she added.

For Berry, nature-based CDR approaches "are really, really critical" because of their co-benefits for the natural world, such as better soil quality and expanded nature habitats. "The other upside to nature-based carbon credits is around pace and time, because quite often nature based projects can remove carbon today, unlike more engineered approaches," she added.

In short, planting trees and restoring peatlands are approaches to CDR that are being undertaken today, as they have been for many years, giving them a head-start over many other more engineered forms of CDR, most of which have yet to be proven at scale.

But in the medium to long-term, more of those engineered CO2 removals projects and technologies will need to be up and running, as the world is unlikely to be able to deliver nature-based carbon removal at the capacity needed to meet net zero goals. That is why R&D efforts and investment are being focused on BECCS, DAC, and carbon capture (CCS) with energy-from-waste (EfW) projects that could prove highly scalable.

In the UK, enfinium is one of several energy-from-waste (EfW) firms aiming to install CCS on EfW plants, which would transform these facilities from carbon emitters into net-negative emitters - meaning they would capture more CO2 from the atmosphere than they emit.

"I think it's fair to say Energy from Waste has been relatively under profiled [in the carbon removals conversation] until recent years, but I think there is growing interest in it now," said Karl Smyth, enfinium's director for external affairs and strategic policy.

He pointed out how earlier this month, Microsoft announced it had secured the first 10-year deal to purchase 1.1 million tonnes of CDR credits from an EfW plant in Norway's capital Oslo that is currently being retrofitted with CCS capability by operator Hafslund Celsio.

For Smyth, Microsoft's interest in the technology is "a big sign of confidence in the market".

"EfW tends to be grouped in with BECCS, but actually we think there are some fundamentally different characteristics - which is why we like to talk about WECCS [waste-to-energy with CCS] rather than BECCS."

There are three key reasons enfinium believes WECCS offer a compelling proposition for the emerging CDR market, according to Smyth.

Firstly, he argues the feedstock - largely unrecyclable household waste - will persist long into the future, noting that even in scenarios where significant circular economy gains are made over the coming decades there is still certain to be a large amount sent to EfW plants "for decades to come".

"In the UK, Defra published a new target last year to reduce waste by 50 per cent by 2042," he explained. "That still means the UK is going to be producing 17-18 million tonnes of waste in 20 years from now, which is still quite a lot to manage relative to where we are today."

Secondly, WECCS is highly scalable - and could be deployed relatively quickly - given there are already some 60 EfW plants in operation in the UK, as well as hundreds across Europe, and thousands globally.

"When we think about where the carbon removals the world needs are going to come from, EfW or WECCS is the most scalable in the UK because of the sheer number of those facilities," said Smyth. "We don't need to get to 100 per cent, but if we get a relatively good proportion of those EfW plants doing CCS, then the UK would be producing up to 10 million tonnes of high quality carbon removals, relative to the government's 35 million tonne CDR target."

And finally, these EfW plants all generate electricity - so those that are retrofitted with CCS would immediately therefore become carbon-negative power plants, further contributing to the UK's decarbonisation and energy security goals, rather than adding to the nation's emissions.

"Thinking about the co-benefits, that becomes a very interesting story - particularly when those EfW power plants are based near industrial users or data centres, as those are the sorts of users that would value having a long-term power purchase agreement for carbon-negative power," Smyth said.

Meanwhile, there are sticks as well as carrots on the horizon that are sure to further bolster the case for EfW operators and carbon removals investors to back WECCS. At present, the UK's EfW power plants are all carbon emitters, which presents "social licence to operate questions for the industry", Smyth acknowledges. On top of that, EfW plants are set to come under the umbrella of the UK's Emissions Trading Scheme (ETS) from 2028, meaning operators will for the first time have to start paying for the carbon they emit - unless they invest in CCS retrofits to avoid those CO2 emissions. "This is a reality that is coming down the line for us," said Smyth.

However, whether the focus is on WECCS projects or other forms of CDR, the nascent carbon removals sector faces some significant challenges in securing the investment required to deploy cutting edge projects, according to Berry.

"We are seeing a lot of innovation in financing," she explained. "That being said, the real challenge is that these are nascent technologies - often first of a kind. There is support in the early stages, there is venture capital around, and there has been over £100m in R&D support from the government, so that early stage backing to get projects to demonstration stage is more manageable on the hole. But where we're seeing a real gap and considerable challenges for project developers is getting to operational and ultimately commercial scale. That is because the larger institutional investors, who might usually be able to access cheaper money, are less experienced in investing in these kinds of projects, and frankly they don't necessarily have the risk appetite to be investing in them."

Berry highlighted several major barriers to institutional investment in CDR, such as a lack of data around the projects themselves - which limits the ability of investors to quantify risk - as well as a difficulties in securing sufficient cost competitive finance for inherently capital intensive projects.

"This is where a lot of innovation is and can happen," said Berry. "There's a lot going on, but we need to get away from expensive early stage capital being used as working and scaling capital for these projects in order to make them viable."

For Thackeray, overcoming these challenges requires a clear and stable policy landscape that can bolster investor confidence in the first wave of CDR projects. "Fundamental to the investment case, particularly in the early years, is government policy," he said. "It's a mix of carbon pricing, carbon markets, subsidy frameworks, and then government processes to allocate that funding. For a large capital investment project, it will always cost more to do CCS than not do CCS, and therefore you have to bridge that cost gap, and government subsidies are initially the way we're doing that in Europe and the UK. Then over time, what we are hoping for is that carbon markets coupled with offtake agreements with some of the large corporates can drive that investment signal."

If such technological and investment challenges can be overcome, there is every chance CDR could soon shift from being a niche concern for many businesses into a critical tool for delivering on net zero goals at both the corporate and the national level, the panellists argued.

What then could the CDR market look like in a decade's time?

"I'm a bit of an optimist, so I'd like to see 20-plus projects delivered - particularly across the north of Europe and the UK - for carbon removals, energy-from-waste, BECCS and potentially Direct Air Capture trials," said Thackeray. "That can really accelerate and provide and investment case for the CO2 infrastructure and storage that we're going to need to decarbonise our economies. My hope is that we can start to see the private sector take on more risk and provide more of that value, so that governments can reduce the subsidies and therefore we can get scale."

And what about by 2050, when the UK is legally required to have delivered a net zero emissions economy - what might the CDR market look like then?

Smyth said the aspiration should be in the first instance that the CDR sector is less reliant on government intervention than it is today - then projects can start to be delivered at scale. "Hopefully in 25 years from now we'll see the benefits for that, in terms of demand coming from the sectors that need these credits, as distinct from relying on those that can buy currently," he said. "And then the need for the state to be the facilitator in this gradually ebbs away as it becomes something more like we see today - where it's a pure market driven exercise with buyers and sellers and we balance the leger between the two."

The long term vision is for a genuinely net zero emissions economy in 2050, bolstered by a credible carbon removals market that is primed to scale further in the second half of the century in order to draw down atmospheric CO2 and bring the Paris Agreement goal of less than 1.5C of warming back within reach. It is a tantalising prospect, but - as experts, investors, and businesses appear to increasingly recognise - it can only be realised if steps are taken now to lay the foundations for the fledgling CDR market.

BusinessGreen's latest webinar was hosted in partnership with enfinium. Titled 'Where next for carbon removals: Understanding a market that could prove crucial to corporate climate efforts' the session can now be watched back in full here.