Market creation is the single most important thing we can do for carbon removal

More than we realize, the US federal government is behind the innovations found in our everyday lives. Many of the elements that make our phones smart — microchips, touchscreens, voice-to-text, GPS, even the Internet — can be traced back to decades of federal research, infrastructure, regulation, and incentives from the Department of Defense, National Science Foundation, and other government agencies. Over the years, US capacity for technology development has been harnessed to generate new climate technologies, from solar panels to electric vehicles.

The federal government uses a well-known playbook for jumpstarting fledgling industries, typically coming in at the earliest stages to stimulate research and development and first-of-a-kind pilot projects. These investments enable a series of technological breakthroughs, knowledge transfers, system integrations, and economies of scaleopens in a new tab that make technologies more viable, drive down costs, and prepare them to face incumbent products in the market. Once technologies have a reasonable path to scale, the federal government usually takes a back seat to private sector partners — industry, investors, and financiers — who scale the sector and make commercial sales.

How the current federal playbook falls short

The last decade of carbon removal policy has been governed by this playbook. Many nonprofits and advocates — including myself — have focused largely on ramping up RD&D investments in all forms of carbon removal. Although this type of funding is critical, it’s clear as the field develops that this playbook is falling short.

Understanding how starts with recognizing what makes carbon removal unique. These companies aren’t replacing an incumbent industry the way clean energy can replace fossil energy, so they’re missing something crucial: customers. So far, the government has focused on the foundations of carbon removal supply — investments in research and innovation to make the technology viable at larger and larger scales. But who is going to buy all those tons of carbon removal as this emerging class of companies matures?

Today's CDR customers

The main markets for carbon removal today are few and far between. Some companies have pledged to purchase smaller amounts of carbon removal in the hopes of deploying first-of-a-kind projects and crowding in more private sector investment. That includes Alphabet, Meta, Stripe, Shopify, and McKinsey & Company, the founding members of the $1 billion Frontieropens in a new tab advance market commitment. However, these commitments alone cannot provide the consistency or scale needed to reach the billions of tons required by the climate math.

There’s also the traditional offset market, used by corporate actors looking to meet voluntary net-zero commitments by reducing emissions outside their direct supply chains. Unfortunately, carbon offsets are riddled with credibility and environmental justice issuesopens in a new tab and have traditionally focused on emissions reductions, not removals. As the public becomes aware of these problemsopens in a new tab, removals have the potential to be more credible options for offsets. But the price tag and lack of standards keep customers at arm’s length. Traditional offsets sell at extremely low prices — $2 to $10 per ton of CO₂ reduced, a far cry from the $400 to $2,000 per ton price of CO₂ removed. These costs are expected to come down over time, but for now prices remain a barrier to action.

All of this means that carbon removal entrepreneurs are tasked with building not only the physical processes to remove CO₂ from the atmosphere but also the market for these technologies, both from the ground up. Government support has been helping with the supply-side of the equation, but policymakers can do more to ensure they find customers. Policy must help create the markets for carbon removal.

Building markets for carbon removal

So, what does that look like? The federal government can unlock private sector customers, create market stability, and become a first customer itself through market-generating policies like procurement programs, tax credits, and contracts for differenceopens in a new tab. It can also play a critical oversight role by setting robust standards for carbon removal that incentivize only the highest quality projects, ensuring that the field doesn’t run into the same pitfalls as the carbon offsets industry. There is a whole portfolio of tools in our toolbox that have so far gone untapped.

These markets must come much sooner than we would expect for a nascent field. With supply already flagging behind demand, the fate of the industry will increasingly depend on how quickly they can take shape. Companies need to be able to demonstrate the long-term revenue potential and future demand for their services in order to permit, plan, and finance first-of-a-kind facilities.

The same holds true for raising early research funding. We’ve heard from our members over and over that the existence of markets is critical whether or not they’ve matured and scaled enough to access them yet. Not only does the lack of markets leave money on the table, it risks stalling the entire industry for decades to come.

The next phase of carbon removal advocacy starts with reimagining the playbook for technology development. There’s currently an abundance of private sector capital waiting on the sidelines that could be unlocked with a focus on market-generating policies. If we’re going to scale the industry in time to meet our climate goals, we have to think about markets today — not only once technologies are ready to deploy at gigaton scale.

The Carbon Removal Alliance will be publishing more ideas on how the government can help kickstart markets for carbon removal. Stay tuned!

Cover photo by Heirloom