The past 12 months has seen global temperatures soar 1.5C above preindustrial levels, triggering extreme weather events and increasing the risk of breaching climate tipping points.
Scientists say the only hope of staying within the Paris target of keeping warming to within 1.5C is to cut greenhouse gas emissions by 42 per cent by the end of this decade.
Much of this can be achieved by adopting renewable energy and green technologies such as electric vehicles. But that alone cannot reduce all carbon emissions, especially from hard-to-decarbonise industries, such as agriculture and chemicals. This is where carbon dioxide removal (CDR) – a technique of withdrawing carbon from the atmosphere – comes in.
CDR is a controversial technology which divides scientists and policymakers. Sceptics – such as US special envoy for climate John Kerry-- warn that CDR is no substitute for reducing emissions in the first place. They argue that the risks and trade-offs associated with CDR mean that even the widespread adoption of the technology won’t prevent the world from overshooting the Paris goal.
Yet for all its shortcomings, CDR is increasingly seen as vital to net zero goals.
The UN Intergovernmental Panel for Climate Change (IPCC), for instance, now recognises that the deployment of CDR is critical and “unavoidable” to fight climate change. The IPCC says CDR can achieve and sustain net negative greenhouse gas emissions in the long term, which is required to limit warming to 1.5C.
The most traditional carbon removal solutions consist of tree planting, while more sophisticated nature-based versions include biochar (see chart) and enhanced rock weathering (ERW) – a technique that harnesses the natural ability of volcanic rocks to lock in greenhouse gas.
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The only hope of staying within the Paris target of keeping warming to 1.5C is to cut greenhouse gas emissions by 42%
by the end of this decade.
| Afforestation, Reforestation, improved forest management | Soil carbon sequestration | Biochar* | Direct air carbon capture & storage | Enhanced rock weathering | |
Financial cost (USD per tonnes of CO2) | 0-50 | 45-100 | 10-345 | 600-900 | 50-200 |
Storage timescale | Decades to centuries | Centuries to millennia | 10,000+ years | 10,000+ years | |
Trade-offs & risks | Large land footprint; potential impact on biodiversity; storage timescale can vary | Negative impacts from dust; competition for biomass | High energy requirement; high capex & operating costs | Dust emissions; potential for higher emissions from energy generation | |
* Biochar is a negative emissions technology which uses high heat to turn CO2 stored within biomass into a solid substance in a process known as pyrolysis.
Source: IPCC AR6 WGIII, 2022, A Review of Forest Carbon Sequestration Cost Studies
Newer, more expensive techniques, which involve directly capturing carbon from the atmosphere, are beginning to attract considerable investment.
To financiers such as Max Zeller, founding partner at Carbon Removal Partners, a Zurich-based venture capital investment advisor, the industry is poised for breakneck growth.
“On the path towards a net-zero economy, we will create an industry of the size of the oil and gas sector today,” he says.
Zeller explained that the scientific estimates show some 7-9 gigatonnes of CO2 per annum need sinking by mid-century to put the world back on the Paris track.
“Assuming a price of USD150 per tonne – which might reflect the long-term cost of achieving negative emissions – this has the potential to create a market worth USD1 trillion,” he said.
Let that sink in
One of the companies Carbon Removal Partners’ venture capital fund holds a stake in is Switzerland’s Climeworks, which operates and develops direct air capture (DAC) plants around the world.
DAC, which filters CO2 from the air, is more than 100 times as land efficient as reforestation but comes with a hefty price tag due to its novel technology. Typical levelised costs, a measure of the average present cost over its lifetime, are estimated to be around several hundreds of dollars per tonne of captured CO2, compared with USD25-50 for afforestation and reforestation (see Figure above).Daniel, T. et al, Techno-economic Analysis of Direct Air Carbon Capture with CO2 Utilisation; December 2021; IPCC
But the firm is working hard to reduce production costs.
Its latest version of DAC captures more than twice as much CO2 as the previous product at USD250-350 per tonne by 2030.
Zeller believes that the CDR industry will evolve into a major pillar within the green economy as related services – such as carbon accounting, reporting and carbon credit trading – will develop around carbon removal operations to create a full value chain.
As industries are being created, finance, insurance, trading, market components can develop around them. It’s really an economic opportunity.
Carbon Removal Partners' fund also invested in a company developing a carbon credit marketplace and in a business specialising in the measurement, reporting and verification (MRV) of carbon removal.
MRV – which Bloomberg says are the three biggest letters in carbon removal – is a rapidly growing industry that is estimated to grab 10 per cent of global CDR revenue.BCG, June 2024
Demand for collecting and verifying climate data is likely to grow as policymakers from the US to EU and China introduce a batch of new rules demanding greater transparency and accountability from corporation on climate risk.
In the US, for example, new regulations that will require two out of every five listed companies to report on scores of climate-related risks could come into force in the next couple of years in what could become a template.For more, see https://am.pictet.com/ch/en/mega/2024/climate-disclosures (Pictet Asset Management, May 2024)
© 2024 Magnus Arrevad
Developing the new green economy
Zeller is not alone in buying into the growth potential of the CDR supply chain. There are plenty of investors, established and new, who embrace the trend.
His firm, for example, is partnering with Grantham Foundation and GIC, Singapore’s sovereign wealth fund, in providing capital to the CDR industry.
Last year, the CDR industry attracted USD1.2 billion of early-stage investment, of which DAC and support services accounted for 11 per cent and 33 per cent of total respectively.2023 Investment Landscape in Carbon Removal, CDR.fyi, January 2024 Yet the overall figure represented just 4 per cent of climate tech investment – illustrating a significant room to growth.
For its part, Carbon Removal Partners’ first fund aims to return triple the amount invested in a CDR technology portfolio over the next 10 years. To date, the firm is optimistic given the surge in demand from industries like oil and gas and big tech.
Zeller sees the biggest business opportunities in novel providers scaling up their technologies across their CDR value chain.
“This is where we can play the venture game,” he says.