Climate Insider Brief:
- The carbon removal sector, with nearly 800 companies worldwide, faces sustainability and economic concerns due to its non-essential nature and reliance on limited revenue sources like government subsidies.
- Despite a $4 billion investment, doubts persist about the profitability of carbon removal, especially direct-air capture, leading to concerns about the industry’s rapid growth and long-term viability.
- The industry’s future depends on uncertain government support, with potential funding issues risking a market bubble burst.
In recent years, the carbon removal industry has experienced unprecedented growth, with nearly 800 companies globally exploring various methods to mitigate greenhouse gas emissions. However, this surge in interest has raised legitimate concerns about the sustainability and economic viability of carbon dioxide removal (CDR) initiatives.
One significant challenge lies in the inherent nature of carbon removal as a service that, strictly speaking, nobody needs at the moment. Unlike tangible products, CDR functions as waste management for invisible greenhouse gas emissions—an essential public good that faces difficulties in garnering financial support. According to Emily Grubert, an associate professor at Notre Dame and former deputy assistant secretary in the US Energy Department’s Office of Carbon Management, the primary avenues for revenue currently include government procurement, government subsidies, and voluntary purchases by corporations and individuals.
Despite the substantial capital injection of over $4 billion from venture investors between 2020 and the end of the previous year, there are valid concerns about the economic feasibility of carbon removal. A report from venture capital firm DCVC highlighted multiple feasibility constraints across various approaches, emphasising the high costs associated with carbon-sucking direct-air-capture factories, which charge customers hundreds of dollars per ton.
Rachel Slaybaugh, a partner at DCVC, expressed scepticism about the immediate profitability of direct-air capture, stating, “I’m not saying we won’t need it. And I’m not saying there won’t eventually be good businesses here. I’m saying right now the markets are very nascent, and I don’t see how you can possibly make a venture return.”
In private conversations, industry insiders have acknowledged the unsustainability of the current number of carbon removal companies. The sector’s rapid growth is partly driven by the increasing recognition of the need to remove vast amounts of carbon dioxide to curb rising temperatures. However, the sheer volume of companies entering the market raises concerns about long-term viability.
Corporate demand for carbon removal currently outstrips the availability of reliable solutions, with only a handful of direct-air-capture plants in operation. While costs are expected to decrease over time, the challenge remains that only a limited number of corporate customers are willing to pay the true cost of high-quality, reliable carbon removal.
As the industry grapples with these market challenges, the fate of carbon removal increasingly depends on the level of support governments are willing to provide. Potential avenues include carbon trading markets, direct purchases, mandates on polluters, fuel standards, and other measures. The European Commission, for instance, is working on a framework for certifying carbon dioxide removal to align with the EU’s climate neutrality goal by 2050.
However, the scale of government support remains uncertain. Some observers argue that expecting nations to fund high-quality carbon removal on the scale of billions of tons annually may be a “fantasy.” Financial pressures within the sector could lead to worrisome outcomes, such as a potential bubble burst, causing investors to lose confidence and resulting in a halt to promising carbon removal methods.
There is also a concern that, as funding becomes scarce, startups may resort to selling cheaper but less reliable forms of carbon removal, potentially compromising environmental integrity. This scenario could lead to credibility issues akin to those experienced in the voluntary carbon offset market, where financial transactions often outweigh the actual environmental impact.
In navigating the concerns surrounding the sustainability of carbon removal, industry stakeholders, investors, and policymakers must collaborate to strike a balance between economic viability, environmental efficacy, and responsible regulation. The future of the carbon removal sector hinges on thoughtful government support, continued technological innovation, and a commitment to addressing the global challenge of climate change without succumbing to undue market pressures.
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