Carbon Removals: Accelerating Global Efforts For A Net Zero Future

Carbon removals, which involve the removal and long-term storage of carbon dioxide (CO2) that has already been emitted, are gaining attention as an investment opportunity. However, according to a new report by Wood Mackenzie, titled ‘Carbon removals: The ‘net’ in net zero,’ the pace of progress is not fast enough to help the world reach net zero emissions. The report highlights that technical difficulties make it hard to eliminate CO2 emissions, so carbon removals will play a critical role in the energy transition. To meet the global demand, projects must scale up significantly.

Mhairidh Evans, Global Head of CCUS Research at Wood Mackenzie, explains that a global effort is needed to deliver carbon removals at the required scale. However, she also points out that there will be challenges, as these projects will compete with other social needs. According to the report, for carbon removals to play a meaningful role, three key things need to happen. First, carbon removals must be monetized. Second, governments should set national carbon removal targets, provide incentives, and boost demand. Third, developers need to deliver projects at cost levels that make them attractive investments, especially in light of future carbon prices.

The report suggests that nature-based solutions, such as afforestation (planting trees) and increasing soil carbon, offer the most potential for scaling up at a lower cost per tonne of CO2. These solutions often cost less than US$100 per tonne of CO2, which compares favorably to engineered solutions that range from US$100 to US$1,000 per tonne. Some countries with high emissions, including the US, Brazil, China, Indonesia, and India, have the necessary land resources to support large-scale removal projects.

However, despite the potential, the carbon removal sector is still seen as risky by many investors. This is mainly due to inconsistent government policies worldwide. Evans notes that in North America and Europe, where most of the planned engineered projects are based, government policies and incentives are driving the increase in project announcements. In contrast, nature-based solutions need more support from governments around the world to reach their full potential.

Another challenge for investors is that carbon removals, unlike renewable energy or clean fuels, do not typically produce a tangible product. This makes it difficult to define the financial value of these projects. The value often comes from various sources, such as voluntary and compliance carbon markets, corporate buyers, government incentives, and by-product sales, but these values differ significantly depending on the location.

Carbon markets are the main way to turn carbon removals into a tradable commodity. With a set carbon price, both governments and companies could assign a monetary value to reducing CO2 in the atmosphere. Companies would need to participate in the voluntary market, while governments could create a regulated mandatory market where companies trade removal credits. Evans notes that carbon removals will have an increasing role in compliance markets.

Wood Mackenzie’s forecasts show that by 2050, voluntary carbon market participants will demand more than 1.7 billion tonnes of CO2 equivalent per year in the avoidance and removal of carbon offsets. This demand could more than triple if issues related to market integrity, monitoring, verification, and offset quality are addressed. Governments could also use their purchasing power to stimulate demand, and government-to-government trading could help promote global equity and investment in carbon removal projects in developing countries.

While strong government support is critical to get these projects off the ground, developers must also work to lower costs and attract investors. This is particularly important for technologies like Direct Air Capture, which will require significant improvements in energy consumption, larger project sizes, and next-generation capture technologies.

The report concludes that while nature-based solutions will account for 90% of carbon removals in Wood Mackenzie’s base scenario, engineered removals will be necessary at a larger scale to help the world meet net-zero targets.