Carbon removal: an historic investment opportunity 

Impact Investor speaks to carbon removal experts to understand the investment opportunities in a nascent but fast-growing industry 

The United Nations Intergovernmental Panel on Climate Change (IPCC) describes carbon removal as “anthropogenic activities removing CO₂ from the atmosphere and durably storing it in geological, terrestrial, or ocean reservoirs, or in products”.    

The scientific community estimates the world will need to remove 10 gigatons (Gt) of carbon dioxide from the atmosphere each year by mid-century if it is to stay within its carbon budget and have any chance of limiting global warming to 1.5°C or even 2°C.  But, today, existing carbon dioxide removal (CDR) strategies, which include both tech-based solutions such as direct air capture with carbon storage (DACCS) and nature-based solutions such as reforestation and afforestation, only sequester a fraction of what is needed.  

The European Commission is expected to propose an EU regulatory framework for the certification of carbon removals by the end of this year, which it is hoped will provide a boost for the sector.  

Max Zeller, co-founder of Zurich-based venture capital firm Carbon Removal Partners, which is about to launch its first impact fund focusing exclusively on carbon removal, explains that CDR was brought to the attention of the international community by the 2018 IPCC special report on global warming.   “It became apparent that while strategies to reduce emissions are critically important, the world would need negative emissions through carbon removal to meet its goals.”  

Today, CDR is also recognised as playing an important role in delivering climate justice and giving developing countries the extra wriggle room they need to transition to net zero.  

Zeller says that CDR will also play a critical role in neutralising the emissions from industries which are difficult to decarbonised. “It is very, very clear that in order to stay within our carbon budget we will need negative emissions. Even if we were to reduce our emissions at the fastest rate possible, we will still be left with residual emissions that we cannot reduce, mostly from long distance transport and agriculture. For these, we will need to generate negative emissions through technology-based and nature-based solutions” 

An historic undertaking 

According to estimates from Counteract, a London-based investment manager, the combined effort of all CDR solutions in existence today had reduced carbon emissions globally in 2021 by just 0.018 Gt, which leaves the world with less than three decades to scale efforts by 50,000%.  

“Today, nature and tech-based solutions are only removing something in the order of 1.8m tonnes of carbon per year, so we will need to scale that massively over the next few years,” says Andrew Shebbeare, managing partner at Counteract. “If you look at the compound annual growth rate to get to 10Gt, it’s about 50%. That is an incredible rate of growth and one that has not being sustained by any endeavour in human history.”  

Shebbeare acknowledges that the world has a mountain to climb but believes it can be done, albeit only by scaling all existing CDR solutions in concert. 

Some of the challenges often cited include that there is simply not enough space on the planet to enable enough photosynthesis through the planting of trees, another, is that growing biomass to sequester carbon can be controversial if it competes with food production.  

“There’s too much competition for land, in particular for food production, for us to be giving over the entire surface of the Earth to carbon removal. Of course, we can plant more trees, and we must, but we’re talking about 10-20% of the problem being addressed by photosynthesis in our most optimistic scenarios. You also need to make sure these trees do not rot and decay, catch fire or get cut down, and release that CO₂ back into the atmosphere,” Shebbeare explains. “There are also great biomass converter solutions out there, that convert biomass into something else and lock away the carbon, but again, because biomass tends to compete with food, it is not always a good idea.” 

Some of the technologies such as enhanced rock weathering and in particular direct air carbon capture and storage (DACCS), have also been criticised for being very energy, resource and capital intensive and as nascent technologies, their impact on the environment, if brought to scale, are also not wholly understood.   

Shebbeare’s colleague and manager at Counteract Caitlin Wale, says that investment into the innovations that will make these CDR processes more efficient and less costly, will be key: “Fundamentally, we probably know how to do enough things to get us to the Gt per year level needed, but we could be doing them a lot more efficiently. The more talent and the more minds that try apply themselves to this problem, the more it will help to advance these solutions, make them ever more efficient and lead to completely new breakthroughs.” 

Growth potential  

The global carbon capture and storage market size was valued at $3.22bn (€3.17bn) in 2021 and according to recent estimates, is expected to expand at a compound annual growth rate of 5.8% from 2022 to 2030.   

Mary Yap, co-founder and CEO at Lithos Carbon, a startup launched in Seattle earlier this year to accelerate rock weathering, a naturally occurring phenomenon in which rain containing dissolved CO₂ reacts with rocks to form bicarbonates, which are then carried by rivers and streams and stored in the world’s oceans, says CDR presents a huge economic opportunity: “We’re looking at a world where the market will end up buying billions of tons of carbon removal credits, and the only way we’re going to meet that demand, is with high-quality yet cost-effective approaches to scaling carbon capture. Enhanced rock weathering is one of the only approaches with an immediate pathway to hitting that billion-tonne number. And in order to get there, the right investments need to be made,” she says adding that the company had more demand from their customers than they had the “bandwidth” to respond to.  

Zeller agrees that the carbon removal industry will need to scale massively and fast to have any chance of meeting the targets set by the scientific community. “We will need to build a carbon removal industry that is comparable in size to what big oil is today. If you take the figure of 10 Gt of carbon removal needed per year, the market opportunity could easily be as much as $100 per tonne with a market size of $1tn per year. Of course, I’m a bit biased, but I would say that carbon removal, without a doubt, represents the biggest opportunity in the climate space today and we’re only just getting started.” 

Shebbeare jokes that the time to invest was five years ago, but adds that many institutional investors, particularly pension funds, still feel that the opportunities are too nascent and risky.  

He says that this is changing with the emergence of growth capital from larger companies such as DACCS firm Climeworks, which are attracting ever greater attention.  

“The people who we work with are corporates with a strong strategic interest, family offices, HNW investors, foundations and funds of funds, which are specifically targeting the climate, but the truth is that this space is really, really overlooked. I think it’s pretty clear that carbon removal is going to be vital and if I were not the investor that I am, I would want to know how I’m getting exposure to this absolutely vital sector. Not just because I want to help the climate but because it’s an extremely exciting growth opportunity in the scope of human history. We’re going to mobilise to do something extraordinary.” 

It is hoped that the EU regulation for the certification of carbon removals expected by the end of this year will provide the legal framework needed to boost the scale up of both nature and tech-based carbon removal solutions, and complement voluntary carbon removal markets, such as CarbonFuture and Puro.earth, already in existence.    

“It’s important not to overlook the requirement for regulatory frameworks that will effectively force removals and make them part of the conversation. What nobody knows right now is exactly where voluntary and regulatory markets are going to intersect nor how big each of those two segments is going to be,” Shebbeare adds.

Yap says that the quality of any future CDR regulation in Europe or anywhere else in the world would also be imperative: “As well as having a standardised market in place, it will be equally, if not more important, to have regulation on the quality of removals to ensure people are not buying removals that don’t actually do what they say they’re doing.”