Overview
Last week, the Science Based Targets initiative (SBTi)—the leading industry group guiding corporate climate targets and strategies in the US—published a new draft of its net zero standard guidance that included a surprising mention: carbon removal credits. In the new guidance, SBTi for the first time would allow companies to factor carbon removals into their general Scope 1 emissions reductions targets, rather than disallowing their inclusion except for the remediation of residual emissions closer to 2050. The draft (which has yet to be finalized) represents a significant softening on the part of SBTi and other organizations focused sustainability towards once-controversial carbon dioxide removal (CDR) technology amid a business and regulatory environment in the United States that is becoming decidedly less bullish on ambitious sustainability goals. As sentiment towards and regulation around net-zero targets, sustainability initiatives and voluntary carbon markets continue to evolve rapidly, options and imperatives will shift, with carbon removal an increasingly promising, if not perfect, sector for corporate emissions offsetting and sustainable tech investment.
What are Carbon Removals and CCS?
Carbon removal credits, also called carbon removals or CDR, fall under the broader umbrella of carbon offsets, an element of carbon markets. Like carbon credits or emissions allowances within a cap-and-trade carbon market, carbon offsets are fungible credits representing a real-world unit of carbon that has been reduced, avoided or—central to the current debate—removed. In a cap-and-trade or voluntary carbon market, carbon offsets function as a purchasable unit of reduced or removed emissions that a company can use to reduce its recorded carbon emissions, helping a given entity come in under a legally mandated emissions cap or meet a voluntary emissions goal. Emissions avoided and reduced is the more common category of offsets; in this type, the emissions-generating entity funds a project, such as the construction of a renewable power plant, that reduces or avoids emissions against a hypothetical alternative. Carbon capture and sequestration (CCS) technology in large part is included in the emissions reduced or avoided category, as the majority of CCS applications include capturing emissions directly from an emitting project, preventing them from entering the atmosphere, thus reducing emissions for a given project.
Emissions removed via carbon removals, on the other hand, involves permanently (or semi-permanently) removing already created CO2 from the atmosphere. Carbon removal primarily differs from CCS at the capture stage: while CCS technologies directly capture emissions as they are released, carbon removal technologies scrub existing carbon from the atmosphere, via high-tech mechanical methods such as direct air capture (DAC), in which what are essentially massive air filters capture carbon dioxide from their ambient environment, or using biological advancements to increase the ability of natural materials, like soil and algae, to capture and store free CO2. The most common form of carbon removal credits currently on the market come from reforestation and conservation projects, which are considered semi-permanent, ambient carbon sequestration solutions.
After capture, there are several forms of carbon sequestration available on the market. The most common form of sequestration is geological sequestration, wherein CO2 emissions are stored in suitable rock formations like depleted oil and gas reservoirs or underground saltwater formations. Technological sequestration is a promising but still expensive and limited form of sequestration in which various technological methods are used to store or convert CO2, such as converting emissions into usable products like graphene or industrial chemicals, using nascent ionic liquids to bind and absorb CO2, or using nanotechnology. The final category of sequestration—biological—involves increasing or maximizing the ability of naturally-occurring carbon sinks, like soil and phytoplankton, to store ambient CO2 already present in the environment.
Risks and Promises of Carbon Removals
CDR holds immense promise for its potential ability to undo carbon emissions—a prospect of which no other sustainable technology is capable. Various climate change projections suggest that in order to avert the worst consequences of emissions, the world will not only have to slash emissions but walk back existing pollution as well. However, there are concerns: the field today is very limited (with just 3% of carbon credits on the market—itself a small microcosm of all emissions—classified as removal credits), largely due to the immense cost and technological barriers. While DAC provides the highest quality and most durable carbon removals currently on the market, it is expensive, with the price per ton of carbon removal via DAC ranging from $500 to $1,000 (for comparison, the average emissions reduced credit available on voluntary carbon markets cost around $7 per ton in 2023). Biological carbon removals, such as reforestation, are cheaper—costs range from $45 to $240 per ton—but considered less ideal as the carbon sequestration is less durable, vulnerable to re-release via logging, forest fires, or other natural disasters. While commercial CDR has already hit the market, affordability is the next hurdle—a challenge producers of CDR technology like DAC hope will be mitigated by heightened demand from SBTi endorsement and regulatory support.
Further, carbon removals are vulnerable to the same concerns around opacity and efficacy that plague carbon credits in general. Those opposed to the practice call it greenwashing, arguing that lowering net emissions via removals is being proposed as an easier, insufficient replacement for cutting direct emissions, allowing many companies to maintain business as usual. In 2024, SBTi and the Integrity Council for the Voluntary Carbon Market—two of the leading organizations governing voluntary carbon credits—retracted their endorsements of large swaths of the carbon offset market, characterizing most credits on the market as “ineffective” or actually damaging to carbon mitigation goals. Studies of the UN-backed Carbon Development Mechanism (CDM), which governed and certified carbon offsets including removals, found that most projects overestimated their reductions and that most of the removal projects would have happened without financing from offset purchases—meaning that the offsets led to no additional reduced or removed emissions. One study even argued that the CDM increased emissions by six billion tons.
Trends around Carbon Removals
The SBTi decision to more fully incorporate carbon removals as part of best practices in meeting corporate net-zero goals—effectively an endorsement of increased reliance on carbon removals, explained by SBTi as an effort to increase “inclusivity”—comes amid a rapidly shifting business and regulatory environment for the green tech sector and corporate sustainability programs. Just last year, when the market was more positive on ambitious climate goals, an attempt by SBTi to make more room for carbon credits in corporate net-zero goals was met with backlash so intense that it led to the resignation of the organization’s leader. This year’s endorsement of carbon removals constitutes a significant shift of policy that is indicative of a sector-wide transition in response to a much more climate-skeptical, business-centered White House. The new Trump administration has moved decisively in its first months to decenter low-emissions technologies and net-zero targets from federal policy, with moves including an “America First” energy strategy that focuses on boosting traditional energy sources, the cancellation of some $2 billion in climate funding from the Greenhouse Gas Reduction Fund, and efforts to cut back the Inflation Reduction Act (IRA), which financed the deployment of green infrastructure.
Still, the outlook for carbon removals may be positive: the sustainability community’s new focus on carbon removals reflects a governmental and industry feeling that offsets and removals are a more pro-business solution to emissions reduction goals. Carbon removals enjoy relatively bipartisan support, in large part due to strong economic opportunities for the technology in the US: the US is a global carbon removal leader on both the supply and demand side, with 170 carbon removal companies headquartered in the US (30% of all companies focused on the technology) and 85%+ of total carbon removal demand originating from US-based buyers. Biological sequestration efforts, such as the development of biochar (a form of charcoal utilizing captured CO2 that is intended for use in farming), often benefit influential industries like agriculture. The development of the market in the US has happened under successive presidents: in 2020, President Trump signed into law the first carbon removal R&D program in 2020, and President Biden significantly expanded federal support for the mechanism with the IRA (which included the 45Q tax credit, aimed at accelerating DAC and energy conversion of captured emissions) and the Bipartisan Infrastructure Law (BIL) (which included a $3.5 billion investment in DAC hubs in an effort to scale to meet carbon removal demand).
Industry analysts are cautiously optimistic about the future the carbon removal industry under the second Trump administration. There are expectations that the 45Q tax credit and IRA and BIL funding for DAC hubs may remain in place, despite efforts to cut funding from both measures, in light of bipartisan support for CDR and Elon Musk’s significant past investments in DAC technology. Permitting obstacles that have hampered the CDR industry over the last several years—primarily permitting of Class IV injection wells for carbon sequestration, classified as too shallow or hazardous by the Biden administration, and pyrolysis, a chemical method through which CO2 is bound to soil to create biochar, which may produce other pollutants as a byproduct—are expected to be removed. However, government-led spending and procurement is likely to suffer as the new Trump administration seeks to slash federal expenditures and shrink the size of various federal agencies, especially the Environmental Protection Agency.
Implications for Global Business
Despite potential regulatory headwinds and industry skepticism, CDR remains a uniquely beneficial emerging technology—the only option on the market today to remove already-emitted CO2 from the environment and help governments and businesses around the globe reach net-zero goals. The industry shift towards carbon removals reflects the broader governmental and industry retreat from more aggressive net-zero strategies; CDR is considered by sustainability experts as among the most pro-business offsetting strategy. Alongside increased tolerance for carbon removal credits from the sustainability establishment in the US, CDR’s popularity in the US is likely to continue to rise, offering new opportunities for the CDR industry amid increased demand and new avenues for corporate entities to satisfy internal net-zero targets (which, despite a spate of delays, are still popular with a majority of consumers). Risks remain, both on the regulatory side—governmental support is likely to be limited and variable, and guidelines in other countries are evolving—but carbon removal’s stock is on the rise.
