Everything you wanted to know about carbon removals but were afraid to ask

By 2050, carbon dioxide removal could be a $1.2 trillion industry. On this episode of The McKinsey Podcast, McKinsey senior partner Mark Patel joins editorial director Roberta Fusaro to discuss McKinsey’s recent report about the business of carbon dioxide removal and how it could play a vital role in responding to hard-to-abate emissions in various sectors.

In our second segment, Black Americans are especially vulnerable to the effects of climate change. McKinsey partner Munya Muvezwa shares concrete steps leaders can take to help prevent the deterioration of the lives and livelihoods of Black Americans and the US economy at large.

This transcript has been edited for clarity and length.

The McKinsey Podcast is hosted by Roberta Fusaro and Lucia Rahilly.

The basics of carbon removal

Roberta Fusaro: The Intergovernmental Panel on Climate Change has made clear that decarbonization is the most critical response to climate change, but McKinsey’s research shows that decarbonization alone may not be enough. The report says carbon dioxide removal, or CDR, could play a vital role in combatting hard-to-abate emissions. What are these hard-to-abate emissions? What do we mean by that?

Mark Patel: In terms of the human-made activities, the hard-to-abate emissions and what we call the hard-to-abate sectors are referred to as hard to abate because either they rely on energy from fossil fuels, or from inputs that come from fossil-derived sources, or they have activities that create emissions. And when those activities—things like heating and lighting and the materials we use—are important to our daily lives and our economic growth, it’s very hard to cut them off or to stop using them.

Roberta Fusaro: What is it about CDR that’s so helpful for neutralizing these residual emissions?

Mark Patel: The concept of carbon dioxide removal is, if we can’t entirely cut out the activities that are causing emissions, then let’s instead find other mechanisms in which we can remove carbon dioxide, or gases that are equivalent to carbon dioxide. We use the term “carbon dioxide removal” as a broad term that really describes the fact that we are either taking carbon dioxide that’s in the atmosphere or carbon dioxide that’s being emitted into the atmosphere and trying to capture it, contain it, store it, or permanently remove it.

Reaching the 2050 net-zero goal

Roberta Fusaro: If we want to reach net-zero targets by 2050, what level of CDR capacity would likely be needed?

Mark Patel: Let’s start with the year 2030. Our estimates are in the range of 0.8 gigatons to 2.9 gigatons of CO₂ per year of removal capacity by 2030. Talking about 0.8 or 2.9 gigatons—that’s sometimes an abstract concept. What does that actually look like? We talk about the carbon budget of the planet as being between around 500 gigatons to 600 gigatons. We are probably at the point of being about to pass or having just passed that budget.

What that means is the natural balance of our atmosphere is no longer in balance. Getting to ideal levels of carbon removals requires a more thorough understanding of what it means to decarbonize, or to own the carbon footprint of your business, and to understand what the different mechanisms are. The intuitive solution for any company is to work on its own emissions within the business or within the energy that it’s sourcing. And I would say that most of the business leaders today now understand that and have started to work on that productively in most cases.

Most business leaders across broad industrial sectors have not yet been educated unless their businesses are in what are called the high-emissions categories or unless there has been a regulatory reason or a business growth reason that’s impacted them. That’s not to say that these leaders aren’t open minded and aren’t seeking that education. But it reflects the fact that we are still in relatively early days.

Turning to natural and human-made solutions

Roberta Fusaro: In the report, we talk about four nature-based removal solutions and six technology-based removal solutions. What’s the difference between nature-based and technology-based removal solutions?

Mark Patel: There are different mechanisms. We broadly categorize them as nature based and as technology based. But even within those definitions, there is a wide variety of what I would call a hybrid of nature-based and engineered, or technology-based, removals.

Nature has already given us the mechanism for carbon dioxide removal that we all rely on daily. It’s photosynthesis. Anything growing is removing carbon dioxide. Most nature-based CDR models start with some form of plant-based matter, or biomass, being converted into a state in which it can be stored semipermanently or permanently.

When we talk about engineered, or technology-based, removals, those range from separation technologies that are all about the physical flow and separation of CO₂ to technologies that rely more on chemistry to cause the reactions that can help us convert CO₂, capture CO₂, or capture other gases that are also damaging and that lead to overall CO₂-equivalent footprint.

Roberta Fusaro: What is your favorite nature-based removal solution and its potential benefits and challenges?

Mark Patel: I am a big fan of what we might be able to do in the ocean. The ocean is our biggest carbon sink on Earth. And the reason that I am so interested in the ocean is because of its scale and its potential for scaling removal approaches. If we look at growing things in and around the ocean, or on the ocean, it can also get us to very low cost. The plants that grow fastest on our planet are generally micro- and macroalgae. The ability to store CO₂ in the ocean is possible through multiple different mechanisms.

A lot of those are captured in what we call “enhancement of the alkalinity” of the ocean. This is why I’m particularly interested in what we can be doing, both to preserve the ocean as a carbon sink and to expand the activities that will lead to more carbon removals related to ocean activity.

Roberta Fusaro: Can you do the same with a tech-based removal solution? What is your favorite? And what are some of the potential benefits and challenges?

Mark Patel: One that’s a bit more in the hybrid space between nature and technology is enhanced rock weathering.

The principle of enhanced rock weathering [ERW] is when you spread rocks on soil, the rocks—generally in the form of dust or very small rocks—weather naturally and, in so doing, have the effect of storing carbon, which then naturally gets washed out through the soil.

The application of spreading rocks or rock dust onto soil for fertilizing purposes is centuries old, but most folks didn’t naturally attribute it to large-volume removal of CO₂. A number of companies are now embracing ERW and pursuing it. And I like that because ERW has the characteristics of potentially scaling very quickly and across different geographies.

The costs of carbon removal

Roberta Fusaro: The report talks a lot about the costs of these solutions and the trade-offs between investing in one or the other. Can you talk a little bit about why the costs associated with one over the other are so different?

Mark Patel: We face two real challenges when we talk about doing this at scale. We talked about gigatons. Gigatons of impact means very large volumes of CO₂ and therefore very significant deployment of these technologies and the projects that embody the technologies.

If we equate that to what we’re used to in terms of industrial projects and infrastructure projects, building things and moving things, then the scale at which we must undertake these different carbon removal approaches is monumental.

We’re talking about very large portions of arable land that might be used for enhanced rock weathering technologies, for example, or very extensive deployment of carbon capture infrastructure. That means building things, pouring concrete, bending steel, transporting materials on boats and land.

The question is: How do we do that in a way that’s economical? To prove that it works, we’ll need to start at a smaller scale. Whenever things like this are done at a smaller scale, they tend to be much higher in cost per unit of CO₂.

Today, some of these technologies are well over $1,000 per ton of CO₂. That’s not economical. A more reasonable number for anyone in the carbon removal space is around $100 per ton, $150 per ton. This figure is our long-term goal.

Roberta Fusaro: The report estimates that the industry for carbon dioxide removal could be worth up to $1.2 trillion by 2050. It also estimates that the cumulative investment required to deliver on net zero by 2050 would be between $6 trillion and $16 trillion depending on a range of factors. How could investors benefit by starting to take action in this space?

Mark Patel: This will become an industry. Today, it may just look like technologies and projects that are first of a kind or one-of-a-kind projects. But with the regulatory path that we’re on across most of the developed nations, and certainly Europe and North America, with the incentives that are being applied, and with the public process to promote the technology development and the projects, we are seeing a material acceleration.

We should expect this to continue, and as it happens, it will evolve as an industrial sector in its own right. We will expect the supply chains for carbon removal to mirror the efficiency and the efficacy of the supply chains that we see for things like energy and materials, food, agriculture.

You will plan your inventory for carbon removals. You will buy based on a price that is set by market mechanisms and from which you will decide if it’s worth buying and storing more of it. And for that reason, we should expect that there will be opportunities for anyone who’s applying capital into establishing that.

Today, it’s the realm of what we call “climate focused” venture capitalists, funds that are investing pension fund money, money that folks have put into mutual funds. They are choosing to put a portion of that portfolio into climate investing funds, and those funds are increasingly the ones looking to deploy the capital into carbon removals.

So what is the opportunity for individual investors? It is recognizing that at some point, the supply will be materially constrained relative to the demand. That should be an opportunity for an outsize return, just as it would be in any other sector.

We have many investors who are educating themselves and embracing this as a category for investment. But it still has a lot of diversity and, to some extent, some uncertainty depending on what you’re used to investing in and how you’re used to thinking about it.

Roberta Fusaro: What’s in it for the suppliers if they start to get an early move on this?

Mark Patel: The potential for any supplier is to have a lead in both technology and project development and, just as you would in any other sector, turn that into an IP [intellectual property] that’s defensible.

There will be brands for carbon removal. Are we going to brand a ton of CO₂? I think we will.

Roberta Fusaro: What sort of incentives do we need to create? How do we gin up demand for those brands?

Mark Patel: The buying landscape today consists of what we call the “voluntary” market, which is mostly companies that have made a commitment to decarbonization while engaging in the procurement of carbon credits and purchasing carbon removal credits. There is demand [for carbon removal credits] in the future that will come as markets become more regulated and companies in emitting sectors are required to participate in the purchasing of carbon removals or to conduct it as an activity within their own business.

The demand today in the voluntary market is relatively concentrated. The reason for that is that there are a few very large companies that have very large carbon footprints—they’re growing significantly—that have committed to aggressive decarbonization goals and have a high level of transparency to how they’re achieving them.

Advanced commitments

Roberta Fusaro: We talked a little bit about some of the incentives and what needs to change. How do we move buyers in that direction? What are some of the initiatives that are already starting to happen?

Mark Patel: We have a high level of innovation now taking place, not just in the carbon-dioxide-removal technologies and projects, but also in the efforts to accelerate the market. And one of those mechanisms is this concept of advanced market commitment.

It’s a concept that we’re borrowing from the pharmaceuticals and vaccine world, where the principle is that in order to achieve broad adoption at a low-unit cost, you need to help the developers and the manufacturers to achieve scale. One of the most effective ways to do that is to provide advanced commitments to purchase, often at a higher price, which these early producers and developers can take to the bank and show that they have customers, even though they are at a much higher cost and a much lower volume than they intend to be.

So that principle has been adopted in the carbon removals world. The best example is an organization called Frontier, where McKinsey and other founding members came together and said, “We’re ready to buy tons of CO₂ from promising carbon removal providers at a high price, in the short term, in order to help them to grow, scale, and reduce their price more quickly over time.”

We’ve started in the last two years now with Frontier to make purchases from a number of those companies. It’s already proving to be very successful in the sense that it’s helped those companies to move more quickly to raise capital, to develop their projects, and hopefully to deliver CO₂ removal faster.

I think there were two aspects of Frontier that were particularly important. The first one is that it doesn’t exist to make a profit. It is formed in such a way that it significantly streamlines the transaction between a buyer and a seller by conducting the technical and the broader diligence that can give the buyer confidence in participating. Essentially, it reduces the transaction cost.

The second aspect is that it started with sufficient scale. We had an almost billion-dollar commitment when it was launched. That was enough to make others take notice.

Looking toward the future

Roberta Fusaro: Mark, what does investment look like for the gigaton industry—say, post-2030 and certainly post-2050?

Mark Patel: We must establish scale for carbon removals between now and 2050. If we do not, and we do not scale the other approaches to carbon dioxide reduction, most of the climate models point toward [a scenario] where we will see material climate shifts that will be much harder to recover from.

That is why most policies at a national level, and now at an international level, are focusing on how to scale removals over the next 20 years. That doesn’t mean it’s one and done, and if we reach our goal by 2050, we’d be back in balance and we could stop worrying about removals. Quite the opposite. Our dependence on energy as the driver of economic growth and quality of life means that the proliferation of more and more consumption of energy globally is only going to put more pressure on us to continue to deliver on these negative emissions, on these removals.

Hopefully, we will find that CDR is actually a source of economic acceleration. I want to be very careful about predicting what the technology is going to look like in 30 years. That’s dangerous. But at the same time, technologies tend to deliver much higher efficiency gains than we tend to predict.

The effects of severe weather hit Black Americans especially hard

Lucia Rahilly: Next up, there has been an increase in the frequency, severity, and intensity of hazardous weather across the United States, and the financial costs are enormous. McKinsey partner Munya Muvezwa is a leader in McKinsey’s Financial Services Practice. He shares how climate change has a particularly dire impact on Black Americans and the US economy overall.

Roberta Fusaro: Munya, thanks for joining the podcast today.

Munya Muvezwa: It’s great to be here.

Roberta Fusaro: You and the team at McKinsey did some eye-opening research on the effects of climate change on the Black community in the United States. How are Black people more affected by climate change than other populations?

Munya Muvezwa: Half of the Black population in the US is in the South and southeastern parts of the country, and they disproportionately live in census tracts that have a higher likelihood of experiencing severe weather-related events.

Also, there are climate change impact channels. These impact channels affect areas that are important for Black socioeconomic mobility. For example, severe weather events damage properties, impact property values, cause loss of labor productivity, and cause health-related problems.

Additionally, there are the existing socioeconomic disparities. These compound the climate change impacts. For example, there’s already a higher concentration of Black workers in low-wage frontline jobs. Black families save $75 billion less annually than White families. One out of five Black Americans lives in a food desert with limited access to fresh, healthy food options, and so on. All these issues combined result in the impacts being disproportionately higher for Black people.

Redlining is part of the problem

Roberta Fusaro: One of the themes that’s in the research is this notion of redlining. What is redlining and why is its practice directly linked to the effects of climate change on Black Americans today?

Munya Muvezwa: Redlining is a historical practice where services such as mortgage loans and insurance were denied to customers who resided in neighborhoods that were deemed risky investments. This was regardless of the credit worthiness of the individual customers. Also, these areas tended to have large concentrations of racial and ethnic minorities.

This practice magnifies the impact of climate change for Black people in a number of ways. First, Black populations were forced into less desirable locations. If you look at Baltimore and New Orleans, for example, many historically redlined neighborhoods are in flood zones. In our research, we mapped flood zones in these cities, and there’s a very high correlation between these zones and redlined areas. During Hurricane Katrina, of the seven zip codes that incurred the most damage, four of those had populations that were at least 75 percent Black.

Second, redlined neighborhoods have a higher temperature occurrence than other neighborhoods in the same city. This is due to buildings and asphalt magnifying heat, a phenomenon known as the urban-heat-island effect.

The third impact from redlining and historical practices is that redlined areas are located in what we termed as compromised areas. So, for example, they’re near brownfields where there’s contaminated runoff. Such runoff can lead to other public health issues.

Roberta Fusaro: The report also talks about wildfires. Can you say a little more about that?

Munya Muvezwa: Wildfires are increasing mostly in the western and mountain states. But interestingly, we saw that wildfires tend to impact indigenous and Black populations at a 50 percent greater rate of vulnerability compared with White populations in the same area.

Roberta Fusaro: What are the implications of hurricanes?

Munya Muvezwa: We see that Black communities in the Southeast are 1.8 times more likely than the overall population in the same area to be severely impacted by hurricanes. And by 2050, we believe that nearly 17 percent of Black-owned homes will be at risk of storm damage compared with 10 percent for other property owners. Property damage is one of the most direct physical risks of hurricane destruction. In addition, it results in high insurance premiums for properties in high-hurricane-risk areas. Hurricanes can also lead to widespread displacement.

The practical implications for Black Americans

Roberta Fusaro: What does all this mean in terms of the socioeconomic mobility of Black Americans?

Munya Muvezwa: When I look at what I would call the short-term effects—for example, from extreme heat—we see that Black communities are 1.4 times more likely than the overall population in the same area to be exposed to extreme heat. Extreme heat can lead to reduced working hours, higher absenteeism at work, especially for jobs that need to be performed outside, like construction and agriculture. According to a 2021 report from the Atlantic Council, labor productivity losses due to extreme heat are expected to cost half a trillion dollars annually by 2050, with Black and Hispanic workers facing proportional productivity losses at an 18 percent higher rate than White workers.¹Extreme heat: The economic and social consequences for the United States, Atlantic Council, August 2021. In addition to the loss in labor productivity, it’s also reported that the rates of emergency room visits for heat-related causes between 2005 and 2015 increased by 67 percent for Black people, compared with 27 percent for White people.

Roberta Fusaro: Opening the aperture a bit, what are the implications for the US more broadly and the US economy more broadly?

Munya Muvezwa: Those consequences impact the growth and productivity potential of the US economy overall, and they contribute to increasing the racial wealth gap. Other McKinsey research shows that dismantling barriers that prevent Black Americans from fully participating in the US economy can unleash increased growth, dynamism, and productivity in the economy.²“The state of Black residents: The relevance of place to racial equity and outcomes,” McKinsey Institute for Black Economic Mobility, February 1, 2024.

One important impact channel is housing and property values. For Black families, property is 70 percent of the financial portfolio. While this is not the silver bullet solution for all families and in all contexts, we know that homes can appreciate in value over time and significantly add to the net worth of families and often become an important means of wealth transfer to the next generation.

Implementing change

Roberta Fusaro: What are some of the things that the public and private sector can focus on now to help mitigate some of these potential effects for the Black community?

Munya Muvezwa: We need broader education around the impacts of climate change on Black communities, but we also need to look at climate change implications on intergenerational wealth transfer, such as the effects on housing, as we just discussed.

Second, we need more engagement in Black communities. This could be through engaging community leaders to help amplify the message, but also to bring stakeholders to the table.

The third example would be around financial inclusion of Black communities. Companies, industries that are store-oriented—like banks and factories—are going to start to think about how they reorient their footprints and their operations to address the climate risks that they themselves face. We should ensure, as this is happening, that we do not go back to a situation where services disappear from Black communities.

The last example is around providing equitable access to finance and providing opportunities to integrate Black entrepreneurs in innovation hubs—for instance, that support transitioning to a green economy. But what’s going to be most important overall is to make sure we have Black entrepreneurship participation and Black job participation in a new green economy.

Roberta Fusaro: Are there any good examples of partnerships or groups or organizations that are starting to get this right—for instance, boosting financial inclusion or building broader awareness through education?

Munya Muvezwa: Absolutely. What the government has been trying to do in terms of defining frameworks around environmental justice speaks directly to the heart of this issue, and integral to that is a lot of community participation.

Second, there is legislation already that is trying to increase the participation of Black entrepreneurs—for example, in supply chains that relate to the energy transition.

Third, banks have been more thoughtful about thinking through their footprints with regard to the Community Reinvestment Act in the financial-services sector, and they could extend that to think about how the physical risk from climate change starts to impact their footprints.

Roberta Fusaro: How could public and private sector leaders prioritize where they put their resources first?

Munya Muvezwa: First and most critical is location. Take hurricanes, again. The majority of hurricanes impact the Gulf Coast and Atlantic Seaboard. So you could start focusing there. Another area for prioritization is, again, preserving and protecting properties and property values, given that it’s such an important part of Black wealth accumulation and transfer.