Carbon dioxide removal (CDR) is defined by the Intergovernmental Panel on Climate Change (IPCC) as “activities removing CO2 from the atmosphere and durably storing it in geological, terrestrial, or ocean reservoirs, or in products.”1 Globally, the expected CDR capacity for 2030 is three to ten times lower than what is needed to remain on a 1.5º pathway, according to estimates from a December 2023 McKinsey report.
A dramatic scale up in durable removals would likely need to happen in the next few years to close this gap.2 Stakeholders are not likely to scale the market to meet this challenge altruistically—or perhaps at all—without credible demand signals from private and public players willing to purchase durable CDR credits.
Recent McKinsey analysis indicates that durable CDR credit demand could reach up to 100 million metric tons of CO2 (MtCO2) by 2030. This is double the 50 MtCO2 in announced supply.3 The potential imbalance in near-term supply and demand as well as insufficient long-term capacity to meet climatic need for a 1.5º pathway carry implications for the public sector, those setting standards, potential durable removals buyers, investors, and project developers.
New and existing commitments could boost durable removals demand to 100 MtCO2 by 2030
Demand for durable CDR credits has been dominated by a few industries to date, namely the technology, finance, and professional-services sectors.4 More sectors, however, including aviation, are now signaling early interest and are entering the market. Additionally, demand has been—and continues to be—concentrated geographically, with companies in North America and Europe providing the vast majority of purchases to date.
To estimate the demand signal for 2030, McKinsey researched the sustainability commitments of more than 10,000 companies and governments. McKinsey identified approximately 400 companies that have commitments that either imply or explicitly state requirements to compensate for residual emissions with durable CDR credits. Implied commitments to durable CDR were driven by commitments to the Science Based Targets initiative’s (SBTi) Corporate Net-Zero Standard, in particular.5
This analysis indicates that total expected demand for durable CDR credits could reach up to 100 MtCO2 by 2030 (Exhibit 1).
Existing commitments from companies with concrete 2030 net-zero targets will likely account for approximately 20 percent of this total (about 20 MtCO2).6 McKinsey’s analysis further assumes that companies with 2040 net-zero targets will contribute to demand in 2030 by linearly ramping up their durable CDR credit retirements prior to their net-zero target year, adding approximately 15 MtCO2annually. Finally, it is likely there will be about 15 to 65 MtCO2annually from new corporate commitments and government procurement, based on continued growth across industry sectors.
New buyers from a wider range of sectors will likely drive explicit demand for durable CDR credits
Currently, according to McKinsey analysis, the ten MtCO2 in explicit commitments to retire durable CDR credits are largely within the aviation, technology, and consumer goods sectors. Nevertheless, this analysis also shows that companies—especially those in utilities and shipping—with hard-to-abate residual emissions that have set 2030 or 2040 net-zero targets may soon make up an increasingly large portion of total demand.
Near-term durable removals demand has been concentrated in North America and Europe
Companies headquartered in North America make up more than 60 percent of demand derived from explicit commitments to use durable CDR credits, according to McKinsey analysis. This could be due in part to governmental support for durable removals in the United States, including the Section 45Q tax credit reforms, the Department of Energy’s Regional Direct Air Capture Hubs program, and the Voluntary Carbon Dioxide Removal Purchasing Challenge.7 In Canada, a national investment tax credit for carbon capture, utilization, and storage has been introduced.8
Meanwhile, McKinsey analysis shows that European companies drive the bulk of the early net-zero target demand. European entities with 2030 or 2040 targets account for about 15 MtCO2 annually by 2030. Further demand-side policy support in Europe, including proposed carbon contracts for difference and incorporation into the UK’s Emissions Trading System, could further push demand in Europe.9
This analysis also finds that pockets of demand are emerging in the Middle East, South America, and Oceania, setting the stage for further regional growth.
Actions today can help scale durable removals capacity to meet near-term demand
As mentioned previously, announced supply capacity by 2030 is approximately 50 MtCO2 per year. This potentially leaves a 50 MtCO2 gap between the CDR available and the CDR needed to meet annual demand (Exhibit 2).
This forecast gap represents a potential opportunity for CDR project developers and investors to scale up their current activities to help bring durable removals to market by 2030. However, meeting 2030 demand does not mean long-term capacity is a foregone conclusion. In fact, 100 MtCO2 is only a fraction of the six to ten metric gigatons of annual CDR needed by 2050, of which 20 to 60 percent is expected to be durable removals.10
The rate at which durable removals commitments scale up can exert a marked influence on how supply is able to grow. By providing transparent guidance on planned use of durable CDR credits, companies can contribute to strengthening the demand signal. And buyers and suppliers working together to increase transparency on pricing and contractual terms could also help build confidence in the market.
Standards that incorporate the disclosure of durable removals plans and requirements for interim removals targets could help accelerate the development of technologies and projects required to meet the needs outlined by the IPCC.11 For example, the revised Oxford Principles for Net Zero Aligned Carbon Offsetting advises buyers to start now to progressively increase the portion of their investments in CDR projects.12
Governments could bolster their domestic durable removals capacity with explicit roles for removals in their climate strategies—the European Commission, for instance, recommends a 2040 target capacity of 400 MtCO2 of removals annually by 2040 for the European Union.13 Governments could also shore up domestic supplies by scaling up direct durable removals procurement or by providing a role for durable removals in their emissions trading systems or carbon tax systems. For example, the United Kingdom is developing a Greenhouse Gas Removal Business Model with the stated intention of harnessing the benefits of the UK Emissions Trading Scheme.14
Ultimately, to scale this critical market and meet potential demand, all stakeholders need to act in parallel. Increased transparency in pricing, contracts, and standards can go a long way toward garnering the leadership buy-in necessary to scale CDR credit demand adequately. In turn, clear demand signals can give suppliers the confidence to boost their durable removals commitment capacity. All these actions are essential to building a robust market that is well positioned to scale at the pace needed to hit targets for 2030 and beyond.
Emma Parry is a partner in McKinsey’s London office, where Elena Gerasimova is an associate partner; Mark Patel is a senior partner in the Bay Area office; and Erik Ringvold is an associate partner in the Zurich office.
The authors wish to thank Molly Tinker for her contributions to this blog post.
1 “Summary for policymakers,” in Global warming of 1.5°C, IPCC, 2018.
2 Removal technologies classified as durable store historic carbon emissions for more than 1,000 years, while approaches such as afforestation have shorter carbon cycles but offer other ecosystem benefits. Durable solutions—direct air capture and bioenergy with carbon capture and storage, for example—make up a much smaller percentage of current removals, but this is expected to change as demand from companies with larger volumes of residual emissions increases.
3 Includes announced durable carbon removals projects with specific site locations and excludes project developer scale-up announcements that have not been tied to a specific site.
4 “Trending on track? - CDR.fyi 2023 year in review,” CDR.fyi, February 7, 2024.
5 The SBTi Corporate Net-Zero Standard partially defines corporate net-zero as “Permanently neutralizing any residual emissions at the net-zero target year and any GHG emissions released into the atmosphere thereafter.” SBTi Corporate Net-Zero Standard: Version 1.2, SBTi, March 2024. It is important to note that the market is changing rapidly, and this analysis is based on the current state of policy and standards. For example, this analysis does not account for additional demand from the SBTi’s recent statement regarding the potential use of environment attribute certificates for abatement purposes limited to Scope 3 emissions. “Board of Trustees on use of environmental attribute certificates, including but not limited to voluntary carbon markets, for abatement purposes limited to scope 3,” SBTi, April 9, 2024.
6 Existing commitments with the highest likelihood of generating demand for durable CDR credits by 2030 (such as explicit commitments to CDR and 2030 or earlier net-zero targets).
7 “Notice of intent: Voluntary Carbon Dioxide Removal Purchase Challenge,” Office of Fossil Energy and Carbon Management, March 14, 2024; “HR.5376 - Inflation Reduction Act of 2022,” Congress.gov, August 16, 2022; “Regional Direct Air Capture Hubs,” Office of Clean Energy Demonstrations, 2022.
8 Budget 2023: A made-in-Canada plan, Department of Finance Canada, March 28, 2023.
9 “Greenhouse gas removals (GGR): business model,” Department for Energy Security and Net Zero, December 20, 2023.
10 Climatic need estimates drawn from Rob Bellamy et al., The state of carbon dioxide removal: 1st edition, University of Oxford’s Smith School of Enterprise and the Environment, 2023.
11 “Summary for policymakers,” in Climate change 2022: Mitigation of climate change, IPCC, 2022.
12 Oxford Principles for Net Zero Aligned Carbon Offsetting (revised 2024), University of Oxford, February 2024.
13 “2040 climate target: Reducing net emissions by 90% by 2040,” European Commission, accessed June 12, 2024.
14 “Greenhouse gas removals (GGR) business models,” Department for Energy Security and Net Zero and Department for Business, Energy & Industrial Strategy, updated June 26, 2023.