FRESH TAKES ON BIG IDEAS

Reducing carbon emissions is fundamental to reaching net-zero targets. There’s no dispute about that. But, to date, there aren’t enough solutions at scale to reduce emissions fast enough. That’s why carbon removal has emerged as a vital way to help meet climate targets, to bridge the gap between emissions reduction and a net-zero future. A look at companies that have been transparent about their path to decarbonization shows that an increasing number are relying on negative emissions.
 
Carbon removal entails removing CO₂ from the atmosphere and storing it somewhere environmentally safe, such as in oceans or in the ground. There are both nature-based and technology-based solutions to do this. Many of these solutions have great potential, from agricultural practices that enhance CO₂ uptake into soils to direct air capture, which draws CO₂ directly from the atmosphere. However, these solutions are not yet available at scale. Today, although the world might be removing thousands of tons of CO₂ per year, to make a real impact on climate change, the world needs to remove gigatons (billions of tons) of CO₂ per year.

Scaling the carbon removals industry is going to be an enormous task. For example, the supply side requires significant investment in innovation, technology, and infrastructure to drive down costs and support project development. Our analysis estimates that, to meet net-zero targets by 2050, cumulative investment in carbon removals would have to reach $6 trillion to $16 trillion. The demand side is also quite nascent, and there’s a lot of uncertainty. Voluntary carbon credit markets create a mechanism for purchasing removals, but the reality is that the big purchases of removals are being funded by a relatively small number of companies. 

However, the carbon removal industry presents a significant opportunity for businesses. Our research indicates that the market for carbon removals could be worth up to $1.2 trillion by 2050. Early buyers of carbon removals could have an opportunity to solidify a supply of reliable, high-quality carbon removal credits as demand takes off.

“Our research indicates that the market for carbon removals could be worth up to $1.2 trillion by 2050.”

There are supplier companies that have the capabilities, technologies, or infrastructure to find value in scaling up removals. According to our analysis, suppliers—businesses that generate carbon credits based on removals—could earn 70 to 80 percent of the expected $300 billion to $1.2 trillion in market revenues. That’s roughly $200 billion to $950 billion by 2050. There are also companies that can reduce their carbon footprints by deploying removal technologies. For example, one removal approach is called enhanced weathering, where rock dust is spread onto fields, capturing CO₂ as it weathers. For agriculture or consumer goods companies in the food value chain, this activity could help reduce their net emissions.

For the carbon removal industry to scale, a few things need to happen. For one, there are practical limitations on how quickly companies can prove their technology works at scale. And then there’s the challenge of convincing investors and other sources of capital to fund nascent technologies. Advanced market commitments are a way for buyers to purchase future carbon removals and help solidify demand for suppliers, so they have a line of sight to their end customers while they scale. Governments can also stimulate carbon removal markets, such as with tax credits, as in the United States. This kind of support can help fund R&D, move carbon removal technologies down the cost curve, and encourage more investment. 

It’s still early days for the carbon removal industry. Understanding of the technologies and market potential is low across most sectors. How carbon removal fits alongside other decarbonization activities is also not well understood. But given the net-zero commitments that companies and governments have already made—not even factoring in future commitments—the market for carbon removals is likely going to exist, and it could be big. There’s always a chance that market sentiment, regulation, and voluntary corporate behavior alter the course of things. But if companies play forward today’s trends, carbon removals could be an industrial segment in its own right.

ABOUT THIS AUTHOR

Mark Patel is a senior partner in McKinsey’s Bay Area office.