Is carbon removal demand faltering?

When the US sneezes, the world catches a cold — especially in climate innovation. The volatile nature of US climate policy following the latest elections raises alarms for practitioners in the nascent carbon dioxide removal (CDR) market. What lies ahead?

After discussions with two dozen industry leaders across the US, Europe, and Japan, our analysis reveals a deeply unstable market, but for different reasons than people think. Understanding and navigating the future requires looking beyond the US.

Protection is relative with fragile growth

Despite political unpredictability, today’s players on the CDR market appear relatively insulated from the changing tides. Republican-dominated states offer critical support for CDR by aligning it with carbon capture and storage (CCS) under energy security narratives. Major corporations continue to announce deals, such as BCG’s purchase of 50,250 tonnes of removals from ClimeFi and Frontier’s 90,000-tonne agreement with Terradot. Most of the existing federal policies appear safe from drastic rollbacks. But the inherent uncertainty stifles ambition. 

The possibility of policy shifts depresses investment confidence, leaving buyers and investors questioning the long-term bankability of projects. Besides a handful of signature announcements, corporate buyers - once the market’s backbone - now appear stagnant. Salesforce was the last to pledge to Frontier back in June, with no new major buyers joining since. The buyer pool seems saturated, with one stakeholder noting that everyone willing to take the current risk on CDR has already entered the market. 

The market faces a plateau

Innovation-driven demand has its limits. The US-dominated buyer base alone cannot create a market driven by customer demand that realizes the global carbon removal needs. Demand growth is inadequate to reach the 2030, 2040, and 2050 volume thresholds required to even meet IPCC mitigation scenarios for a 2°C pathway. According to CDR.fyi, only 13m tons of durable CDR has been sold and a little over 4% delivered. Compare this against the 10 Gigaton by 2050 goal for all removals and progress seems painfully slow.

This begs the question of whether a second wave of buyers is on the horizon. This wave will be needed to meet the exponential growth curve and keep the first cohort of project and technology developers afloat. This is particularly true for those companies that need reliable long-term offtake commitments to create bankable projects, reach FID, and scale beyond the pilot phase. 

Stakeholders we interviewed from sectors where the second wave of demand is expected to come from showed limited commitment. Those few that do make the jump are either banking on revenue streams beyond carbon credits (e.g., DAC + SAF), can generate removals within their production value chain (e.g., cement, pulp, and paper) and become originators before absorbing the capacity to become carbon negative at a target date, or invest directly in CDR companies to sell credits and build capacity for the same purpose (e.g., OEMs). 

Few respondents see decisive demand signals in the coming years from regulation or meaningful voluntary commitments from hard-to-abate industries, including from the sectors themselves, and no global Northstar target appears to be in the UN pipeline. The second wave of buyers should not be expected for another 2-3 years. 

Signs of hope amid uncertainty

Despite challenges, some global players are stepping up. Canada plans to procure at least CAD 10M in durable CDR between 2025 and 2030, it may push the agenda at G7, and the EU is discussing its own procurement effort. Upcoming guidance updates from SBTi could create clarity on using CDR for corporate net-zero targets, unlocking sustainability-driven demand.Initiatives like the Global 1000 Carbon Removal Challenge, by XPRIZE and ClimeFi, demonstrate grassroots enthusiasm. 

Bolder action is required to build a true bridge, but such programs can at the very least serve as stepstones in what otherwise may become a challenging crossing to larger markets ahead. More initiatives will likely follow in the years ahead, but whatever happens now, smart CDR companies will know how to position themselves strategically and navigate this journey.

Strategic navigation imperatives

So, where can you go from here? We recommend that companies confront the challenges ahead with clear-eyed pragmatism and take prudent steps now to keep their footing as catalytic buyers will exhaust their first-of-a-kind funding.

Here are our recommendations:

1. Return to business fundamentals: A sustainable business is one that offers long-term stability to its employees, communities, and shareholders. In the tough times ahead, CDR companies must prioritize financial health over reliance on market hype. Securing deals with established players like Frontier, Microsoft, or NextGen remains critical, but companies must also build a strategy for the post-hype reality

2. Expand partnerships and foster creativity: Collaborative approaches can mitigate market volatility. Innovative strategies, such as linking DAC to CORSIA or monetizing biochar in new ways, can unlock value. Partnering with large industrial players (i.e. insetting) will embed CDR into value chains, offering more stable demand

3. Politicize the economic benefits of CDR: Framing CDR as a source of jobs and co-benefits, rather than solely a climate solution, could broaden its appeal. Alternative pathways, like carbon-negative bio-electricity or air-derived CO2 for e-fuels, can circumvent contentious policy debates, while still advancing climate action

4. Leverage lobbying efforts: Policy advocacy has never been more critical. Ensuring regulatory clarity and international alignment will be essential to unlocking compliance markets and expanding demand, including with policy champions like SBTi, which set the rulebook for how companies buy carbon removal

Onwards and upwards

The US has laid the foundation for a vibrant CDR market driven by private capital and innovation. Relying solely on this foundation is risky. To secure its future, the industry must diversify demand, strengthen international cooperation, and adapt to shifting political realities. By addressing these gaps, the global CDR market can move beyond its plateau and thrive in the decades to come.

This article is also published on Carbon Herald. illuminem Voices is a democratic space presenting the thoughts and opinions of leading Sustainability & Energy writers, their opinions do not necessarily represent those of illuminem.