The Carbon Removal Market Can Work—If We Build It Right
The CDR industry’s reliance on Microsoft shows the limits of voluntary climate action—and the need for government to do its part. It’s time to take the trash out of our atmosphere.
Brad Smith, vice chair and president of Microsoft Corporation, speaking during a company climate initiative event, January 2020
As the planet hurtles toward dangerous and unsustainable temperature levels, it has become clear that billions of tons of carbon dioxide removal (CDR)—in addition to continued emissions reduction and adaptation—will be required by 2050. We cannot tackle the climate crisis without aggressive emissions reduction across the economy, but that alone will no longer be sufficient, given the shrinking window for climate mitigation.
We will need a portfolio of CDR approaches to achieve this scale. Reforestation and other ecosystem restoration can remove billions of tons of CO2 each year, but these practices are temporary solutions with limited ability to scale. We also need technologies that remove CO2 from the atmosphere and trap it permanently, such as direct air capture. These technologies need to be proven at scale, requiring significant investment before they can contribute meaningfully to lowering greenhouse gas (GHG) levels.
This is where voluntary buyers, led by Microsoft, have stepped in with corporate commitments to support the fledgling CDR industry. Microsoft’s purchases comprised around 90 percent of voluntary demand, by some estimates, making it a de facto standard setter and an indispensable supporter of CDR innovation.
So when the news broke that Microsoft could be suspending its CDR program, it sent shock waves through the small—but growing—world of CDR, prompting a flurry of dire headlines about the industry’s future.
CDR is essentially waste management for CO2; to build a market for it, we have to treat it as such. As with other forms of waste, responsible CO2 management will require the government to step in. A multipronged policy approach can close the gap between R & D and deployment while also ensuring that the producers of emissions-intensive energy and products take responsibility for their impact on the planet.
How voluntary commitments have shaped carbon removal
Voluntary commitments can jump-start a market, but they can also be a shaky foundation from which to build. Private companies provided the committed stream of investment that new CDR technologies need to scale up, signing forward-looking contracts that commit them to paying for tons of CDR in the future. The advance-purchasing approach has allowed start-ups to get new technologies off the ground, giving them runway to raise funds, sign additional sale contracts, and stand up their first projects. But buyers and project developers alike understood that relying on corporate goodwill alone, especially concentrated in a single source, was risky.
Corporate climate commitments are driven by pressures like public relations, risk management, and the prospect of regulation, and those winds can change rapidly. Coverage in Bloomberg pointed out that the rush to build data centers and AI has eaten up investment capital in the tech sector, which could impact climate spending.
Microsoft characterized its decision as an “adjustment…not a change in ambition,” and more recently inked a new CDR agreement, prompting fresh speculation about the program’s future. Regardless of the ultimate outcome, the reactions to the Microsoft news show just how reliant the CDR world has become on just one consumer—and the insufficiencies of a voluntary market.
How to manage waste in the atmosphere
CDR faces a fundamental problem: Unlike renewable power or electric vehicles, it does not replace an existing source of emissions. There is no natural market for CDR; nor is selling removed CO2 or co-products likely to be profitable enough. Removing gases from the atmosphere is costly for a reason—it’s difficult to put a billion tons of toothpaste back in the proverbial tube.
We need to start treating greenhouses gases as what they are—a giant waste dump that has built up in the atmosphere. As with other types of waste, government intervention is needed to tackle the problem of cleanup. Generally, there are two paradigms for how governments manage waste: either taxpayer-funded agencies and utilities manage it themselves or regulations require waste producers to take responsibility.
The government will likely need to adopt both paradigms to ultimately create a sustainable market for CDR. Public funding for CDR can help deal with the enormity of the problem and address “legacy” emissions already in the atmosphere, for which responsibility cannot always be assigned.
And there is ample precedent for requiring waste producers to take responsibility, which can include charging a fee for government-managed disposal (as with radioactive waste) or mandating remediation plans (e.g., Superfund). The voluntary market, with CDR targets tied to companies’ ongoing and past emissions, already reflects this ethos of company responsibility.
A program to manage GHG waste in the atmosphere could take inspiration from “extended producer responsibility” and “take back” policies. These programs, when designed well, require companies to take responsibility for their products all the way through the postconsumer/end-of-life stage. While their success can vary, these programs can be effective tools in sectors such as plastics, electronics, refrigerants, or building materials—if they have strong oversight, appropriate safeguards, and rigorous enforcement. Especially when paired with regulations to reduce the quantity of polluting products reaching consumers, producer responsibility requirements shift the burden of waste tracking, reduction, and end-of-life management from municipalities and individual consumers back to better-resourced companies.
For CO2 pollution, this would mean ensuring the companies that produce and supply fossil fuels and other emissions-intensive commodities are accountable for their products’ emissions. So far, most voluntary CDR purchases have come from industries (tech, retail, aerospace) that primarily consume energy and raw materials. Upstream producers also need to take responsibility for their products’ climate impact, even after they’re sold.
Three steps for policy action on CDR
Achieving billion-ton, responsible CDR will require a multipronged approach to policy that incorporates both waste management paradigms: managing waste as a public service and requiring polluter contributions to be cleaned up. Microsoft’s power to unsettle the entire industry highlights a policy gap that is stymying many emerging climate technologies; the “missing middle” between innovation funding and commercial deployment incentives.
Large-scale demonstrations
Microsoft and other prominent CDR buyers (such as Google and J.P. Morgan Chase) are among the wealthiest companies in the world, enabling them to buy credits at a high price point. Large-scale demonstration projects are essential to bringing down the costs of new technologies through learning-by-doing, but these projects are often the hardest to finance and the most expensive to build. Government support can help overcome these barriers and drive innovation. The Bipartisan Infrastructure Law allocated funding for CDR demonstrations—particularly for direct air capture—but many of these programs have been canceled or left in limbo by the Trump administration.
Government procurement
Corporate advance purchases were critical for CDR companies launching their first few commercial projects. Contracts without a fixed quantity or delivery date allow buyers to assume some of the risk inherent in deploying new technologies, affording CDR projects more flexibility.
Governments—both state and federal—could fulfill this same role through public procurement, in which public agencies, rather than corporations, would prepurchase CDR credits. Governmental advance purchases have been critical for developing other technologies, such as new rocket technologies and vaccines. Procurement can also ensure that CDR projects meet rigorous standards of environmental and social responsibility.
Regulating producers and emitters
Public procurement has a ceiling; there are limits to how much taxpayer funding is available, especially without a dedicated source of revenue. Voluntary buyers want to be a bridge to long-term demand. We need to be thinking about what’s on the other side of that bridge, even if it seems remote in the current political environment.
As CDR technologies get less expensive and can be delivered with more certainty, polluters can be held accountable for cleaning up their own waste. Emitters or suppliers of emissions-intensive products could be required to either purchase CDR themselves (as voluntary buyers have done) or pay into a program that does so. This would accomplish multiple goals simultaneously, putting industries on a net zero trajectory while providing demand certainty for CDR developers and markets.
Thinking differently about the climate challenge
Government-mandated or -backed waste management has become so expected, we hardly notice it—until, for example, a town decides to give it up and ends up being overrun by bears. But we have yet to fully apply these commonsense solutions to climate change, in part because greenhouse gas pollution feels more remote than trash or sewage. It doesn’t make rivers catch fire or attract hungry bears. But CDR offers us another tool to approach climate pollution—as not only something to be avoided “in the future” but something we can start cleaning up right now.
The authors would like to thank the World Resources Institute for its contributions to this work.
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