The Cost of Carbon

Scaling removal to combat climate change

Carbon removal can be delivered through a wide variety of technologies and processes

How much does it cost to stop further climate change?

Unpopular opinion: when COP28 president, Dr Sultan Ahmed Al Jaber, claimed there is "no scenario out there, that says the phase-out of fossil fuel is what’s going to achieve 1.5oC", he was right. Right, in that most IPCC scenarios require a ~75% reduction in fossil fuel consumption, combined with ~25% of abatement from hydrogen, CCS, and a significant volume of carbon removal.

Carbon removal refers to the process of capturing carbon dioxide from the atmosphere and storing it away for decades to millennia. To be considered a valid carbon removal method, projects must fulfil three criteria:

• The captured carbon must be from the atmosphere i.e. it cannot be captured from fossil emissions.
• The carbon must be stored durably i.e. it cannot be used in short-lived fuels and products as per many carbon capture and utilisation (CCU) processes.
• Only net-negative emissions can be counted as removals i.e. emissions arising from the process must be subtracted from the gross captured volumes.

In addition to slowing down the rate of climate change, carbon removal is unique because it is the only tool at our disposal that can remove emissions that already exist in the atmosphere, and hence can reverse peak temperatures and the costs of extreme weather that comes with it.

The rational economist would claim that we should do the cheap things first, maximise our energy efficiency options, deploy low-carbon electricity, and electrify heat and transport. But the world is predictably irrational, made of heterogeneous players who are responding to stakeholders with different needs.

Emission reduction is a mature and well-understood market. We need stringent due diligence on sound carbon removal projects.

On the one hand, this reflects the abatement costs of the largest emitters in Europe operating under the largest carbon compliance market in the world. On the other, it shows the exceptionally high willingness to-pay for removals that entitle buyers to claim they are on the transition to net zero, and to hit their own decarbonisation targets. Dig a little deeper and we find that these companies may also have ulterior motives such as enabling them to launch their own removal elated products or services, reduce finance costs through favourable ESG ratings, improve talent acquisition, and finally to limit exposure to climate-policies and climate litigation. These businesses typically have very ambitious climate targets and business models operating with a low-carbon footprint. Going forward we anticipate that voluntary demand for removals will likely come from companies representing just 2.5% of current emissions.

So, will this (semi) altruistic voluntary demand be enough to scale the market 3.5 to 2,000 times in the next 25 years?

In one word: No. But we do anticipate the voluntary permanent removals market alone to grow 200-fold during that period. Meanwhile, we anticipate compliance markets to deliver twice as much permanent removal volume in 2050 relative to the voluntary market, initially spearheaded by support in the US and Europe, before expanding to China and beyond. In addition, we anticipate nature-based removal to scale dramatically offering additional benefits on top of the pure carbon removal, which might also drive their perceived and actual value in the market.

So how much does it cost to stop further climate change? We cannot reveal our projected prices for removal credits as these are outputs of AFRY’s proprietary modelling. But we do expect land-constraints and competition for sustainably sourced biomass to push nature based removals up in value over time. Whilst the cost of technical permanent removals will fall over time, in response to technological innovation and learning-by doing akin to historic patterns observed in renewable energy deployment. The pace of change will ebb and flow, thanks to the potential emergence of black swans, particularly some exciting mineralisation methods and some deceptively simple novel biomass burial methods like the startup Graphyte backed by Bill Gates.

The current backstop price of ~USD500/t for technical permanent removals may seem eyewatering but in a world that is already on the brink of an average increase of 1.5°C – have we fully grasped the cost of living with the extreme weather that comes with the temperature rise? Furthermore, the cost of reaching net zero will be significantly higher. Whatever approach we take, it’s clear the valiant pursuit of carbon removal without deep emissions cuts is futile. Returning to Dr Sultan Ahmed Al Jaber and the COP process, to achieve the goals of the Paris Agreement we must cut emissions radically and scale carbon removal – one is not a substitute for the other, and strong climate regulation is urgently required for both measures.