To keep the Earth’s temperature from hurtling past the Paris Agreement’s 1.5-degree Celsius goal, experts agree that reducing greenhouse gas emissions alone will not get the job done. Carbon removal has emerged as a strong complement to expanding efforts to reduce emissions. This was underscored by the Sixth Assessment Report from the UN Intergovernmental Panel on Climate Change (IPCC) in April, which stressed that carbon dioxide removal technologies were critical to achieving global warming goals.
Investors worldwide have responded with high levels of funding for the technology. As many nascent solutions come online, they are expanding opportunities for investors to support a critical tool against climate change.
A Rapidly Growing Market
Although processes to harness and use carbon dioxide have been deployed in oil and natural gas fields since the early 1970s, carbon capture technology officially appeared on the IPCC’s radar in 2005, when a working group identified the technology as “an option in the portfolio of mitigation actions for stabilization of atmospheric greenhouse gas concentrations.”
Since then, reducing emissions has proven challenging—especially as many nations remain heavy coal consumers—convincing many to try limiting the volume of greenhouse gases in the atmosphere through capture. This includes A-list companies such as Microsoft, which made a $1 billion bet on trees and technology to reach its carbon-negative goal. Stripe, Alphabet, Shopify, Meta, and McKinsey have also committed to purchasing $925 million of captured carbon between 2022 and 2030 to ease developers’ capital needs through Frontier.
Energy giant ExxonMobil, which invests heavily in fossil fuel technology, estimated that the carbon capture market will be worth $2 trillion by 2040 and has committed $3 billion to carbon capture and storage technology investments between 2021 and 2025. The US Department of Energy separately pledged $3.5 billion from the 2021 infrastructure bill to fund four direct air carbon removal projects, targeting the removal of one million tons of carbon dioxide from the atmosphere per year.
An early innovator in the direct air capture technology space, Switzerland-based Climeworks, activated a 4,000-ton system in Iceland in September 2021. In May 2022, it announced raising $650 million in equity. Elsewhere in the private sector, fifteen firms are vying to win $100 million in the XPRIZE Carbon Removal competition backed by Elon Musk and the Musk Foundation.
Nascent Technologies Flourish
With billions flowing into the carbon removal space, innovations are coming to the fore quickly. These include, for example, novel approaches developed by companies like Heirloom, which uses calcium carbonate to mineralize carbon more naturally and sustainably than platforms that use chemical solvents. Other companies, such as Svante, are developing technologies that draw carbon dioxide out of industrial emissions and directs it to storage in 60 seconds.
Ultimately, investors will likely define winners and losers based on what companies and technologies prove most effective and can expand on a grand scale. If carbon removal system developers fulfill their ambitious goals, and investors get behind them, a greater combination of impact and profit may be hard to find in the ESG world.