BCG report highlights key role of government policies in scaling up carbon dioxide removal

Carbon removal’s contribution to halting global warming depends on political support, not voluntary demand, according to a report by Boston Consulting Group (BCG) released earlier this week.

The consulting firm’s analysis shows that 6 to 10 gigatons of annual CO2 emissions are unlikely to be reduced by 2050, when the 1.5′ scenario of the Paris Agreement has been established. They are roughly divided into three groups: industry with approximately 40%, energy supply with 30% and transport with 20%.

The carbon dioxide removal (CDR) market size is expected to be in the range of $500 billion to $1,000 billion, with North America and Europe accounting for the majority of revenues. Germany is cited as one of the high-growth countries, with a potential market of $75 billion that could generate almost 200,000 jobs.

Given the range of market sizes – and taking into account emissions reductions and carbon capture efforts – the BCG report identifies three carbon removal market impact scenarios, the most ambitious of which assumes 2.5 Gt CO2 per year of sustainable removed by 2050, taking into account current policies and supply and demand dynamics.

This creates an outline of a gap of 3.5-7.5 Gt/year that needs to be filled.

How does BCG think carbon dioxide removal could cause scale

The report examines the challenges associated with voluntary demand for carbon dioxide removal (CDR) because its features distinguish it from other emissions-mitigation technologies, such as wind and solar power, for which there is a high demand.

In identifying direct and indirect factors, BCG focuses on the need for clear carbon pricing, the inclusion of CDRs in emissions trading mechanisms, industry requirements for decarbonization and, most importantly, public procurement of CDRs.

One figure that stands out here is that emissions trading systems are expected to cover 26 Gt of global emissions (and 30 Gt if carbon border adjustment mechanisms become widespread). This suggests that the impact of CDR systems can only be achieved by embedding them in these markets.

Right: DOE announces 24 pilot award semifinalists for carbon dioxide removal measures procurement

On the indirect side, there are financial incentives to reduce moving costs and create standards for net zero claims using CDR.

Finding the right political balance

One of the important themes of the report is the introduction of incentives to address different parts of the supply and demand dynamics for CDRs. But it also points out the pitfalls of keeping them for too long or not allocating them properly.

The full spectrum of subsidies aimed at reducing costs in the near future and financial incentives for developers are detailed by region and industry. However, the authors emphasize that they may in fact have a distorting effect on business behavior and ultimately lead to slower decarbonization.

They argue that artificially keeping prices lower could encourage emitters to remove emissions rather than reduce them.

Read more: New CDR Status Report is a Key Tool to Assess Industry Scalability