Carbon removal credits have emerged as a crucial tool in the fight against climate change, with the latest report from CDR.fyi highlighting a significant expansion in the carbon dioxide removal (CDR) market in 2024. The data reveals a substantial 78% increase in carbon removal credits, amounting to 8 million tonnes. This surge underscores a growing interest in carbon removal solutions as part of global efforts to combat climate change.
Carbon removal credits differ from traditional carbon offsets by directing funds towards projects that actively remove CO₂ from the atmosphere. In this article, we delve into the key trends, challenges, and future prospects for the CDR market, drawing insights from the most recent findings by CDR.fyi.
Big Tech Drives CDR Market Expansion
The total volume of CDR purchases soared to nearly 8 million tonnes in 2024, marking a substantial 78% uptick from the previous year, according to CDR.fyi analysis. However, the number of distinct purchasing entities only saw a modest 7% growth, rising from 202 to 216. This growth was primarily fueled by repeat buyers such as Microsoft, Google, and Stripe. These tech giants, alongside other Frontier buyers, accounted for approximately 80% of the total CDR purchases in 2024, underscoring a concentrated demand for carbon removal solutions.
While these key players are leading the charge in carbon removal investments and supporting innovative projects, the limited influx of new market entrants raises concerns about the long-term stability of the sector. Microsoft emerged as the market leader with a purchase of 5.1 million tonnes, constituting 63% of the total volume, a slight decrease from its 70% share in 2023. Collaborating with Google, Meta, and Salesforce, Microsoft spearheaded the Symbiosis Coalition, committing to acquiring 20 million tonnes of nature-based CDR by 2030.
Challenges in CDR Supply and Demand Alignment
Despite the market’s growth trajectory, there remains an imbalance between demand and supply, with insufficient support for the expanding pool of suppliers. Only 36% of CDR suppliers listed on CDR.fyi recorded sales in 2024, signaling potential funding challenges for many suppliers in the absence of new buyers. This imbalance could lead to industry consolidations and bankruptcies in the coming years, particularly in 2025 and 2026. The dominance of a few major buyers poses a risk, as any shifts in their priorities or financial strategies could impede progress.
To ensure sustained growth, it is imperative to onboard a broader range of industries, including manufacturing, transportation, and retail, into the carbon removal market. Microsoft and Frontier were responsible for 12 of the top 20 purchases in 2024, while Google ramped up its direct acquisitions to 500,000 tonnes. Meta committed to purchasing $35 million in carbon credits over the next year, although the allocation between durable CDR and nature-based solutions remains uncertain.
Noteworthy Market Dynamics and Investment Trends
In a notable market development, Stockholm Exergi set a new record by selling 3.3 million tonnes to Microsoft, while Ørsted expanded its collaboration with Microsoft through an additional 1 million-tonne sale. New entrants like CO280, Terradot, and Gigablue made significant forays into the market with their inaugural sales. However, venture investments in the CDR sector witnessed a 30% decline year-over-year in 2024, as investors exercised caution, awaiting sales confirmation from suppliers before committing additional funds.
Price Dynamics and Technological Advancements
The pricing of CDR credits plays a pivotal role in shaping market dynamics, with the weighted average price per tonne dropping from $490 in 2023 to $320 in 2024. Notably, price variations are significant across different removal technologies, with biochar-based credits being more cost-effective compared to direct air capture (DAC) credits, which remain expensive due to high-tech and operational costs.
Biochar, known for converting waste into carbon stored in soil, boasts prices ranging from $50 to $150 per tonne, while DAC, involving the extraction of CO₂ from the atmosphere for underground storage, commands prices exceeding $600 per tonne. The disparity in costs presents challenges for the wider adoption of DAC, despite its potential for permanent carbon removal. Biochar and Mineralization witnessed price increases, whereas other methods experienced declines, with mineralization seeing a notable 123% price surge, from $370 to $827 per tonne.
The cost dynamics underscore the importance of driving down prices to enhance accessibility and foster broader corporate adoption of CDR solutions. Technological advancements and economies of scale are essential in reducing costs, making CDR more viable for a diverse range of companies and industries in their climate mitigation strategies.
Policy Frameworks and Technological Breakthroughs
Government policies and incentives play a pivotal role in sustaining the growth of the CDR market, with certain nations taking proactive measures to integrate carbon removal into their climate agendas. Initiatives like the US 45Q tax credit and the European Union’s certification framework for carbon removal are instrumental in supporting CDR projects.
Technological innovations are driving efficiencies and cost reductions in carbon removal solutions, with DAC witnessing cost reductions in 2024. Biochar and ocean-based CDR projects are also gaining traction, with ocean alkalinity enhancement techniques showing promise in enhancing the ocean’s capacity to absorb CO₂. However, scalability remains a challenge, necessitating significant investments for large-scale deployment.
Future Outlook and Opportunities in CDR Market
Despite the robust growth witnessed in the CDR market, several challenges loom large, including overreliance on a few major buyers, high costs hindering broader adoption, and regulatory uncertainties. Addressing these challenges through diversification of market participants, cost reductions, and standardized policies can pave the way for a more sustainable and inclusive carbon removal market.
As technology continues to evolve and costs decline, the potential for wider corporate engagement in CDR solutions grows. By fostering a conducive regulatory environment, driving technological innovation, and enhancing market transparency, the CDR market holds immense opportunities for driving climate action and achieving long-term sustainability goals.
