Investing in CDR: How to Choose Projects and Build a Diversified Portfolio

CDR investment totaled $836 million in 2024.

While this was a decrease from 2023, many companies, private equity firms, and individual CDR investors still supported entrepreneurs to help drive the creation of projects. But it wasn't nearly enough, as it represents only a fraction of what is needed to reach net zero emissions.

Tech-based CDR solutions hold immense potential. With the right disclosures around financials and carbon accounting to assess, it's possible that many of these innovative technologies, like direct air capture, will remove more carbon from the atmosphere than any other solution. 

However, the reality is that nascent CDR technologies lack consistent methodologies and data transparency. This makes it hard for buyers to assess carbon credit integrity.

Project level due diligence is required to mitigate and manage risk stemming from variability in quality both within and between project types. Sylvera's innovative approach to assessing quality can help organizations make sense of the broad range of projects and make confident investments.

What is CDR?

The term "CDR" stands for carbon dioxide removal and refers to the activities and technologies that lead to effective carbon removal and storage.

Some of these activities and technologies include biochar, bio-oil, bioenergy production with carbon capture and sequestration (BECCS), rock weathering and mineralization, and, most novelly, engineered systems like direct air capture (DAC), carbon stripping, and ocean alkalinity enhancement. 

Each of these categories has its own risks and quality drivers, and the nuances between them impact the value of credits on the voluntary carbon market, or VCM. (Note: the VCM is comparable to the stock market, except participants trade carbon credits instead of stocks.)

Many investors need consistent and comparable data to draw key insights. Once they have it, they can pursue quality projects, reduce the amount they pay for each, and if desired, sell the resulting credits for an expected profit.

Pillars of Carbon Integrity

To source high-quality carbon credits from these project types, Sylvera helps buyers and investors at every point in the journey with our end-to-end data platform.

Whether devising a strategy for CDR investment or conducting due diligence, the core pillars of carbon integrity are the same for each CDR project type.  

1. Carbon Accounting

Does the number of credits generated support actual activities and outcomes net of leakage? 

Life Cycle Assessments (LCA) are the primary driver of over-crediting risk in CDR projects. LCAs investigate multiple forms of environmental impact across life cycles of a product or service, from upstream all the way to downstream impacts. Rigorous LCAs include a cradle-to-grave boundary of assessment that typically consists of 5 phases to account for the project's total GHG impact:

• Raw material extraction phase (upstream impacts of products/materials purchased or used in the making of the product)
• Manufacturing/production phase
• Transportation phase
• Use phase
• End-of-life phase

Sylvera assesses the methods - boundaries, assumptions, inputs, and accounting decisions - used to determine credit volume.

Some projects make assumptions when modeling how much carbon they've avoided or removed, but these assumptions aren't always clear. This can make it tricky to know if one carbon credit really equals one tonne of carbon removed, making it harder for a retiree to use against a climate claim.

2. Additionality

Would activities or outcomes happen without the money earned from reducing carbon emissions? Is the counterfactual ‘no project' scenario correctly treated?

It's essential to properly assess whether a project would truly make a difference in reducing carbon emissions compared to doing nothing at all.

To do this, it's vital to thoroughly examine whether there are other sources of income available for the project besides the money earned from cutting carbon emissions. If there are, it suggests that the project's success isn't solely driven by its ability to reduce carbon emissions.

Assessing additionality ensures that carbon reduction projects are making a meaningful impact on the environment.

3. Permanence

How long will the reduction in atmospheric CO2 last?

For durable carbon removal projects, typically technology-based methods, permanence can last tens of thousands of years. This is much longer than nature-based removal methods, which typically last just decades to a few centuries.

Carbon storage approaches, like geologic storage or conversion to solid carbonate minerals, have diverse physical leakage risks. It's crucial to carefully assess both the natural and human factors to make sure the CO2 stays securely stored for a long time.

Non-carbon attributes

4. Co-Benefits

What other positive effects does the project have on biodiversity and the local community?

More investors and buyers look at co-benefits to help prioritize investment decisions. This is about understanding all the extra positive outcomes beyond reducing carbon emissions, like protecting wildlife and supporting local communities.

Sylvera actively assesses both positive and negative impacts on biodiversity and the community to ensure that investment decisions properly consider these benefits.

5. Scalability

What factors constrain and enable a CDR technology from being viable at scale?

Buyers and investors want technologies that can grow and become cheaper because carbon removal is crucial for achieving net zero commitments. Different types of carbon removal all face limits based on what they need, such as sustainable biomass, special minerals, and clean energy. Plus, there are challenges with finding enough available storage and minimizing prices.

Scalability is figuring out what makes a carbon removal method easy to expand and use widely and what holds it back. Buyers and investors want to support technologies that can scale up effectively and lower costs over time.

Make CDR Investments With Confidence

With the right disclosures around financials and carbon accounting, it's possible that many of these innovative technologies, like direct air capture, are a surefire means for removing more carbon from the atmosphere than any of the solutions available.

New regulations, like California's AB 1305, push for more openness in how projects calculate their impact. In the meantime, Sylvera can help businesses around the world stay ahead of reputational and regulatory risks.