What to Know Before Investing in CDR: Key takeaways

Navigating Challenges, Trends, and Future Opportunities

As the climate crisis intensifies, investing in Carbon Dioxide Removal (CDR) technologies has never been more critical. While investment in durable CDR solutions reached $577 million in 2023, it’s still far from the estimated $6-16 trillion needed to reach net-zero emissions by 2050. Investors have a pivotal role in scaling the most effective CDR technologies and enabling them to mature, ensuring a sustainable future for our planet.

In a recent webinar, Annalise Downey, Head of Climate Consulting at Sylvera, explored the evolving CDR landscape alongside Alexander Rink, Co-Founder CFR.fyi, Olivier Lejeune, Data Analyst QC Intel and Stacy Kauk, Head of Science Isometric. Their discussion revealed both the promise and the complexity of investing in CDR. Below, we break down some of the key insights from the conversation to help investors navigate this emerging market and identify where their capital can have the most impact.

Understanding the Urgency: Why Invest Now?

The message emerging from the conversation is clear: the time to invest in CDR is now. With demand for carbon credits already outstripping supply, companies that commit early can secure future supply and help scale essential technologies. Stacy Kauk underscored this point, noting that early investment not only helps to reduce future costs but also allows companies to establish longer-term agreements, which can safeguard their operations in the years to come. By securing CDR credits today, businesses are not just hedging their bets—they’re actively participating in the scaling process, which is essential if we’re to meet our climate goals.

Alexander Rink offered a memorable analogy, likening CDR investments to retirement savings. He explained that “the earlier you invest, the more you’ll benefit from the scaling and maturity of the market down the road.” Investors who step in now are positioning themselves as leaders in a market that will only grow more critical with time. In fact, as Alexander highlighted, Microsoft alone has already purchased 75% of the durable CDR currently available. Such leadership from tech giants is a clear indication of where the market is heading and why timely investment is crucial.

The Challenge of Data Gaps and the Need for Transparency

One of the most significant challenges in the CDR space is a lack of reliable data. The market’s opacity around transaction terms, prices, and even the volume of trades has led to investor hesitation. Olivier Lejeune noted, “It’s quite difficult to get data… often, we don’t know the volume of the trade, or even the price sometimes.” While this opacity complicates decision-making, there are efforts to improve transparency and make CDR markets more accessible. More robust data will not only attract more investors but also help in assessing the true value and impact of carbon credits.

The integrity of carbon credits is another critical factor for investors. High-quality credits require rigorous Life Cycle Assessments (LCAs) to ensure their credibility, which involves accounting for all sources and sinks of carbon in a project. As Stacy Kauk emphasized, the market’s future growth depends on transparency and clarity. Buyers will only have the confidence to scale investments in CDR if they can easily access information about project quality and see clear data on the lifecycle of carbon credits.

Exploring CDR Technologies: Biochar, Marine CDR, and Beyond

With various CDR methods available, each offering unique benefits, a diversified approach to investment is often recommended. Biochar currently leads the way as one of the most developed methods, having accounted for 99% of durable CDR deliveries in Q2 2023. Its proven delivery capability has made it an attractive option for investors looking for a reliable CDR solution.

Marine CDR, while still emerging, shows great potential as well. With its multiple approaches, this method is versatile but also faces regulatory challenges. As Olivier explained, regulatory resistance is a barrier for marine CDR, but its scalability potential makes it a promising area for future investment. Investors are increasingly adopting a portfolio approach, which allows them to hedge against the risks associated with any single technology. 

Ensuring the Longevity and Integrity of Carbon Credits

When considering carbon credits, durability is essential. Credits vary significantly in terms of how long they sequester carbon, with some lasting as little as 10 years and others providing sequestration for centuries. Shorter-term credits may need to be repurchased, adding to costs over time, which is why some investors prioritize credits with greater durability. This aligns with the high standards many buyers are beginning to set for their CDR purchases.

Annalise Downey highlighted that robust methodologies and rigorous LCAs are essential across different CDR pathways. By ensuring high-quality standards, buyers can avoid accusations of greenwashing and ensure that their investments genuinely contribute to climate goals. 

Navigating Market Complexities and Delivery Risks

One concern for many investors is delivery risk. In a market still in its nascent stages, credit suppliers vary widely, and delays in delivery are a genuine risk. To mitigate this, Alexander Rink recommends “pay-on-delivery” models, which allow buyers to avoid upfront payments and reduce risk. This model shifts delivery risk onto suppliers, making it an attractive option for investors who want more certainty in their transactions.

The commercial structure of CDR is still developing, and this complexity can be daunting for new entrants. According to Olivier, biochar transactions have grown but remain limited to pre-sale investments rather than spot market trading. As the market matures, however, these structures are expected to evolve, allowing for larger transactions and greater supply.

Looking Ahead: The Future of CDR Investment

The panelists agreed that advancing CDR investment will require a combination of policy support, data transparency, and innovative commercial models. Alexander, Olivier, and Stacy all stressed the need for leadership from both private companies and policymakers to drive the CDR market forward. The path to net-zero will be shaped not only by investments but also by the willingness of companies and governments to lead the way.

The discussion in the webinar offered valuable insights into the challenges, opportunities, and emerging trends in CDR. For those interested in exploring CDR investment in greater depth and hearing directly from industry experts, download the full webinar to learn more about how your investments can help scale these vital technologies for a sustainable future.