There is an imminent issue in the field of carbon removal.

According to statistics, nearly 800 companies worldwide are exploring various methods to extract greenhouse gases that cause global warming from the atmosphere and then store or reuse them.

In 2019, I might only find five startups engaged in this work. The current prosperity is a huge advancement.

Data from PitchBook shows that from the end of 2020 to the end of 2023, global venture capital institutions have invested more than 4 billion US dollars in this industry.

But now the problem is that carbon dioxide removal (CDR) is an extremely expensive product, so expensive that almost no one wants to use it.It is essentially waste management for invisible trash, and rather than being a commodity, it is more like a public good that no one is willing to pay for.

Advertisement

Emily Grubert, an associate professor at the University of Notre Dame and former Deputy Assistant Secretary for the Office of Carbon Management at the U.S. Department of Energy, said: "Carbon dioxide removal is purely a cost, and we are trying to make it profitable, and the only two ways to do this are through public funding and by leveraging voluntary markets."

Both methods have worked to some extent. So far, there are three main markets for carbon removal: limited government procurement; government subsidies that do not take costs into account (overdraft); and voluntary purchases by companies and individuals, but also only by those who are willing to pay high costs for high-quality, reliable carbon removal solutions.

You can also use carbon dioxide as a raw material for other products, but if you do this, you are actually paying a high price for a cheap commodity.

In view of these market challenges, some investors are somewhat puzzled when they see huge amounts of money flowing into the field.In a report from the summer of 2023, venture capital firm DCVC stated that all the approaches it evaluated faced "multiple feasibility constraints."

It noted that direct air carbon capture plants were particularly expensive, charging customers hundreds of dollars per ton of captured carbon dioxide.

The report's authors wrote: "The situation may still be the case in five, seven, or even ten years, which is why we are somewhat surprised when we see hundreds of millions of dollars of capital flowing into early-stage direct air capture companies."

DCVC partner Rachel Slaybaugh, speaking about direct air capture in the report, said: "I'm not saying we don't need it, nor am I saying it can't eventually become a good business.

I just think that the market is still very nascent right now, and I don't know how you could possibly get a venture return from it."Several industry insiders I've spoken with acknowledge that the sheer number of carbon removal companies is simply unsustainable, and a significant number will inevitably fail at some point.

The industry has flourished partly because an increasing number of studies have found that we need to remove a substantial amount of carbon to control the rise in temperature.

It is estimated that by the middle of this century, countries may have to remove 10 billion tons of carbon dioxide annually to prevent the Earth from warming more than 2°C, or to pull it back into a safer temperature range.

In addition, companies are looking for ways to achieve their net-zero emission commitments. Currently, some businesses are willing to pay very high costs for carbon removal, partly to help the industry scale up, including Microsoft and companies involved in the $1 billion "Frontier Program."

I was told that the current reliable methods of carbon removal are already unable to meet the demand from businesses. There are only a few direct air capture plants, and they take several years to build.Many companies are still testing or scaling up other methods, such as burying biochar and pumping bio-oil deep into the ground.

Observers say that the cost of carbon removal will certainly decrease, but it remains expensive compared to other measures, and the number of corporate clients willing to pay high costs is limited.

Therefore, as the capacity for carbon removal gradually catches up with corporate demand, the fate of the industry will increasingly depend on how much help the government is willing to provide and how they formulate relevant rules.

Countries can support this emerging industry through carbon trading markets, direct purchases, mandatory requirements for polluters, fuel standards, or other measures.

It is certain that countries will continue to throw out more incentives (or punitive measures) to help the industry develop.Notably, the European Commission is developing a certification framework for CO2 removal, which could mean that European countries could eventually reach their 2050 carbon neutrality goals through a variety of methods.   But it’s unclear whether government support will grow as quickly as investors hope or entrepreneurs need.   Indeed, some observers argue that it’s hard to get countries to really act simply because climate scientists say countries should fund billions of tons of high-quality carbon removal projects each year. This is more of a “wishful thinking”.   For perspective, the DCVC report notes that removing 100 billion tons of carbon at $100 per ton would cost $10 trillion. That’s more than a tenth of global GDP.   The industry’s growing financial pressures could manifest in a variety of worrying ways.  Climate economist and researcher Danny Cullenward at a U.S. university's Institute for Responsible Carbon Removal said, "One possibility is that the bubble in this field has burst, and many investors have lost their shirts."

If that is the case, then the bursting of the bubble may take away those carbon removal methods that were originally promising before we understand the effectiveness and economics of some emerging technologies.

Another danger is that when an industry with a particularly large bubble fails, it may turn U.S. public opinion and political sentiment against it, and stifle the desire for further investment. This is exactly what we saw after the collapse of the Cleantech 1.0 bubble.

U.S. conservatives criticized the government for providing loans to green startups, while venture capital firms were once bitten by a snake, and for ten years they were afraid of a well rope: in the next decade, they were hesitant and indecisive in related fields.

But Cullenward is more worried about another possibility. With the drying up of funds, startups eager to create revenue and expand the market may turn to selling cheaper but less reliable forms of carbon removal and lobby for relaxed standards.He observed a situation where the industry might replicate the widespread credibility (credit) issues that occurred in the voluntary carbon offset sector, establishing large trading markets. Although these markets are flooded with substantial capital, their positive impact on the climate is not significant.