Summary
Purchasing carbon removal credits is an innovative and high-leverage way for governments to accelerate innovation and market formation for the carbon removal field. This blog explores how the US Department of Energy (DOE) and Congress have collaborated across party lines to pioneer government carbon removal purchasing since 2022, and why continuing to pursue this approach to innovation will yield significant returns for US technology developers, investors, and workers and communities building carbon removal projects.
Background
Before 2020, there were effectively no major buyers of carbon removal on the voluntary market. Within the last few years, however, US companies like Microsoft, Google, Amazon, and JP Morgan have stepped up to the register and catalyzed growth in the carbon removal field. Without these initial purchase agreements, few carbon removal companies would’ve been able to finance their early commercial demonstrations.
But while early leaders have the balance sheets and risk tolerance to support nascent carbon removal efforts, a wave of fast follower corporate purchasers has been slow to materialize. Companies with ambitious sustainability plans all recognize carbon removal as the “net” in their “net-zero” commitments. But uncertainties about which carbon removal projects will be the most scalable and cost-effective — and which projects and standards will ultimately count towards their net-zero obligations — are holding back hundreds of purchasers from taking action.
DOE’s carbon removal purchase pilot prize
Enter, the DOE.
In 2022, Congress included a $100M line item in the Bipartisan Infrastructure Law for a direct air capture and storage prize. In 2023, the Biden administration announced that it was using $35M of this funding to run a carbon removal pilot purchase prize. The prize would ultimately award up to 10 projects up to $3M each for carbon credits from a US-based carbon removal project.
The next year, DOE announced 24 semi-finalists in this prize, representing four categories of carbon removal projects: direct air capture, biomass carbon removal, carbon dioxide mineralization, and marine carbon removal. The prize finalists were slated to be announced earlier this year, but DOE has not announced winners yet, nor have they indicated an updated timeline for the prize.
Purchasing credits as innovation catalyst
Even though the prize has yet to announce its finalists, DOE’s initiative has already had a meaningful impact in advancing the carbon removal marketplace. Google announced they would match DOE’s $35M in credit purchases, indicating that government leadership can leverage further private purchases. Sustainability representatives of other companies have also shared privately that DOE’s initiative has helped them convince company leadership — many of whom are much less familiar with the carbon removal ecosystem and its role in achieving net-zero emissions — that it is imperative to start buying carbon removal at small and growing scales today. In the absence of clear guidance from third-party organizations, such as the Science Based Targets initiative (SBTi), on the role of purchasing removals in net-zero, government efforts signal the importance of removals to the voluntary market today.
Purchasing credits has several advantages over conventional DOE innovation programs. For one, it fits the traditional structure of the private market (i.e., credits, not grants), and thus sends a stronger signal to crowd in more industry action. Second, money only changes hands once projects deliver verified carbon removal, stewarding taxpayer dollars more efficiently than grant programs that might not result in successful projects. And it sends a signal to the market about which carbon accounting standards the government considers acceptable today, providing clear guidelines to developers seeking to scale their operations.
The path forward: how the US becomes a global powerhouse
By catalyzing a market for carbon removal purchases, DOE can create significant economic opportunities, attract investment, and build a robust workforce across the US. The US has significant resource potential to supply carbon removal credits (e.g., LLNL’s Roads to Removals study). If we catalyze the market for credits, projects will happen here, and US technology developers and investors will reap early mover benefits.
The market potential for these credits extends beyond our own borders. Countries around the world, including the US, are considering or actively implementing trade policies that incentivize the production of low-embodied carbon goods via carbon border tariffs. This type of trade framework could incorporate carbon removal offsets or insets to lower the carbon intensity of traded goods and make them more economically competitive. With the correct policies in place enabling the carbon removal industry to scale, US companies are poised to dominate the global market; that advantage could be furthered by the formation of an international climate club, in which climate-forward nations price carbon on a narrow set of trade-exposed goods.
Fortunately, there is bipartisan support in Congress for maintaining and growing our competitive advantage in the field through federal policy. The Regional DAC Hubs program and 45Q tax credit, both of which were largely preserved in the One Big Beautiful Bill Act (OBBBA), position US developers to lead the world in DAC technology development and commercial deployment. Additional tax incentives, such as those proposed in the Carbon Dioxide Removal Investment Act, can advance the broader carbon removal field by expanding the list of technologies eligible for financial support. And the US can continue to expand onshore carbon storage capacity and invest in the carbon utilization innovation ecosystem, especially under an ambitious research, development, and demonstration (RD&D) agenda, as we propose.
With respect to carbon removal purchasing, DOE can take three steps to bolster our domestic industry:
- Announce the finalists for the CDR purchase pilot prize and award the remaining prize money. Congress preserved funding for this program in the OBBBA, giving a clear mandate for the Administration to select winners.
- Design a second phase of the prize with the additional $40 million appropriated by Congress for carbon removal purchasing in fiscal years 2024-2025.
- Work with Congress to scale purchasing efforts. Alongside a bipartisan coalition of partners, Carbon180 is working to expand carbon removal purchasing at DOE in a high-leverage way that efficiently stewards taxpayer dollars to maximize economic growth and establish high industry standards.
Doing so is a win on both sides of the political spectrum. Earlier this year, a bipartisan coalition of 18 House members published a letter emphasizing the need for continued RD&D investment in carbon removal, including support for CDR purchasing efforts at DOE. Seven senators also published a letter in support. And perhaps most tellingly, over 40 organizations from across industry, philanthropy, and the nonprofit sector signed our letter to appropriators, calling on Congress to continue this vital program. With a nominal amount of investment, federal CDR purchasing can continue to unlock private capital, accelerating industry growth and creating jobs in coastal towns, agricultural regions, and fossil fuel communities across the country.
Edited by Tracy Yu. Image by Mikhail Nilov.
