Carbon removal needs bankable, compliance market demand ASAP

Politically-feasible pathways for removals mandates are plausible today, even in a challenging climate policy environment

The carbon removal baby bird has been pushed out of its voluntary corporate demand nest quite abruptly with Microsoft (kinda, sorta) stepping back from its removals purchasing efforts. Flapping its wings furiously, the carbon removal field will only take flight if it can find compliance market demand. And find that demand quickly, as many removals companies likely need new, bankable markets within a year or two to avoid running into serious cash challenges.

Specifically, some jurisdiction(s) somewhere in the world is going to have to pass new policies that mandate emitters to offset some fraction of their emissions with removals. Think the German renewable feed-in tariffs or the California Renewable Portfolio Standards of the early 2000s power markets, but for carbon removal credits in carbon markets. California floated legislation in 2023 to do just this (SB 308), but it didn’t pass. And it hasn’t been replicated in any form anywhere else in the world to date (to my knowledge).

Passing such policy mandates for removals will be no easy feat in today’s political environment. “Climate” has plummeted down the policy agenda in the US, and, to a lesser but still significant degree, in many key geographies around the world. Instead of climate, policymakers today are focused on reducing costs for consumers and finding new sources of cheap, reliable, and clean energy supplies—carbon removal doesn’t fit neatly (if at all) in these frames.

For advocates to succeed at making carbon removal a legal requirement somewhere in the world today, advocates will likely need to find a way to make policies (1) cost negligible amounts to individuals and the economy as a whole, and/or (2) focus meaningful cost increases on the richest individuals/industries that (should) receive the least sympathy from policymakers today.

While both of these tactics greatly constrain the overall demand for carbon removal that can be mandated in the near term, starting small is fortunately not a big issue. The removals field needs only 10Ms tons/year in steady demand to get solutions up the technical readiness curve and then down the cost curve. This number is a drop in the bucket of the 10Bs tons/year in global emissions, and only requires on the order of $B-$10Bs/year in revenue—also a drop in the bucket of the $10Ts in taxes paid annually.

So how might carbon removal compliance policy be structured to be politically feasible in today’s environment while still creating enough demand for the removals field to grow? Below are two different paths for the field to try.

Path 1: A few small carbon removal market floors

If a few of the largest carbon markets around the world today mandated that even 1% of all credits sold in these markets had to be met with carbon removal, it could generate significant demand and raise overall carbon prices minimally. For example, if carbon removal credits averaged $500/ton in the near future, a 1% removals mandate would only add around $5/ton to a given carbon market’s overall price.

I asked Claude for some info on the best carbon markets to pilot a floor like this, and it came up with the following list (disclaimer: I didn’t edit it…):

Even if only 10% of these markets adopted a carbon removal 1% floor, the ~10Mt/year of demand would be more than sufficient to support the commercialization of the field in the near term (as long as the credits were spread across carbon removal verticals and didn’t just support the cheapest near-term pathways).

There are still geographies around the world that care about climate change—many of which are on the list that Claude came up with above. A $5/ton adder should be feasible politically in these markets. It would raise carbon prices by around 10-25% across these markets, which would barely be felt in overall macroeconomic impacts. And $5/ton adds roughly a nickel per gallon of gasoline, or a few dollars per month to the average US residential power bill…

I’ll admit that any added cost associated with a removals mandate, regardless of how small, is a tough ask politically today. For a policy like this to pass, we will need a few policymakers to have the courage to do the right thing for removals in the face of broader political headwinds. Basically, politicians need to be ready to admit to the equivalent of a “few small beers” if the anti-climate police pull them over, wagering that these vigilantes will likely move on with bigger fish to fry given all that is happening in the wider world of climate today.

And policymakers could find safety in numbers as well. Many of the largest carbon markets are in G7/NATO member countries. If these countries created a carbon removal “club” of countries committed to removals, it could yield dividends in harmonizing carbon accounting standards and form the basis for future cooperation around removals in carbon border adjustment mechanisms.

Path 2: If you can afford a private jet, you can afford carbon removal

Private jets produce around 20Mt CO2 emissions annually, over half of which come from flights to/from the US. If US policymakers mandated that private jet flights offset their emissions with removals, it would create similarly sized demand to the 1% floor in 10% of the carbon markets above.

A few stats for comparison:

• Each private jet produces on average about 800 tons CO2/year. At $500/ton, it would add $400,000 to fully offset the average plane each year, roughly doubling the cost of a NetJets annual membership.

• If a 2-hour private jet flight that costs roughly $10k, and emits 5-10 tons of CO2, at $500/ton, fully offsetting each flight with removal credits would add $2.5k-$5k to flight.

These cost increases are undoubtedly meaningful. But policymakers should have approximately zero sympathy for anyone that complains about the cost of flying a private jet. If private jet customers balk at these price increases, they are welcome to… fly commercial first class? Private jets aren’t important to our macroeconomy, any local/regional economy, our national security, or anything beyond the comfort of our most privileged elites. A rounding error away from zero percentage of voters in any district interact with a private jet ever—either as a passenger or laborer/business. If we can’t muster the courage to tax emissions from private jets, we are completely toast for any larger climate policy efforts that require any cost to society at all (which is still most of climate policy…).