Carbon removal technology is becoming increasingly important for companies, especially tech giants, which are in a fierce battle to become leaders in artificial intelligence.
Once considered a critical diversion in efforts to reduce emissions, carbon removal projects that extract and sequester carbon dioxide from the atmosphere (such as direct air capture facilities and reforestation efforts) are now seen as a necessary step to achieving key climate change goals.
“There are some emissions that a company can never reduce,” Karan Mistry, managing director and partner at Boston Consulting Group, told Yahoo Finance.[Companies are] “Companies have set themselves a net-zero target and they want to actually get to zero and honour their commitments, so they need to invest in some removal technology.”
The Frontier Fund, a consortium of investors that includes Alphabet (GOOG), JPMorgan (JPM), and Meta (META), has purchased contracts to remove more than 510,203 metric tons of carbon to date.
The fund made one of its largest commitments ever last year, pledging $57.1 million to enhanced rock weathering startup Lithos Carbon to remove 154,000 tonnes of carbon from the atmosphere.
“Carbon market pioneers aren't just interested in what they can buy today,” Henry Liu, head of engineering at Lixos Carbon, told Yahoo Finance. “They're investing in the future of the carbon removal market.” [With] Considering the size of the market, we recognize that investment is necessary. Therefore, we are considering ways to provide support.”
Technology Enters Carbon Removal
A growing number of companies are making net-zero commitments, but global emissions are rising and new technologies are making these pledges more difficult to meet.
The scale and speed of data processing required for AI technologies requires enormous energy demands, with the International Energy Agency recently warning that consumption from data centers, AI and the cryptocurrency sectors could double by 2026.
This realization has led to a surge in investment in carbon removal startups: Direct air capture companies and those using nature-based carbon removal methods raised more than $1 billion combined in 2023, according to PitchBook data. The number of carbon removal credits sold increased by more than 650% year over year, according to CDR.fyi.
The energy, manufacturing and transportation sectors are leading this investment, but some of the world's largest technology companies are also investing in carbon removal to try to reduce emissions.
Microsoft (MSFT), a major player in the AI race, has purchased more than 7.6 million carbon credits since 2020, making it one of the largest purchasers.
According to the company's sustainability report, its carbon emissions have already increased by 30% compared to 2020. Four years ago, the company set a goal of becoming carbon negative by the end of the decade, calling it its moonshot.
In a recent interview with Bloomberg, Microsoft President Brad Smith acknowledged that the company's AI ambitions will be harder to achieve.
“Given our projections for the expansion of AI and its power needs, in many ways the moon is five times further away than it was in 2020,” he said.
Challenges in emerging markets
Carbon credits are largely confined to a voluntary market, but companies are planning for the growing likelihood of regulations requiring them to be purchased to meet net-zero targets. The problem is that demand is expected to outstrip supply, even as hundreds of startups work to remove carbon on behalf of emitting companies.
BCG analysis projects that annual demand for durable carbon dioxide removal (CDR) will reach 40 million to 200 million tons by the end of the century, with supply projected to be 15 million to 32 million tons.
Companies are trying to get ahead of this crisis by investing in emerging technologies with clear processes for monitoring, reporting and verifying the quality of the carbon removed.
However, impacts remain difficult to quantify depending on the removal process, and the companies offering the most consistent offsets are still among the most expensive, mainly because their technology is not yet scaled.
“If you want someone to buy a CDR offset or a carbon offset, you want them to be satisfied that they actually bought what they said they bought,” Mistry said.
Direct air capture (DAC) has the simplest measurement system, according to Mistry, whose firm has invested in several DAC companies, including Climeworks, but it requires building large factories that can suck carbon dioxide out of the air, costing between $600 and $1,000 to capture a tonne of carbon.
Using agricultural waste is considered cheap but requires large amounts of land, and while tree planting may be one of the most economical options, Mistry argues that carbon storage is not very permanent.
“We can estimate how much carbon is in a tree, but questions remain, like what happens to it if it is cut down, what happens if there is a forest fire,” Mistry said.
Such questions about reliability have hampered the market recently, with studies showing that many carbon offsets don't result in the carbon removal they promise.
But carbon markets got a vote of support from the Biden administration last Tuesday when the administration released a framework for the use of voluntary carbon offsets, an acknowledgment that emissions reductions alone will not be enough to achieve the net-zero goal by 2050.
“We need to use all of our tools — creatively, thoughtfully and at scale,” Treasury Secretary Janet Yellen said, praising the role of carbon removal technologies in helping companies meet their climate goals. But she stressed that “corporate buyers should prioritize reducing their own emissions, particularly through transition plans.”
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