In Short : 2023 emerged as a breakthrough year in carbon removal efforts. Notable advancements and increased attention towards innovative solutions marked significant progress in addressing carbon emissions and combating climate change.
In Detail : In 2023, the carbon removal industry witnessed a significant growth spurt, propelled by major company acquisitions, government funding initiatives, exciting startup fundraises, and high-profile announcements.
As the planet recorded its hottest year yet, the necessity of carbon removal technologies, which extract and sequester carbon dioxide emissions from the atmosphere, became undeniable. These once fringe concepts in climate policy have become crucial in many industrial and national net-zero strategies. From direct air capture to enhanced weathering, 2023 was the year these ideas transitioned from academic ideas confined in the lab to practical, scalable solutions, with a McKinsey report projecting the market’s value at up to $1.2 trillion by 2050.
The number of carbon removal credits sold leaped 650%
According to CDR.fyi, a non-profit aggregator of carbon removal credit purchases, 2023 saw a 6.5x increase of credit sales from 800 thousand tonnes at the end of 2022, to more than 5.2 million tonnes at the end of 2023. The year ended with over $2.1 billion in carbon credit purchases.
Microsoft led the charge, purchasing 2.76 million tonnes of carbon removals over 11 years from Ørsted’s bioenergy, carbon capture, and storage (BECCS) plant. This project captures carbon dioxide emissions from a biomass plant that burns wood for energy, and then stores the captured carbon underground. Another notable deal was from Frontier, a buyers’ group including Alphabet, H&M, JPMorgan, McKinsey, Shopify, Stripe and others, for $57.1 million to enhanced weathering startup Lithos Carbon. Lithos spreads crushed-up rocks on farmers’ fields which naturally react with carbon dioxide in the air, turning the gas into solid carbonates, permanently storing it.
However, of these purchase agreements, only 2.8% have been fully delivered, indicating the industry’s nascent stage. Many agreements are made before actual operations begin, aiding capital raising. In 2024, as these deliveries ramp up, market confidence is expected to grow.
A landmark acquisition and trend-bucking startup raises
In August, Canadian carbon removal firm Carbon Engineering was acquired by oil and gas giant Occidental Petroleum in a landmark $1.1 billion deal, marking the first major acquisition of a carbon removals company. Carbon Engineering’s direct air capture technology is behind Oxy’s 500,000 tonne-per-year facility being built in Texas. The controversial deal has been criticized by some as greenwashing and a license to operate for oil and gas companies. This hasn’t stopped Oxy’s CEO Vicki Hollub’s ambition to grow this business with intentions to license Carbon Engineering’s technology to up to 1000 other projects. In November, BlackRock announced a $550M investment into the project.
In a year described as an “extinction-level event” with the lowest levels of startup funding since 2015, there were a few high-profile carbon removal companies that defied the odds. In the summer Charm Industrial raised $100 million in a Series B to scale up their operations of bio-oil and sequestration, which turns agricultural residues into a liquid oil that they pump underground to permanently store. Los-Angeles based startup Avnos signed strategic investment deals worth over $80 million with big oil companies, Shell and ConocoPhillips, and JetBlue to commercialize its hybrid direct air capture technology which simultaneously produces water while also capturing carbon from the air.
This fall my company Montreal-based Deep Sky, a technology-agnostic carbon removals project developer, raised a $57.5 million Series A to build direct air and direct ocean capture projects in Canada. We’ve also announced partnerships with several carbon removal startups to pilot their projects in Quebec, starting next summer. As the urgency to address climate change continues to ratchet up in 2024, startups offering solutions to this massive problem will continue to find investors to fund them.
Governments take active steps to launch the emerging carbon removal industry
The start of every major industry is often aided by government support in some way – whether that’s in funding the initial research and development underpinning the technology or creating policies and incentive programs to help the industry get on its feet. In 2023, governments around the world made significant commitments to carbon removals, with the United States leading the way.
In August the U.S. Department of Energy (DOE) announced awards for two projects based in Texas and Louisiana as part of its Direct Air Capture (DAC) Hubs program, totaling $1.2 billion. The winners of this first round were Occidental Petroleum’s South Texas DAC Hub and Project Cyprus led by Climeworks, Batelle, and Heirloom. The DOE also launched a $35 million carbon credit procurement program to directly purchase carbon credits, the first of any government worldwide. The Canadian government announced further details of their Carbon Capture, Utilization, and Storage (CCUS) Investment Tax Credit, which provides a 60% rebate on any capital expenditures for projects on direct air capture. The Alberta government quickly followed by announcing an additional 12% tax credit at COP28.
While there was significant movement on programs to support carbon removal projects, much needs to be done for policies to regulate and accelerate the trade of carbon removal credits on the voluntary carbon market. Key talks at COP28 failed to solidify international consensus around carbon credit trading mechanisms and rules.
Carbon removals on track for an even bigger 2024
The carbon removal industry is poised to have an even bigger 2024. This spring the Elon Musk-sponsored $100 million Carbon Removal XPRIZE will be announcing finalists for the next round of competition. These teams, many are scaling up prototypes from university labs, will have until January 2025 to capture and safely sequester at least 1000 tonnes of carbon dioxide. Major projects, like Deep Sky’s testing and validation center, will come online in 2024 and additional projects will be awarded as part of the U.S. DAC Hubs initiative.
As we reflect on carbon removal’s breakout year in 2023, it’s clear that the stage is set for an even more ambitious year in 2024. With the market momentum and demand for high-quality carbon credits ever increasing, the continued supportive policies, and the emergence of exciting new startups, carbon removal is on track for an even bigger 2024.