Technological Carbon Removal Recent Economic and Political Trends in the United States April 2019 1 AUTHORS The authors of this report include Matthew Piotrowski, Gwynne Taraksa and Claire Langley of Climate Advisers with support from Benjamin Simonds. The views in this report are solely those of the authors. 2 Contents Executive Summary ...................................................................................................................................... 4 Introduction .................................................................................................................................................. 6 What Is Technological Carbon Dioxide Removal? ................................................................................... 6 The Urgency to Act ................................................................................................................................... 7 I. Carbon Removal in the Real Economy ...................................................................................................... 9 DAC Companies Look to Utilization ....................................................................................................... 10 Why Can’t the Industry Move Faster? .................................................................................................... 10 New Research Sheds Light on Price of Carbon ................................................................................. 11 Combining Renewable Energy With DAC ........................................................................................... 12 DAC Companies in North America ...................................................................................................... 13 Economic Criticisms of Direct Air Capture ............................................................................................. 13 Limited Economic Potential of CDR Technologies Outside of DAC ....................................................... 14 Biochar Market Holds Promise, Set to Grow ......................................................................................... 15 II. Political State of Play in the United States ............................................................................................. 17 Government Support Critical .................................................................................................................. 17 45Q's Broad, Bipartisan Support ........................................................................................................... 18 Criticisms of 45Q .................................................................................................................................... 20 III. Implications and Analysis ...................................................................................................................... 21 ANNEX ........................................................................................................................................................ 23 3 Executive Summary In this report, we assess the current state of affairs surrounding technological carbon dioxide removal (CDR)—sometimes referred to as “engineered” CDR or negative emissions technologies (NETs)—in the United States. After defining what technological CDR is and why it matters, we examine the status of technological CDR in the U.S. economy—looking carefully at what companies and investors are doing currently. We then review the policy and political landscape for technological CDR before providing concrete policy recommendations for action at the Federal level. CDR is the name given to a suite of processes and technologies that remove carbon dioxide from the atmosphere. Removing carbon from the atmosphere lowers the concentration of greenhouse gases (GhG) in the atmosphere, which in turn slows global warming and climate change. Scientists generally agree that substantial use of CDR will be essential to meet global climate goals and prevent catastrophic climate change. Nature is the oldest and most familiar type of CDR. Trees and other plants absorb CO2 naturally through photosynthesis, storing carbon in their biomass and in soils. Other natural organisms in the ocean, soil and sedimentary rocks also remove carbon dioxide from the atmosphere. Humanity can harness the power of nature to remove carbon from the air by managing forests, farmlands, oceans and soils for this purpose. Solving the climate crisis will require far greater investments in natural CDR, as we have argued previously in our paper published in June 2018.1 However, nature is not the only CDR solution. Innovative technologies and chemical processes can also take carbon out of the atmosphere. Today, companies and inventors are working on machines that capture CO2 from ambient air and either store it underground or turn it into a commercially valuable product, such as an input for concrete. Removing CO2 directly from the air using artificial technology is known as direct air capture (DAC). Other CDR technologies include bioenergy with carbon capture and storage (BECCS), biochar, ocean iron fertilization, direct air carbon capture and storage (DACCS) or utilization, and enhanced weathering and ocean alkalinization. These are considered “hybrid” technologies, as they combine both natural solutions and technology to remove carbon. Based on our examination of the different CDR technologies available today, DAC appears to offer the most promise long term, for both commercial prospects and removal of CO2. Most scientists and experts believe that scaling up technological CDR will be essential to stabilize the Earth’s climate at a safe level, as the United Nations’ scientific body on climate change outlined in its report in October 2018. Based on the current trajectory, the world may overshoot global climate goals – i.e. increase GhG concentrations to more than 2˚ above pre-industrial levels. Should this happen, technological CDR could become essential to bring back GhG concentrations to safe levels quickly in the second half of this century. During the past two years, entrepreneurs and academics have increased their enthusiasm regarding technological CDR, receiving money from governments, angel investors, and philanthropists. At the same time, a larger number of companies are experimenting with carbon capture and utilization or sequestration (CCUS), with a handful reaching the commercial phase. CCUS is similar but not the same as technological CDR. CCUS technologies capture carbon before it enters the atmosphere—as part of the process that 1 Langley, Claire. “Creating Negative Emissions: The Role of Natural and Technological Carbon Dioxide Removal Strategies.” Climate Advisers. June 22, 2018. https://www.climateadvisers.com/creating-negative-emissions-the-role-of-natural-and-technological- carbon-dioxide-removal-strategies/ 4 creates carbon dioxide pollution, including burning fossil fuels—rather than removing carbon from the atmosphere once the pollution has been released into the air. Nonetheless, the carbon capture process overlaps with direct air capture—progress in one area can inform and benefit the other. Both are attractive to businesses, investors, governments, and environmentalists because of their ability to slow climate change. For the purpose of this paper, we will discuss CCUS and companies using this process as it relates to technological CDR. Despite the private sector’s progress on technological CDR, uncertainty still persists surrounding its long- term viability. Most mainstream financial analysts, private equity firms, asset managers, fossil fuel companies, and venture capitalists see CDR as a high-risk investment, keeping some on the sidelines. Given the high up-front infrastructure costs and the long timeframe to see positive financial returns from technological CDR, many of these investors will likely remain hesitant. The marketplace needs to mature in order for more capital to enter, and critics question whether the industry can scale up quickly enough to become profitable and significantly draw down emissions this century. DAC costs have been estimated as being too high to be economical. Even though company analysis and peer-reviewed studies say the cost is as low as approximately $100 per ton and may fall further, business prospects remain uncertain and challenging in a purely private-sector driven investment environment. Because technological CDR is essential and yet far from guaranteed, governments should adopt policies that speed progress while also managing potential economic, financial and environmental risks from these untested technologies. In the United States, the federal government has a large role to play in advancing technological CDR. Startups need resources to determine viable long-term business models and investors see the sector as high risk. Moreover, technological CDR technology needs to advance to a more mature stage before it can significantly impact emissions. Experts argue that public-private partnerships are crucial to developing a mature marketplace. Just as critical is the importance of the U.S. government-led action to export appropriate CDR technologies and strategies for deployment to other countries. Given that combatting climate change is a global effort, other markets will need to scale up alongside the United States. This report includes recommendations for policymakers to facilitate the widespread use of technological CDR in the United States. A tax credit passed in the 2018 Budget Act to support deployment