A critical moment for CDR
by
Carbon dioxide removal (CDR) is a critical tool for achieving the net in net zero, allowing us to neutralise the hardest to abate emissions. Analysis from Boston Consulting Group on potential annual demand for CDR translates to a market opportunity of at least $10bn in 2030, with sufficient runway to reach $20bn – $135bn by 2040[1]. To date, the engineered CDR sector has largely been driven by quasi-philanthropic pre-purchases of CDR credits in the voluntary carbon market, but governments are now stepping in to scale deployment and attract private capital.
The UK’s Climate Change Committee (CCC) published the 7th Carbon Budget in Q1 2025, which includes an estimate of how many tonnes of CO2 emissions must be proactively removed from the atmosphere using engineered CDR technologies. The CCC’s estimates were reduced from 58MtCO2/year in the 6th Carbon Budget (published in 2020), to 35.8MtCO2/year[2] largely thanks to more optimistic projections for direct emissions reduction. The CCC is clear that engineered removals will play a crucial role to deliver Net Zero especially for sectors with residual emissions that cannot credibly be cut, such as the aviation sector.
Within the report, the CCC identified Bioenergy Carbon Capture and Storage (BECCS), Direct Air Carbon Capture and Storage (DACCS), Biochar, and Enhanced Rock Weathering as viable CDR pathways to scale over the next ten to fifteen years to provide sufficient removal capacity. The CCC also noted that while Government has an important role to play in supporting scale-up of CDR in the short term, the majority of investment would need to come from those responsible for emitting the CO2, such as airlines and major industry.
Internationally, a variety of approaches are being taken to scale the emerging CDR sector. The US was an early leader with its 45Q tax credit[3] but has recently announced pull back on funding for projects. In the last six months, Canada committed to purchasing CAD $10m of CDR services between now and 2030 to meet their government’s net zero goal[4]. The EU also published their EU Carbon Removals and Carbon Farming Certification (CRCF) Regulation to strengthen integrity in carbon removal and carbon farming credits in Europe, recognising that attracting investment is contingent upon building integrity in carbon credits traded in the voluntary carbon market. To support reaching the net in net zero, more countries are pushing for inclusion of CDR within net zero trajectories. Switzerland recently introduced a requirement for Swiss companies to reach net zero by 2050 through a combination of emissions reductions and CDR[5].
The UK Government has a target of 5 Mt of engineered CDR per annum by 2030, expected to rise to 23 Mt CO2 by 2035[6] (although these targets are currently under review)[7]. The UK Government’s policy is to source these removals domestically which has led the Department for Energy Security and Net Zero to pursue several levers to incentivise project developers and attract private capital into the sector. These include the roll out of a Carbon Contract for Difference for greenhouse gas removal[8] technologies (GGR business model) and integration of greenhouse gas removals into the UK Emissions Trading System (UK ETS), a potentially very powerful signal to drive demand which was introduced in Japan last year.
Several Japanese companies have stepped further into the CDR sector. This includes energy company Idemitsu Kosan Co leading investment into Carbon Removal Partners’ CDR-focussed venture fund[9], Sumitomo Corporation announcing a strategic partnership with Carbon Direct to aim for a 500,000t CO2/year CDR portfolio[10], and shipping company Mitsui O.S.K Lines partnering with Climeworks for CDR and exploring opportunities to invest in CDR infrastructure as part of that deal[11]. The activity could be a response to the ETS integration and bodes well for the UK’s plans to integrate greenhouse gas removals into the UK ETS.
The UK is home to a number of innovative CDR start-ups and a world-leading specialist carbon market sector, largely driven by a strong academic sector and an early focus on driving integrity in the voluntary carbon market, such as the establishment of the Integrity Council for Voluntary Carbon Markets, for which the Green Finance Institute provided technical assistance[12]. The Green Finance Institute recently interviewed over 50 UK CDR companies, investors, and specialist carbon market service providers to understand better whether, given this supportive landscape, CDR is an attractive prospect for investors in the UK. Our paper, The Investment Readiness of CDR in the UK, a Preliminary Assessment[13] found that whilst many barriers remain, not least the high cost of energy, the combination of supportive policy levers, world leading research and innovation, a stable regulatory landscape and specialist expert delivery services, means the UK has the potential to attract private sector investment and meaningfully scale CDR technologies.
We are, however, at a critical moment in the roll-out of supportive policies, in CDR and in other major industrial decarbonisation projects. In a period when government spending trade-offs are prevalent and insecurity hangs over government support around the world, the UK should remain committed to being a leader in designing innovative business models and demand side incentives that meet investor needs and meaningfully derisk private sector capital. Not only will this maximise the opportunity to turn decarbonisation into growth sectors of the economy, but it will give us the best chance of keeping warming to well below two degrees.
This article was originally published in the June edition of Green Finance Quarterly. Read the full publication here.
[1] Boston Consulting Group – Climate Needs and Market Demand Drive Future for Durable CDR (2023).
[2] Climate Change Committee – The Seventh Carbon Budget (2025) and Climate Change Committee – The Sixth Carbon Budget (2020).
[3] Congress – The Section 45Q Tax Credti for Carbon Sequestration (2023).
[4] Treasury Board of Canada Secretariat – Government of Canada commits to purchase carbon dioxide removal services to green government oerations and achieve net zero emissions (2024)
[5] Federal Office for the Environment – 2050 net-zero target (2025)
[6] Department for Energy Security & Net Zero – Greenhouse Gas Removals: Update on the design of the Greenhouse Gas Removals (GGR) Business Model and Power Bioenergy with Carbon Capture and Storage (Power BECCS) Business Model (2023)
[7] Department for Energy Security & Net Zero – Independent Review of Greenhouse Gas Removals: terms of reference (2025)
[8] The UK Government uses the term greenhouse gas removals, which incorporates carbon dioxide removals.
[9] Idemitsu – Idemitsu Invests in Fund Focused on Carbon Dioxide Removal (CDR) (2025)
[10] Carbon Direct – We are proud to announce a strategic collaboration between Sumitomo Corporation and Carbon Direct (2025)
[11] Trellis – Japanese corporate heavyweights boost carbon removal market (2025)
[12] The Integrity Council for the Voluntary Carbon Market – Governance Body Formed by the Taskforce on Scaling Voluntary Carbon Markets Announces New Leadership, Will Appoint Representatives from Indigenous Groups (2021)
[13] Green Finance Institute – The Investment Readiness of Carbon Dioxide Removals in the UK – A Preliminary Assessment (2025)
