The carbon removal industry is in a rut.
Last year, companies with climate targets purchased about 8 million tons of future carbon removal — an impressive 78% increase from the year prior, according to the sales tracking site CDR.fyi. And yet 80% of those purchases were made by the same three entities — Microsoft, Google, and Frontier — that have been more or less singlehandedly supporting the industry since its inception. The number of new buyers entering the market declined by 18%.
“Demand is the greatest existential threat for the carbon removal industry,” Giana Amador, the executive director of the Carbon Removal Alliance, an industry group, told me. “These companies are developing technologies that don’t really have a natural customer. There are corporates who are purchasing carbon removal as part of their sustainability strategies, but buyers at scale are few and far between.”
That was all set to change when the Science Based Targets initiative, a nonprofit authority on best practices for corporate sustainability, released its revised Net Zero Standard — or at least that was the hope. The influential group had not previously given companies any direction as to whether they should be buying carbon removal in the near-term, and was widely expected to get more explicit about the need to do so. But while SBTi’s new draft standard, which was finally released on Tuesday, takes a step in that direction, it may not go far enough to make a difference.
As the name implied, SBTi’s previous Net Zero Standard assumed that companies would have to purchase carbon removal eventually — “net-zero emissions” means pulling carbon out of the atmosphere to offset emissions that can’t be eliminated at the source. The standard was designed to align companies with the Paris Agreement goal of limiting global warming to as close to 1.5 degrees Celsius as possible, and it expected companies to hit net-zero by 2050. But it didn’t say anything about what companies should do with regards to carbon removal between now and then.
As a result, many companies have interpreted that as “they shouldn’t or don’t have to buy carbon removal credits until 2049,” Lukas May, the chief commercial officer and head of policy at Isometric, a carbon removal registry, told me. “And potentially it’s even a bad thing if they did it before then because it might be considered a distraction from their decarbonization. And they certainly don’t get any credit for it from SBTi.”
The problem is that it may not be possible to remove the required amount of carbon from the atmosphere in 2049 if more companies don’t start paying for it now. Startups need demand to finance first-of-a-kind projects, learn from their mistakes, discover efficiencies, and scale. While the U.S. government has some funding available, it’s not enough.
Amador said she’s had conversations with potential carbon removal buyers who have been waiting on the sidelines, in part to see what SBTi would say. They are deterred by the cost, but they also want to make sure that if they do jump in, their investment will be viewed by this third-party authority as meaningful so that they avoid accusations of greenwashing. “I think there are a lot of companies who need to know that this is a core component of what counts as their net zero strategy, and they’re holding off on buying until they have greater clarity,” Amador told me.
But SBTi is in a precarious position. Some companies are starting to back away from their climate plans. Big tech, which once led the pack on climate, is now focused on developing AI and building data centers at the expense of increased emissions. Environmental, social, and governance strategies, or ESG, are now often viewed as more of a liability by investors than a selling point — not to mention a political risk in the U.S. under the Trump administration. Top corporate supporters of the American Is All In coalition, a group committed to upholding the Paris Agreement, recently refused to sign a letter reiterating that commitment. If SBTi’s new Net Zero Standard is viewed as too onerous or expensive to comply with, it’s easy to imagine companies deciding to walk away from it altogether.
In the proposal published Tuesday, SBTi proceeded with caution. In the section on carbon removal, it described several potential approaches of varying ambition. The first was to require that companies begin procuring carbon removal in 2030, starting with enough to offset just 5% of what they expect their residual emissions will be in 2050, and ramping up over time. The second was for companies to set their own voluntary near-term carbon removal targets and receive extra “recognition” from SBTi for doing so. The third approach would give companies more flexibility either to purchase carbon removal beginning in 2030, or to get ahead of schedule on their emission reductions, or to do some combination of the two.
It’s normal in draft proposals to see options with varying levels of ambition. But in this case, it’s not clear that even the first option is an ambitious goal. That’s because it would only apply to companies’ “Scope 1” emissions, the emissions a company has direct control over. Most of the companies that have sought out SBTi’s stamp of approval in the past have very small Scope 1 emissions. Take Apple, for example: Less than 1% of its emissions are Scope 1. The vast majority of its carbon footprint comes from the third parties that produce and ship its products and customers using the products — also known as “Scope 3” emissions.
Robert Hoglund, a carbon removal advisor who co-founded CDR.fyi, published a newsletter on Tuesday, in which he argued that the companies with significant Scope 1 emissions, such as those in aviation, shipping, heavy industry, and mining, have mostly ignored SBTi so far, and regardless, are less able to pay for carbon removal than companies further downstream. By his analysis, among the top 200 companies in the world, the 25 biggest Scope 1 emitters made annual average profits of $85 for every ton of carbon they released across all Scopes. The remaining companies made an average of $32,000.
“The downstream companies, especially in high-profit, low-emission sectors like finance, insurance, and tech, are needed to fund CDR efforts,” he wrote. “If only Scope 1 emissions are required to set interim targets for, then the durable CDR sector will likely fail to scale fast enough in the coming decade. This would risk giving us a lost decade ahead, jeopardising our ability to reach net zero.”
SBTi proposed several other important updates to the Net Zero Standard. Companies buying carbon removal may have to use a “like for like” approach, for instance, purchasing removal services that are as durable as the specific greenhouse gas they release in the atmosphere. In other words, carbon emissions would have to be offset with removals that last a thousand years, while nitrous oxide emissions could be offset with shorter-term removals. The group also recommended a deadline of 2040 for companies to move to low-carbon electricity.
Feedback on the draft is due by June 1, after which the group’s technical department and expert working groups will refine it. There may be another round of public consultation before a final draft goes to SBTi’s board for approval, the group said. It expects companies to begin using the new standard to refine their targets in 2027.
