By Siyu Feng, Joseph Stemmler, Diarmid Roberts and Mark Workman – CO2RE
This blog is Part 1 in a three-part series about how better decision-making tools can help the UK CDR sector to scale up. Read Part 2 here and Part 3 here.
To hit net zero by 2050, Britain must build a technology sector from scratch – one capable of pulling millions of tonnes of CO₂ from the air every year. The clock is ticking, and the policies enacted so far are unlikely to be enough.
Cutting emissions alone will not be enough to meet the UK’s legally binding 2050 net zero target. Some emissions are simply too difficult or costly to eliminate entirely: for example, those from long-haul aviation, agriculture or certain industrial processes. To compensate, the UK needs to actively remove carbon dioxide that has already entered the atmosphere.
The scale of this challenge is daunting. Government projections suggest the UK will need to remove at least 80 million tonnes of CO₂ per year by 2050. Of this, just under half is expected to come from the enhancement of natural sinks, e.g. reforestation or restoring peatlands. The rest will need to come from engineered removals. These include direct air capture, which uses chemical processes to pull CO₂ straight from the air, and which CO2RE researchers have looked at in a new study. But they remain expensive, and the industry deploying them is still in its infancy. The UK has committed to building a carbon removal sector from a standing start. It has the ambition. What it needs now is the right playbook.
The policy toolkit
Since 2019, the UK government has channelled over £2 billion (indirectly) and over £100 million (directly) into establishing the sector via supply-side grants. In terms of market development, its main proposed tools are 1) integration of negative emissions credits into the UK Emissions Trading System – essentially paying companies to remove carbon to offset other companies’ emissions – and 2) the introduction of Carbon Contracts for Difference (CCfDs), which are long-term contracts that guarantee a set price for each tonne of CO₂ removed.
These are sensible first steps. But researchers at CO2RE have found that these policies alone are likely insufficient to attract the private capital that start-ups in this sector urgently need. The gap between what exists and what is required – in both investment and ambition – is significant.
Why the CDR sector is different
Carbon removal is not like building another data centre or conventional infrastructure. The sector is so nascent, technologically heterogeneous, and fraught with information asymmetries and deep uncertainty, that it is too early to tell how the politics and economics of carbon removal will interact, and whether the public will accept these interactions. There is uncertainty about who pays for negative emissions, and the market is running ahead of regulation, policy and market frameworks. Moreover, our understanding of what is best practice for a long-term, sustainable net-zero trajectory is limited. It does not help that we lack the sector-wide visibility of CDR research, project activities and investment programmes we need to enable the whole-of-system insights required to design systemic interventions.
A thriving CDR sector therefore requires coordinated, long-term investment decisions under deep uncertainty. Companies considering entering the market cannot easily predict future demand or prices. Investors cannot yet point to proven, at-scale examples of success. The technology is real, but it is still on the early, steep part of its learning curve, meaning costs are high now but could fall dramatically with the right conditions.
So, how can companies, investors and policymakers deal with the sector’s deep uncertainty? At present, academia and consultancies often apply what is called a single-factor learning curve (SFLC) to predict how the cost of a technology will decrease as production increases. The problem is that in the real world, there are multiple factors (or drivers) affecting the cost of a technology and what is learned as production ramps up. These drivers are poorly quantified, despite wide recognition of their impact on cost. Each driver is stimulated by policy and standards interventions by policymakers, to which firms then allocate strategic investment. The dominance of SFLCs in academia and consultancy, when what is really needed are multi-factor learning curves (MFLCs), means there is a real danger of poorly informed policies holding the CDR sector back.
This “learning curve” dynamic is at the heart of why policy design here is so consequential – and so difficult. And it is exactly what a new CO2RE study is attempting to map with greater precision than ever before. That is what we will seek to explore in Part 2.
Photo by Kanhaiya Sharma on Unsplash.
