Three countries positioned to lead on government procurement of carbon removal
Governments can use procurement as a policy lever to shape the future of the CDR industry. The question is - who will lead?
Last week I published a report with CarbonPlan exploring what stakeholders in the carbon dioxide removal1 (CDR) sector perceived to be the most important barriers to scaling up this nascent industry. One common perspective among stakeholders was the recognition that while the private sector has played a critical role in accelerating CDR so far, the public sector needs to take on a larger role to grow the CDR industry over the long term. Thoughts on what exactly that role should look like, however, diverged across the 37 stakeholders we interviewed for the report. Some thought the government should establish quality standards and a carbon price and allow the market to lead CDR scale-up. Others thought the government should use tax incentives and research and development funding to crowd in private investment. And finally, some thought the government should just procure CDR outright. That last one piqued my interest.
In a recent newsletter from carbon removal NGO Carbon180, Policy Advisor Maya Glicksman states the “federal government must proceed boldly by directly purchasing … [CDR]” because “a full-fledged federal procurement effort is the most direct policy pathway to scale [CDR] not just quickly, but well.”
Carbon180 is on to something. Existing revenue sources for CDR companies, like voluntary corporate purchases, can stimulate early commercialization but are not necessarily well suited to provide the long-term purchase agreements that CDR companies require to grow to megaton scale and beyond. Existing policies such as tax credits are not high enough to cover the eye-watering cost per ton of today’s CDR projects, and they can be easily revoked as political winds change, making them a somewhat unpredictable revenue source. But, as Carbon180 points out, government procurement programs can provide predictable, long-term revenue to CDR companies while also being an impetus for improving CDR quality. Not only by requiring that robust third-party standards are in place, but that meaningful community engagement and labor standards have been incorporated to ensure responsible CDR project deployment.
Early mover governments that use this policy lever can help shape the future of the CDR industry, even if they are starting with relatively small procurement volumes (that increase over time) at higher initial price points (that decrease over time). In this way, governments can help move CDR down the cost curve. They can set a high bar for quality and responsible deployment of CDR projects, stimulating a “race to the top” among CDR project developers to meet those standards (as opposed to the “race to the bottom” we frequently see in voluntary carbon markets).
Whether this potential can be realized will depend on how public sector procurement programs are designed, and will require some degree of imagination and risk-taking by policy makers. We are very much at the conceptual stages of implementing government CDR procurement programs, but from the looks of it, these three countries are positioned to be early movers:
Sweden is cashing in on its potential as a European leader in bioenergy with carbon capture and storage (BECCS) by announcing a $192 million BECCS procurement scheme through a reverse auction process, potentially funding hundreds of thousands of CO2 removal per year. Robert Hoglund offers a comprehensive rundown of the benefits and limits of this announcement, including what makes Sweden an excellent BECCS location, and some of the tensions around the sustainability of BECCS deployment.
The United Kingdom’s Department for Business, Energy, and Industrial Strategy is engaging in a public consultation on different business models for accelerating investment in engineered CDR. The government appears to be leaning towards contracting with CDR developers directly to provide the long-term revenue stability and predictability they need. This document covers the government’s thinking to date, as well as the benefits and drawbacks of different contracting schemes. Wherever this lands, I’m sure it will benefit the country’s existing CDR initiatives, as well as new projects in the pipeline that have recently received government support.
Two CDR procurement bills have been introduced in the United States. The Federal CDR Leadership Act (CDRLA) and the CREST Act2. The Carbon180-supported CDRLA appears to be more ambitious, with a procurement budget of $27.5 million in the first year (at a cost capped at $550/ton), $10 billion over 12 years, and $1.5 billion a year thereafter. The CREST Act, with some bipartisan support, sponsored by Senator Susan Collins and Senator Maria Cantwell, provides $230 million in funding over 5 years for procurement, starting with $20 million in the first year. The Bipartisan Policy Center has an excellent side-by-side comparison of the two bills. It’s not clear whether either of these bills will move forward in Washington’s divided political environment. However, the relatively small procurement funding in early years for both bills suggests that governments need not take huge financial risks at the outset to establish themselves as leaders in CDR procurement.
It’s important to note that this composition of countries can certainly change as the above efforts are still in their early stages. Government procurement of CDR at the federal level may not end up going very far, but the conversation is certainly further along than I thought it would be at this point last year. While this is all very exciting, there are some important challenges to grapple with:
The lack of third-party standards exposes governments to paying for poor performing CDR projects. That said, government procurement of CDR can be the forcing function the industry needs to get meaningful third-party standards developed and in place.
Accurate price discovery is hard to come by in such a nascent industry. What is a fair price for the government to pay for CDR when so little of it has been deployed and the market for it barely exists?
The supply of durable CDR is notoriously low at the moment, as many CDR companies are still deploying their first-of-a-kind plant. One potential solution is for private-sector led funding commitments like Frontier, First Movers Coalition, or the NextGen CDR Facility to feed successful, high quality CDR projects into public procurement programs in the future, creating an off-ramp for CDR companies that have benefited from these private-led initiatives.
It is important not to become too dependent on one type of technology so that as CDR innovation improves, government procurement can pivot towards supporting new and better technologies. Governments should avoid being too prescriptive around funding specific technologies early on, and should set aside funds to support smaller projects that are experimenting with new approaches to CDR. This is another crucial value add of private sector led funding mechanisms - they can support new, experimental approaches to CDR that the public sector may not be ready to take a risk on.
Governments who want to build a thriving CDR industry while ensuring responsible, high-quality deployment of this climate solution should consider procurement as an impactful policy lever to get there. Governments who move early to do adopt CDR procurement policies can be especially catalytic. The early price of admission does not have to be high - countries can start procuring relatively small volumes, establish checkpoints to take stock of what they learn, and course-correct procurement programs as needed. Over time, as best practices emerge, more countries can follow suit. One can even imagine a fund where multiple countries pool their funds to scale-up CDR globally, similar to mechanisms used to scaled up vaccine production that have saved countless lives around the world.
Thanks to early bets on CDR by the private sector, we have the early makings of a CDR industry. Now, scaling up CDR to drive down costs, improve quality, and ensure responsible deployment to ultimately meet our climate goals is going to require ambitious policies from the public sector - including government CDR procurement.
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By carbon dioxide removal, I am referring to the process of removing carbon dioxide from the atmosphere and durably storing it away from the short carbon cycle. See this article for more.
These are federal procurement bills, but it’s worth looking at New York State’s Carbon Dioxide Removal Leadership Act. Here’s an interview with Toby Bryce at OpenAir Collective on that effort.