Market background

The carbon credit market enables the trading of carbon credits, which represent the removal or reduction of one metric ton of CO2 or equivalent greenhouse gas from the atmosphere. This market has historically been dominated by projects focused on avoiding or reducing future emissions, such as protecting forests or transitioning to renewable energy. While valuable, these initiatives are insufficient to address the vast amount of carbon dioxide that has already accumulated in the atmosphere over centuries of industrial activity.

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Avoidance and reduction alone cannot remove the 2.2 trillion tons of CO2 already in the atmosphere. Current efforts are insufficient: we are still emitting over 50 gigatons of CO2 annually and even with net-zero emissions, temperatures will continue to rise.

Carbon markets exist in two primary forms: compliance markets, which are government-regulated and used to meet mandatory emission reduction targets, and voluntary carbon markets (VCM), where companies and individuals can choose to offset their emissions. Nearly all carbon dioxide removal (CDR) today is purchased through VCM. About 23% of global emissions are currently covered by a carbon price, indicating significant room for growth in both compliance and voluntary markets.

Within this broader carbon credit market, CDR is emerging as a crucial complement to emission reduction efforts. CDR involves actively removing CO2 from the atmosphere and durably storing it, effectively reversing historical emissions. Despite the necessity of CDR in achieving net-zero targets, the current market remains nascent and fragmented.

As of 2022, the CDR market was relatively small at just ~600 kt (kiloton) CO2 but has seen significant acceleration in 2023 with large purchases from companies like Microsoft, J.P. Morgan, and NextGen. However, the projected available supply of durable CDR in 2030 is limited to ~15-32 Mt (Megaton) CO2 across a few announced large-scale projects, primarily consisting of bioenergy with carbon capture and storage (BECCS), direct air capture and storage (DACS), and enhanced weathering.