Source: U.S. Department of Energy


The Power of Procurement: Scaling the carbon dioxide removal market

C2ES recently submitted comments in response to the U.S. Department of Energy’s (DOE) Notice of Intent (NOI) to launch a Voluntary Carbon Dioxide Removal Purchasing (CO2 RP) Challenge. This blog provides an overview of how the CO2 RP Challenge leverages the CDR Purchase Pilot Prize, a key federal carbon dioxide removal (CDR) procurement initiative, and summarizes our comments on the CO2 RP Challenge’s NOI. Our comments to the NOI incorporate insights we have generated through discussions with our engineered carbon removal technology working group and our Business Environmental Leadership Council (BELC).

Snapshot: Federal CDR Procurement & Enablement of Private Purchasing

Gigaton levels of CDR are needed by midcentury to realize net-zero emission targets and avoid the worst impacts of climate change. A growing set of technology developers are making real progress in scaling a range of nascent CDR approaches that can help meet those targets.  To achieve this, the world must scale an entirely new industrial ecosystem around carbon removal technologies, including carbon removal offtakers, utilization pathways, and supporting infrastructure. All players will need to “lean in” during this nascent stage of the industry by making new types of investments, loans, and advanced purchases of these first-of-a-kind carbon removal technologies.

Both the Infrastructure Investment and Jobs Act (IIJA) and the Inflation Reduction Act (IRA) provide R&D funding and tax incentives to help “push” CDR technologies through the innovation cycle and into the market. Simultaneously, the DOE is exploring ways to “pull” CDR technologies into the market by creating reliable and growing demand. One way is through federal procurement.

As the largest purchaser of goods and services in the world, the U.S. federal government has a long history of harnessing its procurement power to accelerate the development and commercialization of new technologies and services, such as vaccines. In September 2023, the DOE launched the CDR Purchase Pilot Prize, which dedicates $35 million for a first-of-a-kind initiative by the U.S. federal government to directly purchase permanent CDR from domestic providers. The CDR Purchase Pilot Prize includes applicants across four CDR verticals:

  1. Direct air capture (DAC)
  2. Biomass with carbon removal and storage (BiCRS)
  3. Enhanced geological weathering or mineralization
  4. Alternative planned or managed carbon sinks

To complement the CDR Purchase Pilot Prize, in March 2024, the DOE announced a NOI to launch a CO2 RP Challenge, an initiative intended to catalyze purchasing of CDR by a broader range of actors. Any organization or government that discloses its greenhouse gas inventory can join the CO2 RP Challenge by purchasing a small and growing volume of permanent CDR in any of the four categories of the CDR Purchase Pilot Prize. Buyers will choose from a pre-vetted pool of 25 semifinalists from the CDR Purchase Pilot Prize that will grow as the DOE includes “next wave” applications of high-quality CDR sellers.

The CO2 RP Challenge addresses several barriers that C2ES has discussed in our engineered carbon removal technology working group, which is currently focused on the topic of market-enablement. Key barriers include onerous and unstandardized purchasing processes, carbon removal credit integrity concerns, and buyer unfamiliarity with removal technologies. The DOE plans to use the CO2 RP Challenge to set norms for what qualifies as a high-quality CDR credit and what monitoring, reporting, and verification (MRV) methods and protocols are appropriate for CDR suppliers. They also plan to collaborate with the national labs to conduct rigorous technical due diligence on CDR project developers, ensuring that any developers included in the pre-vetted pool have a high chance of producing durable carbon removal in the near term.

C2ES Position on the Role of Carbon Removal in Corporate Strategy

C2ES has long been a champion of market-based approaches to tackling climate change, including carbon pricing and the responsible use of high-integrity carbon credits. We are part of the Executive Secretariat of the Integrity Council for the Voluntary Carbon Market (ICVCM) and serve as the secretariat for the Energy Transition Accelerator (ETA), a high-integrity carbon finance platform focused on mobilizing private capital into developing and emerging economies. C2ES believes carbon credits should adhere to the ICVCM’s Core Carbon Principles and that the use of credits by companies to meet voluntary commitments should follow best practices laid out by the Voluntary Carbon Markets Integrity Initiative (VCMI). We also believe that carbon removal should be treated as a necessary complement to industrial decarbonization and the transition to clean energy. C2ES shares the DOE’s position, articulated in the NOI, that CDR “is best viewed as part of a decarbonization portfolio that first achieves maximum emissions reductions from existing sources.”

Overview of C2ES Comments to the CO2RP Challenge

C2ES is highly supportive of the CO2 RP Challenge and believes it will provide much needed standardization and clarity for buyers and sellers of carbon removal.  However, there are several ways that the CO2 RP Challenge could adjust its approach to ensure it adequately addresses certain knowledge gaps and does not inadvertently hinder the very market it seeks to catalyze. A subset of our recommendations is provided below.

Given that this is a nascent market, there is a need to provide buyers with more foundational education on CDR credit purchasing. To address this, we’ve recommended that the DOE create a “Buyers Workshop” series to educate CO2 RP Challenge participants on key definitions, best practices, and the contracting process(es) for a CDR credit purchase agreement. Creating a credible educational forum where current and prospective buyers can ask questions and share lessons learned will elevate the knowledge base and discernment of all buyers.

Related to best practices, C2ES also urged the DOE to offer non-prescriptive guidance on how a buyer participating in the Challenge could build a portfolio across the four different CDR verticals within the competition. Our discussions with companies indicate that most prefer taking a portfolio-based approach to CDR purchasing because it enables them to diversify risk while maximizing emissions impact. Since the CDR Purchase Pilot Prize and the CO2 RP Challenge are already taking a portfolio approach by evaluating and purchasing credits from four different removal pathways, this could be a good opportunity for the DOE to showcase best practices for building those portfolios.

Another theme of our recommendations is the need to add flexibility to ensure the CO2 RP Challenge evolves alongside the dynamic CDR industry. In its current form, the CO2 RP Challenge plans to publish standard term sheets and purchasing templates. However, the CDR industry is still nascent, and most purchasing contracts are bespoke. We’ve encouraged the DOE to designate these initial model CDR credit purchasing templates and term sheets as “version 1.0” and regularly update them as the CDR industry continues to evolve. CDR suppliers and buyers have evolved their contracts multiple times over the past few years, and there is concern that it may be too early to create a standard template.

Additionally, the CDR industry is rapidly developing, and there are several new durable carbon removal pathways outside of the four areas of focus of the existing CDR Purchase Pilot Prize. A key question is whether the DOE plans to expand the scope of future versions of the CDR Purchase Pilot Prize (and by default the CO2 RP Challenge) to include novel forms of CDR as they emerge. This information will be especially pertinent given the recent congressional appropriation of $20,000,000 to continue the CDR Purchase Pilot Prize in fiscal year 2024.

C2ES’s full comments can be viewed here, which include additional recommendations on education and flexibility, as well as considerations of risk management & price transparency. Later this year, our engineered carbon removal working group will be releasing a set of broader policy recommendations and actions that will enable further scaling and responsible deployment of this critical path technology.

Responsibly scaling CDR technologies will be key to avoiding the worst impacts of climate change. Technological advances will be crucial to delivering on that promise and will require significant demand-side support to scale supply chains and the broader market ecosystem. The DOE’s CO2 RP Challenge has the potential to serve a catalytic role in crowding in the significant volumes of private capital needed to reach gigaton scale of CDR deployment.