Unlocking the Trillion-Dollar Potential of Carbon Dioxide Removal
The Path to a $1.2 Trillion Industry by 2050
September 2024
Unlocking the Trillion-Dollar Potential of Carbon Dioxide Removal
The Path to a $1.2 Trillion Industry by 2050
The Intergovernmental Panel on Climate Change (IPCC) emphasizes that carbon dioxide removal (CDR) is crucial for achieving net zero by 2050. To claim net-zero status under the Science Based Targets initiative’s (SBTi) Corporate Net-Zero Standard, companies must neutralize any residual “hard-to-abate” emissions that remain after exhausting all decarbonization actions. By 2050, CDR competency could become a core management responsibility across sectors.
Most Paris-aligned net-zero scenarios project substantial CDR capacities, with estimates ranging from six to ten gigatons of annual CO2 removal by 2050. To achieve these scenarios, efforts must begin immediately.
Closing the removals gap requires a range of CDR solutions, including nature-based removals (NBR) and technology-based removals (TBR). NBR offers a cost-effective path to increasing near-term CDR capacity, while TBR delivers more durable removals. Accelerating the scale-up of durable TBR requires near-term investment and innovation to reduce costs.
Projections based on announced carbon dioxide removal (CDR) projects indicate potential investments of $100 billion to $400 billion by 2030, according to McKinsey estimates. However, these figures fall significantly short of the investment required to align with net-zero targets. Analysis suggests that cumulative investments of $0.5 trillion to $2.0 trillion are necessary by 2030 to provide the momentum needed for the industry to scale effectively. This early-stage investment is crucial to pave the way for the estimated $6.0 trillion to $16.0 trillion in total investment required by 2050 to achieve net-zero goals (Exhibit 1).
Exhibit 1
Achieving Net Zero by 2050 Requires Massive Investment in CO2 Removal
Cumulative investment, in trillions of US dollars
Note: Uncertainty ranges reflect variations in cost and volume estimates, influenced by the likelihood of climatic-need scenarios relying on technology- or nature-based removals. Historical investment data represents actual investments up to 2022, with the upper bound incorporating estimates of unannounced investments. The assumption is that investment will precede capacity deployment, with lead times of up to 3 years for bioenergy with carbon capture and storage and direct air capture and storage, 2 years for biochar and other technology-based solutions, and 1 year for nature-based solutions.
Source: McKinsey & Company, Intergovernmental Panel on Climate Change, Avoraz Analysis
Given the anticipated rollout of announced carbon dioxide removal (CDR) projects, the market size is projected to reach $40 billion to $80 billion by 2030. Should the demand for CDR credits scale adequately to meet the volumes required for net-zero-compatible climate targets by 2050, it is estimated that annual revenues from the CDR industry could soar to between $300 billion and $1.2 trillion (Exhibit 2).
Exhibit 2
Carbon Removal Market Could Hit $1.2 Trillion Annually by 2050
Market size ranges, in billions of US dollars
Note: Variability in estimates stems from uncertainties in pricing and volume projections, as well as the potential balance between technology-based and nature-based removal solutions in climate mitigation scenarios. The current market size is based on verified 2022 transactions, with the upper limit accounting for estimated undisclosed or unannounced purchases. The projected net-zero market size assumes voluntary market pricing structures.
Source: McKinsey & Company, Intergovernmental Panel on Climate Change, Avoraz Analysis