To stabilise global temperatures, greenhouse gas emissions from human activities, including energy use and agriculture, must fall to zero. But technological constraints make eliminating all emissions exceptionally difficult, and no major economies are on track to achieve that goal. That means that carbon removals – the removal and durable storage of CO2 that has already been emitted – will play a crucial role. Absolute zero emissions might be impossible, but net zero is not.

However, a significant gap currently exists between the pace of carbon removal project development and what is required to get to net zero. To bridge the gulf, we believe three key things must happen:

1. Carbon removals must be monetised, with compliance and voluntary carbon markets putting a monetary value on less CO2 in the atmosphere, which governments and companies must be willing to pay.
2. Governments should set national carbon removal targets, provide sufficient incentives and use their purchasing power to stimulate demand.
3. Developers need to deliver projects at cost levels that make removals an attractive option based on expected future carbon prices.

In this month’s Horizons, we look at how carbon removals are emerging as an investment opportunity, the challenges that must be overcome and what investors and governments can do now to scale up solutions.

Carbon removals – also known as carbon sinks or carbon dioxide removals (CDRs) – deliver net negative emissions either through natural processes, such as afforestation and soil carbon, or engineered solutions, such as direct air capture with carbon storage (DACCS) or bioenergy with carbon capture and storage (BECCS).

Nature-based solutions offer greater potential for scale at a lower cost per tonne. Many deployment opportunities are available at cost levels below US$100/tonne, compared with engineered solutions which currently range between US$100 and US$1,000/tonne. High-emitting countries with large land and natural resource availability – such as the US, Brazil, China, Indonesia and India – are in a good position to drive nature-based project deployment.

To date, most of the few removals attributable to human intervention have been generated by afforestation, reforestation and restoration (ARR) projects, and 110 million tonnes of carbon dioxide equivalent (MtCO2e) in annual capacity is registered with voluntary carbon standards. However, scarce resource limitations and competition dictate that scaling to the 8 BtCO2e removal required for net zero in 2050 will require a variety of project types, with some reaching gigatonne scale.

To this end, a host of promising novel approaches and technologies have emerged . The project types exhibit wide variation with respect to their stage of development, cost, policy support and implementation readiness.

Despite financial commitments from a few of the world’s wealthiest companies, carbon removals remain risky because of inconsistent policy support, limiting widespread private investment. Government policy and incentives are the driving force behind the sharp rise in planned engineered projects across North America and Europe, which host over 95% of capacity announced to date. To deliver on the required scale, nature-based solutions will require greater support from governments around the globe.

Trust in voluntary carbon markets and a role for removals in compliance markets

Carbon markets are the primary mechanism for translating emissions mitigation from removals into a monetisable commodity. With a carbon price , governments and companies would be able to put a monetary value on having less CO2 in the atmosphere. Companies need to be willing to pay for this in the voluntary market, while governments could create a regulated mandatory market, where companies can trade removal credits.

We see an increasing role for removals in compliance markets . Japan pioneered the inclusion of engineered carbon solutions in its emissions trading scheme (ETS) in 2024 and looks set to be followed by the European Union (EU) ETS, through the EU’s Carbon Removal Certification Framework. The UK is also considering removals for its ETS, including nature-based solutions.

These will provide companies with an alternative way to offset their obligations under mandatory carbon pricing schemes and likely result in increased removals demand. However, phased implementation – with regard to the type and number of removals allowed – is likely to limit the impact this decade.

In the near term, the voluntary carbon market remains critical to scaling up carbon removals, although it is unlikely to deliver on the gigatonne scale needed. While avoidance and reduction projects have received the lion’s share of funding in the past, removals are gaining traction for their higher perceived quality. Nature-based solutions are usually more liquid because of their cost advantage, but engineered removals have recently been allowed by major registries (for example, Verra and Gold Standard) and are starting to trade.

Our forecasts show that currently committed voluntary carbon market participants will demand more than 1.7 BtCO2e a year of avoidance and removal carbon offsets by 2050. Demand could more than triple if the controversial issues of market integrity, trustworthiness of monitoring, reporting and verification, and offset quality are resolved quickly. Actions are on governments – for example, with clear guidelines around Article 6 of the Paris Agreement – as well as registries and standard-setting bodies, such as the Science Based Targets initiative (SBTi).

Governments need to weigh in with targeted actions

First, governments can set national removal targets. Crucially, these should be in addition to, or at least separate from, existing emissions reduction targets. Finland, Sweden, Denmark and Germany have set the example with net-negative commitments. The EU has set out a strategy whereby land-based and industrial carbon removals should remove up to 400 MtCO2e by 2040.

Second, countries must back up those targets with direct financial support for removal projects. Options deployed to date – albeit at a relatively small scale – are tax credits, development grants, project financing, contracts for difference and feed-in tariffs.

Third, governments can use their purchasing power to stimulate demand. Examples include the US Department of Energy’s commitment to buying US$35 million of removals and the Danish government’s tender for 0.5 Mtpa of negative emissions. Government-to-government trading could equally be a win-win in meeting climate targets, while also achieving better global equity – for example, Global North governments buying high-quality removals from the Global South.

Developers need to deliver the right cost levels

Carbon removal project costs are key. BECCS and biochar projects can range from US$80 to US$300/tonne depending on the CO2 or feedstock source. Meanwhile, early, small-scale DACCS projects range from US$600 to US$1,200/tonne, with the next generation of projects expected at US$300 to US$500/tonne.

All of these costs are too high for the market to bear. Our 2030 carbon price forecast for developed economies sits at US$73/tonne for compliance markets, with developing economies at just US$15/tonne. Without significant cost reductions, the voluntary market for engineered removals will not expand beyond a handful of deep-pocketed buyers.

We don’t see a clear pathway to the hallowed cost level of US$100/tonne for DACCS and believe US$250 to US$350/tonne to be a more realistic range for projects in the 2030s. This is still a big improvement from current levels and one that will require a combination of impacts: supply-chain optimisation, a step-change in energy consumption, larger project sizes and the application of next-generation capture technologies.

In contrast to engineered solutions, nature-based removals may face cost increases. Factors such as land access, the increasing value of nature, and increased reporting and regulatory requirements could all drive up costs in some regions. In these instances, demand will depend on developers ensuring removals are high quality and buyers placing warranted value on the broader sustainability and environmental benefits of nature-based solutions.