Carbon dioxide removal: Latest developments

This article was co-authored with Charlie Bevis.

Following the proliferation of emissions reduction targets adopted in recent years, the scale and pace of decarbonisation required to reach net zero by 2050 is becoming clearer, as well as the unique difficulty that hard-to-abate emissions will pose. The "net" in net zero will inevitably rely on the ability to remove carbon from the atmosphere, and accordingly the concept of carbon dioxide removal (CDR) is increasingly receiving greater focus.

It is estimated that as much as 10 billion tonnes of CO₂ equivalent will need to be removed from the atmosphere annually by 2050 to keep global warming below 1.5oC.¹

New, novel forms of CDR are now being developed as pilot projects, with the hope that commercialisation at an acceptable cost will ultimately be achievable within the required timescales.

In this update, we outline the types of CDR, explore the current market trends for CDR credits, and consider what is needed to scale the market.

• Types of CDR
• State of the CDR market
• Barriers to scaling and how the private market is helping address those barriers
• Conclusion

Types of CDR

CDR covers a range of technologies and activities which remove CO₂ from the atmosphere and store it over a long period of time. This is in contrast to 'emissions avoidance', which prevents the initial release of CO₂ (such as replacing fossil fuels with renewable energy) or 'carbon reduction', which reduces the amount of CO₂ a facility or activity emits (for example, by capturing fugitive emissions from coal mines).

There are two main categories of CDR activities: nature based and engineered.

Nature based solutions include activities such as tree planting, peatland restoration or regenerative agriculture which increases the carbon stored in biomass. Emerging opportunities include activities such as mangrove protection or restoration and seaweed farming.

In recent years, new forms of CDR have been developed which can remove and store CO₂ for far longer periods of time. These generally rely on expensive technologies (and therefore demand greater upfront capital). These types of engineered CDR include:

• the production of biochar (treating organic material so that it stores CO₂ in a stable state);
• bioenergy with carbon capture and storage (BECCS) (which generates heat from biomass combustion and then stores the emitted CO₂ in geological formations); and
• direct air capture (DAC) or direct air carbon capture and storage (DACCS) (which draws CO₂ from the atmosphere to store in geological formations).

Collectively, these types of activities are known as "novel CDR",² and they have the potential to vastly increase global CDR capacity if they can be undertaken commercially and at scale.

State of the CDR market

The CDR market has recently received significant attention as governments and private entities realise the importance of CDR projects, and especially 'novel CDR', to achieving net zero.

For example, earlier this year, the Science Based Targets initiative released a draft update of its corporate net zero standard with three potential options for entities to report CDR used to offset residual emissions.³ Meanwhile, in July 2025, the UK Government responded to a recent review on the scaling up of carbon removal deployment by announcing it will legislate the integration of CDR into the UK Emissions Trading Scheme (UK ETS) by the end of 2028.⁴ It is expected that, if even 1 per cent of UK ETS obligations are satisfied using CDR, it will create an annual market equivalent to USD 53 million.⁵

Likewise, the Paris Agreement Crediting Mechanism (PACM) has prioritised CDR projects, as shown by the PACM Supervisory Body's release of a standard which sets out the requirements for activities involving carbon removal under the Article 6.4 mechanism.⁶

Despite this breadth of interest, however, the pool of purchasers of CDR credits has remained surprisingly narrow and is primarily dominated by large technology and finance companies. In the first half of 2025, the most active purchasers were Microsoft, Sumitomo Corporation, Lego, JP Morgan Chase, EmitiQ, Google, SkiesFifty, Frontier (an 'advance market commitment' founded by Stripe, Alphabet, Shopify, Meta, McKinsey and others),⁷ Wild Assets and Supercritical.

Microsoft's dominance is difficult to overstate. It is the all-time largest purchaser of CDR at nearly 50 million carbon removal credits (with the next largest buyer, Meta, having purchased less than 10 million credits).⁸ In Q2 of this year, there were five "megatonne" deals (ie for abatement of more than 1 million tonnes of CO₂ equivalent). Microsoft was the purchaser for each of them.⁹ Microsoft's outsized role is shown in the graphic below which depicts CDR deals announced in the first half of 2025:¹⁰

Source: Bloomberg Green

Whilst the market is slowly diversifying (in the first half of 2025, of 89 entities purchasing CDR credits, 48 were first-time buyers), the concentration of CDR purchasing amongst relatively few entities is partially explained by the high cost of the underlying technologies. For DACCS and BECCS projects, the cost of abating a single tonne of CO₂ can be as much as USD 15-400 and USD 100-300, respectively. For comparison, AlliedOffsets found that the price of the nature based credits it tracks more than doubled between January and July this year, yet remain only around USD 35 per unit.¹¹

The below graphic depicts the contrast in CDR credit price and volume by various technologies in the first quarter of 2025:¹²

Source: AlliedOffsets

On the supplier side, it is BECCS sellers who are dominating. In fact, four of the five "megatonne" deals we previously mentioned had BECCS as the underlying abatement technology. It is particularly popular as it is deemed more 'ready' to implement than other forms of novel CDR and in countries like Sweden, where the price of energy is already high, it is a viable option despite its price point.¹³

Interestingly, however, it is biochar which is currently delivering the greatest number of credits. In Q2 of 2025, approximately two thirds of all removal credits were delivered by suppliers running biochar projects.¹⁴ We expect this will change as more largescale projects using BECCS (and other engineered forms of abatement) start generating credits in the coming years.

Barriers to scaling and how the private market is helping address those barriers

Having recognised that novel CDR will be critical to reaching net zero and that the current price point is deterring the necessary widescale engagement, the task is now to close the 'CDR gap'.

One approach is for buyers to sign prepayment agreements that provide the initial capital to get a CDR project off the ground (and provide a guaranteed purchaser for the project credits). It was encouraging that when Frontier released its template CDR credit offtake agreement, it incorporated an option by which early-stage suppliers can access low volume prepayment funding.¹⁵ Frontier is also broadening the market by aggregating demand so that buyers who may have less investable capital can sign onto projects that they would not be able to fund alone.

Continued investment like this in novel CDR should steadily reduce its cost, in line with other clean technologies such as solar PV modules and batteries.¹⁶ It is important to note, however, that there will be inherent constraints on certain CDR technologies, such as access to suitable geological formations, and, for BECCS specifically, the availability of sufficient feedstock.

Other relevant factors are likely to include public funding, such as subsidies for CDR projects, government procurement of CDR credits (as seen in Denmark)¹⁷ and the integration of CDR credits into existing compliance mechanisms (as with the UK ETS, discussed above).¹⁸ Moreover, the maturation of the CDR market will be facilitated by the availability of products or services catering to these projects, such as CDR-specific insurance provisions and independent verification services.

Conclusion

This is an exciting time for novel CDR. Whilst it currently retains some characteristics of a nascent market - a small pool of buyers and expensive early-stage technologies - it is already being recognised as a fixture of the net zero landscape with the potential to be massively upscaled. This is creating opportunities for project developers, credit purchasers, brokers and service providers who are ready to stake an interest in a market which is set to grow exponentially as we get closer to the net zero target year of 2050.

Our carbon markets team has extensive experience advising entities operating in compliance and mandatory carbon market schemes around the world, and assists clients with agreements involving CDR technologies. If you have questions about how you can access the CDR market, do not hesitate to contact a member of Norton Rose Fulbright's climate change and carbon markets team.

Footnotes