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Regulators pushing to grow, standardise market

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Market leader Puro sees 400,000 credits certified in 2024

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Finance, aviation seen buyers as market broadens

By Peter Henderson, Susanna Twidale and Simon Jessop

SAN FRANCISCO/LONDON, April 5 (Reuters) - Demand for

credits reflecting the engineered removal of carbon dioxide from

the atmosphere is expected by some to surge as market-friendly

incentives lure buyers from sectors as diverse as technology and

finance, chemicals and aviation.

Many scientists believe extracting billions of tons of

carbon dioxide (CO2) from the atmosphere annually, by using

nature or technology, is the only way to meet goals set under

the U.N. Paris climate agreement to curb climate change, as

efforts to cut emissions are not happening fast enough.

To meet this challenge small startups are in the nascent

stages of deploying new technologies to suck up the

planet-warming gas and generate tradable carbon removal credits

that companies can buy to offset their emissions. So far,

widespread use is years away and costs are much higher compared

to more traditional ways to generate credits, such as through

projects that preserve forests or fund renewable power projects.

Despite sceptics' arguments that carbon removal could

encourage firms to keep polluting and is unlikely to reach huge

scale quickly, the U.S. Inflation Reduction Act seeks to

financially turbo-charge the market through tax incentives,

helping to draw in buyers from a range of sectors. The European

Commission has also proposed a framework to certify carbon

removals generated in Europe.

Around 4.6 million tons of credits from a range of

engineered removal projects were purchased in 2023, data from

industry tracker CDR.fyi showed, of which around 118,000 tons

were delivered, backstopped by confirmation from external

certification companies that the carbon had been removed.

So far, a small group of firms are creating standards to

assess the credits. The firms, including market leader

Puro.earth owned by Nasdaq and Isometric hope to give buyers

more confidence to invest.

"We need trustworthy monitoring, reporting, and verification

systems that generate high-quality carbon removal credits...

This is how we unlock private investment for speed and scale,"

said Anu Khan, a carbon removal expert at Washington-based

non-profit Carbon180.

The bulk of the delivered credits in 2023, around 93%,

were for biochar, CDR.fyi said, a scientifically simpler process

of locking carbon emissions away by turning agricultural waste

into charcoal, with most of the certifications provided by Puro.

Puro now plans to set standards around more exotic

engineered technologies, such as 'advanced weathering' of rocks

to help them absorb carbon and the use of chemicals to suck

carbon out of ambient air. Isometric, meanwhile, has done the

same for 'bio-oil', which turns waste into a liquid that can be

injected into the ground.

All in, Puro currently accounts for around 80% of the

certified engineered removal credits. Retirements, where a

credit is officially recorded as being used to offset a

company's emissions, almost doubled in 2023 to 65,026 tons.

Puro expects its certifications will hit 400,000 this year,

CEO Antti Vihavainen said. "We are going to see, you know, 100%

or nearly 100% compound average growth rates during the next

three years," he said.

Among companies to retire credits in 2023 include German

chemical company Bayer, Finnish airports operator

Finavia, Microsoft ( MSFT ), Swedish telecom Telia

and U.S. lender JPMorgan ( JPM ), the Puro data showed.

HIGH COST

While large technology companies have paid a thousand

dollars or more a ton to help grow the market, including for the

more nascent technology of 'direct air capture' (DAC), that

remains too high for many buyers.

Biochar credits are cheaper, at around $140 a ton, while

bio-oil credits can cost around $600 a ton. All are more

expensive than traditional carbon offsets which represent

avoided emissions from projects such as renewable energy and can

cost less than $10 a ton.

Some see regulatory involvement as a sign the market for

carbon removal credits is viable.

"Given the structure of IRA and other regulatory proposals

that are on the table, it's a good indication that there's going

to be investment in carbon removal... which should help support

the demand these companies need to grow," said Taylor Wright,

who heads up the carbon management team at JPMorgan Chase ( JPM )

, which has bought Puro-certified credits.

Peter Reinhardt, the CEO at Charm Industrial, which turns

agricultural waste into bio-oil, said he had also seen more

buyers join in.

"It definitely started in tech and then kind of moved into

finance... We see a little bit of broadening into air  travel

and a few other industries," said Reinhardt, who is working with

Isometric.

Germany-listed airline Lufthansa, for example,

last month said it has entered a long-term strategic partnership

with direct air capture project developer Climeworks but did not

give details on the value of the deal.

Bill Goldie, senior carbon adviser at environmental markets

group Redshaw Advisors, said airlines would only likely remain a

small market for engineered removals for now.

"Typically, for compliance markets, large emitters are

looking to comply at the cheapest cost so it's unlikely airlines

would seek to use engineered removals to meet all of their

requirements," he said.

(Editing by Anna Driver)