Policy Incentives to Scale Carbon Dioxide Removal: Analysis and Recommendations

Many analysts have concluded that large amounts of atmospheric carbon dioxide (CO2) must be captured and permanently stored in the coming decades to meet international goals for arresting climate change, even with aggressive measures to limit greenhouse gas (GHG) emissions. The amount of carbon dioxide removal (CDR) needed to achieve net-zero GHG emissions poses a technological challenge, requiring significant advances in CDR capability and deployment. CDR at the needed scale will be expensive, particularly in the near term. It also can pose social and environmental challenges through spillover effects on communities, changes in land use, and major increases in electricity consumption. This report discusses the challenges for the United States in scaling up CDR, recommends immediate policy actions to improve and scale up CDR, and discusses longer-run policy frameworks through which CDR can play its necessary role for achieving net-zero GHG emissions in the United States by midcentury. In particular, we recommend—with important caveats—that CDR incentives be integrated with incentive-based mechanisms for GHG mitigation in the longer term.The “removal gap” is the amount of CDR needed to achieve policy targets for limiting temperature increase, given trajectories for GHG emissions and policies for their mitigation. As the size of the removal gap becomes clearer, so does the gap in removal policies. As observed in Smith et al. (2023), no countries have yet set removal goals. Current US policies encourage some CDR via subsidies for increased forest carbon storage, carbon capture and storage (CCS) with bioenergy, and direct air capture. A variety of recent policy measures, including financial incentives in the 2022 Inflation Reduction Act, are providing increased CDR stimulus. However, the size of the removal gap and the policy focus on near-term initial investments versus longer-term technological development and scaling up indicate a need to fortify current policies and consider longer-term policies to induce the required amounts of CDR capacity.Notably, the nature and design of policies to motivate and finance the necessary levels of CDR have received little attention, an oversight that is increasingly recognized (Honegger 2023; Meyer-Ohlendorf and Spasova 2022; Schenuit et al. 2021). An exception focused on BECCS deployment is Zetterberg et al. (2021). Recent studies on the need for CDR make these observations:“There is an urgent need for comprehensive policy support to spur growth in CDR” (Smith et al. 2023, 39).“CDR at anywhere approaching the scales projected here would require strong policy incentives … and public investment …” (Fuhrman et al. 2023, 9).Substantially scaling up global CDR by midcentury will be a technological challenge. It will also be a challenge for climate policy. Core policy questions include the following:How can policies create the incentives needed for private provision of CDR at a large scale over the long term?If private sector investment in CDR remains limited by high cost or other constraints, what might the government do to scale up CDR?What policies would improve CDR technologies and lower their cost over time?How do CDR and GHG emissions reduction policies interact, and what are the implications for CDR policy design?This report also addresses complementary policies to deal with a range of other issues that arise in scaling up different CDR approaches:What measures can address the environmental and social consequences of CDR and thus ameliorate the negative community reactions that otherwise may result?Beyond technological and economic barriers, what other barriers to CDR deployment need to be addressed? Two examples: health and safety measures, and the siting and regulation of industrial capture facilities, GHG storage facilities, and CO2 pipelines.Our focus is US policy, though important aspects of our analysis are also relevant for other countries. In addition, US policy will trigger international questions, such as whether CDR projects abroad can be used by US emitters to offset their emissions. The United States should play a leading role in CDR deployment and policy development because it is the second-largest global GHG emitter, with a correspondingly large need to counteract residual emissions. In addition, the United States is in a strong competitive position to produce CDR, given its wealth, robust institutions, capacity for technological innovation, and large land mass suitable for nature-based removal and storage infrastructure. The United States also has an existing, though limited, suite of removal incentives on which to build.The report is organized as follows. Section 2 explains the urgent necessity for carbon dioxide removal as a complement to emissions reductions. Section 3 looks at the various technologies that can deliver CDR, their development status, and their costs. Section 4 lays out the criteria by which we analyze current and recommended CDR policies. Section 5 reviews today’s US CDR policies and highlights policy gaps, weaknesses, and other barriers to CDR deployment.Section 6 makes recommendations for new policies and modifications of existing policies to accelerate CDR technology development and larger-scale CDR investments. It also makes recommendations for addressing CDR’s environmental and other community effects, and it suggests complementary policies related to, for example, permitting CO2 pipelines and storage facilities. The recommendations in Section 6 can be thought of as a policy “on-ramp” that can facilitate the transition to a policy architecture consistent with net-zero ambitions. However, the policy steps discussed in Section 6 will not drive sufficient CDR investment to meet net-zero goal.Section 7 explores the more ambitious midcentury CDR policy architecture needed to continue the transition to net zero and compares the options in terms of cost-effectiveness, equitability, and feasibility. Section 8 concludes with some final observations.