Climate investment firm Counteract has released a new report outlining the financial case for carbon dioxide removal (CDR) as an emerging institutional asset class.
Authored by Richard Barker, Partner at Counteract, the paper argues that CDR has crossed a critical maturity threshold. The sector is now transitioning from early-stage venture capital funding toward multi-billion-dollar project financing from private equity and infrastructure funds.
The report draws a direct comparison between the current state of carbon removal and the early growth phase of wind and solar energy around 2005. During that period, early movers in renewables captured absolute unlevered project returns between 12% and 18% before asset yields compressed as the technology matured.
High Yields And Long-Term Offtakes
According to Counteract, pre-construction assets across the CDR spectrum currently command a 300 to 600 basis point premium over operational assets. This risk premium creates an opportunity for early institutional investors to lock in high yields while capturing upside potential as the asset class re-rates.
The report notes that project risks are increasingly offset by high-value, long-term corporate offtake agreements from buyers such as Microsoft, Google, and the Frontier consortium.
These forward contracts – often signed at voluntary market prices significantly higher than expected long-run compliance rates – are helping underpin project returns in the short-to-medium term.
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Richard Barker, Partner at Counteract, stated: “Investors moved during a period of high complexity, high risk, but high returns on investment: the hard-but-rewarding phase that now defines the CDR opportunity.”
“These prices prop up rates of return over the short to medium term… Investors willing to finance projects with secure offtake contracts signed between 2024-2028 will, most likely, lock in the highest IRRs for the next decade,” Barker added.
The analysis also points to shifting regulatory drivers, including planned integrations of CDR into the European Union, UK, and California compliance markets, as structural foundations that will guarantee long-term market demand through 2050.
Read more: EU Proposes Historic €50B ETS Carbon Removal Compliance Market
