Climate action platform Patch has published a new report, outlining pathways for scaling demand for carbon dioxide removal (CDR) and potential challenges that need to be addressed along the way.
According to the report, the carbon removal sector needs revenue-driven funding, like carbon credits, in order to experience an upsurge in demand.
“Over the past 6 months, we started noticing recurring themes in conversations with buyers. They were tending to have similar pain points around the same process motions while buying carbon credits. We wanted to go from anecdotes to analytics to understand the barriers holding companies back from taking more ambitious action. So we treated our conversations as a data set.
About a month ago, we began systematically analyzing our conversations with 400+ buying decision makers to break down and categorize the points of friction and failure during the process of buying carbon credits. This report is an attempt to demonstrate the capital that could be unlocked within the private sector by the private sector in the absence of changes to standards or policy,” says one of the co-authors of the report Bee Hui Yeh, Head of Climate Strategy & Solutions at Patch.
While the current carbon removal supply available on the market is not enough to deliver the level of scaling needed to meet climate targets set for 2030, the report warns that if we further delay the catalyzing of demand, the supply won’t suffice by 2030 either.
The work stresses that a stronger policy foundation is vital for boosting CDR demand, projecting that this could lead to a demand of 2.5 billion tonnes in 2050.
However, policy procedures are lengthy and will take time to be established, which is why immediate action should focus on drawing finance from leading private companies that can afford carbon removal investments big enough to spur industry growth.
As the report estimates, private climate action capital from the world’s most valuable companies could create $45–135 billion in demand for voluntary carbon credits.
But these long-term projection can seem a bit distant, so we also asked Bee Hui Yeh about the immediate, “low-hanging fruit” for companies that want to purchase carbon credits: “Buyers can’t let perfect be the enemy of good. There are so many high-integrity projects that need revenue to scale. Too many companies let real fears of greenwashing paralyze them into inaction. But we’re past the point where inaction is an option.
One straightforward way to approach that is through a contribution model or a hybrid approach. Instead of getting boxed into the cheapest credits, we’re seeing more companies start with a strategic goal — say, to fund high-integrity projects in a certain locality, or to help scale a project over the long-term through multi-year commitments.
A contribution approach can also free up options from a timing perspective. By getting outside annual purchasing cycles, you can often get access to inventory that would otherwise be in low supply at the end of the year.
Another low-hanging fruit is looking at a greater portion of the market. Because the VCM is fragmented, a lot of buyers can only see a fraction of what’s available to them, leading them to feel like they don’t have good options. At the risk of exposing our bias, an end-to-end partner can help buyers see a broader view of the market, narrow down a shortlist with the help of experts, speed up diligence without sacrificing depth, and ultimately execute a portfolio transaction with less time and resources.”
The five phases of the buyer journey according to Patch
The report identified five crucial areas that could present a potential challenge impeding businesses from investing in carbon credits.
The five buyer journey phases relate to strategy, source, diligence, purchase, and management. Resolving the issues that arise in these areas could lead to a stable financial flow towards climate solutions.
Advanced carbon removal buyers count on dedicated CO2 teams to navigate a decarbonization journey. In contrast, the data analysis from the Patch carbon removal report showed that only 15% out of the 100 surveyed major carbon credit buyers had teams dedicated to carbon.
For many companies, this poses a serious setback, as the lack of an expert team often leads to an irregular, patchwork approach to climate action, resulting in the redoing of the different phases multiple times and delaying lifeblood climate actions from the private sector that could change the global environmental picture.
That global picture recently received a boost at COP29 where countries agreed on creating a UN-led carbon market. When asked about its impact on how CSOs think about carbon removal Lucy Hargreaves, Global Head of Corporate Affairs and Policy said: “In the very near term, CSOs will primarily be focusing their attention on leveling up their knowledge of how this market will operate now that there is certainty in the rules around transactions and authorizations.
Then, as the market continues to build momentum and supply increases over the next one to two years, we expect to see CSOs increasingly interested in credits authorized via a UN-backed international carbon market as they begin to roll out. Some CSOs may integrate them into their carbon credit strategy as soon as 2025. Overall, this movement will be driven by continuing pressure toward high-integrity projects that ensure impactful climate action and protect buyers’ reputations.”
Read more: Patch Calls On The SBTi For Clarity And Speed On Scope 3 Emissions
