Why Finance is a Key to Accelerating Carbon Removal Technologies
-
bookmark
-
print
The Paris Agreement identified carbon dioxide removal (CDR) as an important tool to solve the climate challenge, but deployment currently lags behind what is needed to limit warming to well below 2°C.
Scientists and engineers in disciplines as diverse as polymer chemistry, solid state physics, and ocean sciences are working on new CDR technologies. From injecting CO2 into liquid concrete to building giant fans powered by geothermal heat, these tools are crucial because some industries are difficult to decarbonize entirely, and we have almost used up all of our carbon budget.
Nearly every scenario that caps global warming at 1.5°C or even 2°C relies on novel CDR tools. Even though they currently make up just 0.1% of strategies in use, that is still the equivalent of around 200 million tons of CO2 emissions. Accelerating these solutions will play a part in bringing the world closer to net zero.
As a part of BMO's ambition to be our clients' lead partner in the transition to a net-zero world, we are helping companies understand how the development of CDR technologies can scale while also uncovering potential opportunities. Finance, as it turns out, has an important role to play.
Finance can help address the high cost of carbon removal
Many of these technologies are past the proof-of-concept stage and at the point where scaling them is vital.
In 2021, BMO was the first bank to pre-purchase carbon removals using Carbon Engineering technology, kicking off a wave of other early adopters to move the CDR market forward. Carbon Engineering has a unique focus on direct-air capture (DAC) technologies, which literally suck carbon out of the air to be stored indefinitely or turned into something else.
Since BMO's investment, market development has been steadily growing. The U.S. government is investing up to US$1.2 billion in DAC hubs in Texas and Louisiana that pool technology and resources. Occidental Petroleum, backed by Warren Buffett, recently spent more than US$1 billion on Carbon Engineering.
However, the challenge continues to be the cost of carbon removal. It is far above US$100 per metric ton, the price below which the U.S. Department of Energy believes the technologies would become commercially viable. Many of these technologies could operate efficiently once they reach a certain scale. But, owing largely to capital demands, the costs of carbon removal are both high and variable.
A comparison with the solar energy industry is instructive. In 2023, annual investment in solar projects is expected to surpass outlays on oil production for the first time, according to the International Energy Agency. Innovative financial tools, such as purchase agreements and non-recourse project financing, have had an important role in bringing down the cost of solar photovoltaic systems and enabling them to proliferate. In the past decade alone, utility-scale solar prices have dropped more than 80%.
Certainly, solar technology development isn't exactly analogous to CDR — even from the outset, investors could easily visualize the commercial and residential market potential of solar panels. But lessons learned on the financial side of solar's development can help us see a path toward scaling the CDR technologies market at a faster pace.
New financial solutions involving offtakes will help the market reach scale
To develop novel CDR technologies at scale, the market needs the more robust offtakes that financial services require to enable new projects.
This was why in 2022, BMO became the first Canadian company to join Breakthrough Energy Catalyst (BEC), a platform that funds and invests in project companies, including those utilizing novel CDR technologies. BEC, founded by Bill Gates and whose partners include leading global companies, provides concessionary capital needed for projects using early-stage emissions-reducing technologies.
To help commercialize and scale them, BMO is contributing $50 million over five years, project finance capabilities, and our energy transition expertise. The goals, as BEC put it, are to accelerate technology adoption and reduce so-called green premiums, the additional cost of clean energy solutions over those that emit greenhouse gases.
Concessionary capital is of course only one innovative approach. With the challenge of reaching net-zero emissions globally, we will need many financing solutions that feature an offtake and support start-up or early-stage companies deploying CDR tools.
The market for CDR technologies will also need more sources of growth capital.
The market for CDR technologies needs expanded investment
Many venture investors are aware of the opportunity of CDR technologies, and they have been active in the market.
However, to accelerate development, growth investors will likely need to participate, too. As growth investors, some of us are conditioned to see technology development as a race, where we aim to overweight a portfolio with a single winner. I sometimes hear institutional investors say they already have their bet on CDR technologies. As in, a singular technology.
But we need to think a little more like venture investors, who typically invest across technologies. At this point, there is no clear early-stage winning bet on CDR technologies. Not when the U.S. alone needs to remove some two gigatons of carbon a year by 2050 to reach net zero. The magnitude of this challenge is significant, but so is the opportunity.
BloombergNEF estimates the value of the DAC market could grow from just above US$1 billion currently to US$150 billion by 2050. The market for another group of tools to capture emissions at the point of production is also expected to expand sharply. Focused on hard-to-abate industries such as petrochemicals and cement, capacity in the Carbon Capture, Utilization, and Storage sector is forecast to grow six-fold by 2030.
Indeed, there is room for many winners in fields as diverse as biochar and ocean deacidification. Growth investors can participate in this market, knowing that it represents not a binary outcome like a stock price rising or falling, but an expanding set of solutions needed to reach a net-zero world.
Why Finance is a Key to Accelerating Carbon Removal Technologies
Managing Director and Head of Sustainable Finance, BMO Capital Markets
Jonathan Hackett is Managing Director and Head of Sustainable Finance at BMO Capital Markets. He advises clients on opportunities as they navigate the transition to…
Jonathan Hackett is Managing Director and Head of Sustainable Finance at BMO Capital Markets. He advises clients on opportunities as they navigate the transition to…
VIEW FULL PROFILE- Minute Read
- Listen Stop
- Text Bigger | Text Smaller
The Paris Agreement identified carbon dioxide removal (CDR) as an important tool to solve the climate challenge, but deployment currently lags behind what is needed to limit warming to well below 2°C.
Scientists and engineers in disciplines as diverse as polymer chemistry, solid state physics, and ocean sciences are working on new CDR technologies. From injecting CO2 into liquid concrete to building giant fans powered by geothermal heat, these tools are crucial because some industries are difficult to decarbonize entirely, and we have almost used up all of our carbon budget.
Nearly every scenario that caps global warming at 1.5°C or even 2°C relies on novel CDR tools. Even though they currently make up just 0.1% of strategies in use, that is still the equivalent of around 200 million tons of CO2 emissions. Accelerating these solutions will play a part in bringing the world closer to net zero.
As a part of BMO's ambition to be our clients' lead partner in the transition to a net-zero world, we are helping companies understand how the development of CDR technologies can scale while also uncovering potential opportunities. Finance, as it turns out, has an important role to play.
Finance can help address the high cost of carbon removal
Many of these technologies are past the proof-of-concept stage and at the point where scaling them is vital.
In 2021, BMO was the first bank to pre-purchase carbon removals using Carbon Engineering technology, kicking off a wave of other early adopters to move the CDR market forward. Carbon Engineering has a unique focus on direct-air capture (DAC) technologies, which literally suck carbon out of the air to be stored indefinitely or turned into something else.
Since BMO's investment, market development has been steadily growing. The U.S. government is investing up to US$1.2 billion in DAC hubs in Texas and Louisiana that pool technology and resources. Occidental Petroleum, backed by Warren Buffett, recently spent more than US$1 billion on Carbon Engineering.
However, the challenge continues to be the cost of carbon removal. It is far above US$100 per metric ton, the price below which the U.S. Department of Energy believes the technologies would become commercially viable. Many of these technologies could operate efficiently once they reach a certain scale. But, owing largely to capital demands, the costs of carbon removal are both high and variable.
A comparison with the solar energy industry is instructive. In 2023, annual investment in solar projects is expected to surpass outlays on oil production for the first time, according to the International Energy Agency. Innovative financial tools, such as purchase agreements and non-recourse project financing, have had an important role in bringing down the cost of solar photovoltaic systems and enabling them to proliferate. In the past decade alone, utility-scale solar prices have dropped more than 80%.
Certainly, solar technology development isn't exactly analogous to CDR — even from the outset, investors could easily visualize the commercial and residential market potential of solar panels. But lessons learned on the financial side of solar's development can help us see a path toward scaling the CDR technologies market at a faster pace.
New financial solutions involving offtakes will help the market reach scale
To develop novel CDR technologies at scale, the market needs the more robust offtakes that financial services require to enable new projects.
This was why in 2022, BMO became the first Canadian company to join Breakthrough Energy Catalyst (BEC), a platform that funds and invests in project companies, including those utilizing novel CDR technologies. BEC, founded by Bill Gates and whose partners include leading global companies, provides concessionary capital needed for projects using early-stage emissions-reducing technologies.
To help commercialize and scale them, BMO is contributing $50 million over five years, project finance capabilities, and our energy transition expertise. The goals, as BEC put it, are to accelerate technology adoption and reduce so-called green premiums, the additional cost of clean energy solutions over those that emit greenhouse gases.
Concessionary capital is of course only one innovative approach. With the challenge of reaching net-zero emissions globally, we will need many financing solutions that feature an offtake and support start-up or early-stage companies deploying CDR tools.
The market for CDR technologies will also need more sources of growth capital.
The market for CDR technologies needs expanded investment
Many venture investors are aware of the opportunity of CDR technologies, and they have been active in the market.
However, to accelerate development, growth investors will likely need to participate, too. As growth investors, some of us are conditioned to see technology development as a race, where we aim to overweight a portfolio with a single winner. I sometimes hear institutional investors say they already have their bet on CDR technologies. As in, a singular technology.
But we need to think a little more like venture investors, who typically invest across technologies. At this point, there is no clear early-stage winning bet on CDR technologies. Not when the U.S. alone needs to remove some two gigatons of carbon a year by 2050 to reach net zero. The magnitude of this challenge is significant, but so is the opportunity.
BloombergNEF estimates the value of the DAC market could grow from just above US$1 billion currently to US$150 billion by 2050. The market for another group of tools to capture emissions at the point of production is also expected to expand sharply. Focused on hard-to-abate industries such as petrochemicals and cement, capacity in the Carbon Capture, Utilization, and Storage sector is forecast to grow six-fold by 2030.
Indeed, there is room for many winners in fields as diverse as biochar and ocean deacidification. Growth investors can participate in this market, knowing that it represents not a binary outcome like a stock price rising or falling, but an expanding set of solutions needed to reach a net-zero world.
Reflections from Climate Week NYC
PART 1
Transforming the Global Food System to Benefit Investors and the Planet
Michael Cippoletti September 28, 2023
For years, people have been focused on finding ways to reduce carbon emissions in the energy and transportation sectors, but more attention…
PART 3
Why Businesses Need to Accelerate Their Efforts to Fight Climate Change
Melissa Fifield September 28, 2023
While both the United States and Canada are making progress toward achieving net-zero emissions commitments, businesses must accelerate the…
PART 4
BMO Hosts VCM Roundtable Discussion During NY Climate Week
Rachel Walsh, CFA September 25, 2023
BMO hosted a roundtable discussion on the state of play in the voluntary carbon market during Climate Week in NYC. At the moment, the risks…
You might also be interested in
Why Sustainability Is Good Business: Key Takeaways from IEFA Toronto 2024
Building for Tomorrow: Real Estate, Construction, and Sustainability
A First in Western Canada: Avenue Living Leverages BMO's Retrofit Program to Add 179 New Rental Units in Downtown Edmonton
Women are Leading Across the Landscape of Climate and Sustainability
How NASA and IBM Are Using Geospatial Data and AI to Analyze Climate Risks
BMO Arranges Green Financing to Fund New Lawson Centre for Sustainability, Trinity College's Most Significant Build in a Century
BMO ranked one of the most sustainable companies in North America on the Dow Jones Sustainability Indices
Canada Has an Opportunity to Become a Global Leader in Carbon Dioxide Removal
Extreme Temperatures: How North American Cities Amplify Climate Change
Three Keys to Unlocking Energy Transition: Partnerships, Permitting, and Finance
More Companies Have Plans to Address Climate Change Based on Rising Business Importance: Survey Results
BMO Climate Institute Business Leaders Survey: Nearly Half of Business Leaders in the U.S. and Canada Believe Climate Change Has Already Affected Their Businesses, but Few Have a Strategy
How the Energy Sector Is Helping Canada Achieve Its Decarbonization Goals
Why Businesses Need to Accelerate Their Efforts to Fight Climate Change
Transforming the Global Food System to Benefit Investors and the Planet
BMO Donates $3 Million to GRID Alternatives to Provide Solar Energy Solutions for Low-Income Families
Banco do Brasil and BMO Financial Group to Introduce First-of-its-Kind Program to Provide Sustainability-Linked Trade Loans Supporting Brazilian Exporters
BMO Provides Innovative New Sustainability-Linked Deposit Product to Zurn Elkay Water Solutions
Quick Listen: Michael Torrance on Empowering Your Organization to Operationalize Sustainability
Quick Listen: Darryl White on the Importance of US-Canada Partnership
BMO and Bell Canada Execute Innovative Sustainability-Linked Derivative Tied to Ambitious GHG Emission Reduction Targets
BMO Named to UN-Convened Group Providing Guidance to Global Banks on Nature Target Setting
Driving Innovations In Tech To Strengthen Climate Resilience With Climate Engine’s Spatiafi, Built On Google Cloud
BMO Celebrates Earth Day with 3rd Annual Trees from Trades Day on its Global Trading Floors
BMO Donates $2 Million to the University of Saskatchewan to Accelerate Research Critical to the Future of Food
North American Agriculture’s Role in Meeting the Global Food Insecurity Challenge – US-Canada Summit
North America’s Critical Minerals Advantage: Deep Dive on Community Engagement
The Most Valuable Commodity is Trust: ICMM to BMO Global Metals, Mining & Critical Minerals Conference
Rock Legends Reflect on Mining Hits and Misses: Global Metals, Mining & Critical Minerals Conference
Exploring North America’s Critical Minerals Advantage: Global Metals, Mining & Critical Minerals Conference
Not All Carbon Credits Created Equal: BMO Global Metals, Mining & Critical Minerals Conference
BMO Experts at our 32nd Global Metals, Mining & Critical Minerals Conference
Evolving Mining for a Sustainable Energy Transition: ICMM CEO Rohitesh Dhawan in Conversation
Public Policy and the Energy Transition: Howard Learner in Conversation
Taskforce on Nature-Related Financial Disclosure (TNFD) – A Plan for Integrating Nature into Business
Takeaways from the BMO Climate Institute Small and Mid-Sized Businesses Climate Survey
BMO Ranked North America's Most Sustainable Bank by Corporate Knights for Fourth Consecutive Year
Is Green Financing for Nuclear the Next Frontier in the Energy Transition?
BMO ranked one of the most sustainable companies in North America on the Dow Jones Sustainability Indices
BMO Climate Institute Survey Shows Costs and Competing Priorities Slowing Climate Action for Small and Mid-Sized Businesses
Managing and Monetizing Your Transition to a Net Zero World with BMO and Radicle
BMO the Top Ranked Financial Institution on New Global Sustainability Benchmark Announced at COP 27
COP27 in Focus: Will Energy Security and Economic Uncertainty Impact the Climate Transition?
BMO to Invest in Innovative Carbon Offsets from CarbonCure to Permanently Store CO2
RoadMap Project: An Indigenous-led Paradigm Shift for Economic Reconciliation
A Canadian First: BMO and Concordia University Partner for a Sustainable Future with Innovative Sustainability-Linked Loan
Sustainability Strategy and Reporting for Small and Medium Sized Companies: A Discussion at the Conference of Montreal
BMO to Acquire Calgary-based Radicle Group Inc., a Leader in Environmental Services
Investment Opportunities for a Net-Zero Economy: A Conversation at the Milken Institute Global Conference
How Hope, Grit, and a Hospital Network Saved Maverix Private Capital Founder John Ruffolo
Hydrogen’s Role in the Energy Transition: Matt Fairley in Conversation
Exploring the Physical and Transition Risks Facing Food and Agriculture
Key Takeaways on Ag, Food, Fertilizer & ESG from BMO’s Farm to Market Conference
Building an ESG Business Case in the Food Sector: The Food Institute
Forging Ahead in the Energy Transition: Darryl White to Global Reserve and Asset Managers
BMO and EDC Announce Collaboration to Introduce Sustainable Finance Solutions for Canadian Businesses
Retrofitting Canada's Building Sector: Efficiency Canada’s Corey Diamond in Conversation
The Role of Hydrogen in the Energy Transition: FuelCell Energy CEO Jason Few in Conversation
BMO proud to support first Government of Canada Green Bond transaction as joint-lead manager
Op Ed: Government Action Can Help Spur More Home Building To Address Canada’s Housing Shortage
Tackling Climate Change in Metals and Mining: ICMM CEO Rohitesh Dhawan in Conversation
BMO Launches Business Within Reach: BMO for Black Entrepreneurs and Commits $100 million in loans to Help Black-led Businesses Start up, Scale up, and Grow
The Post 2020 Biodiversity Framework – A Discussion with Basile Van Havre
BMO Announces Plan to Partner with Breakthrough Energy Catalyst to Accelerate Climate Innovation
BMO Financial Group Named North America's Most Sustainable Bank for Third Consecutive Year
Mitigating the Physical Impacts of Climate Change with Spatial Finance
BMO Helps Boralex Go Beyond Renewable Energy, with the Transition of its Credit Facility to a Sustainability-Linked Loan
A Global First: BMO Supports Bruce Power with World's First Nuclear Green Financing Framework
BMO ranked one of the most sustainable companies in the world according to Dow Jones Sustainability Indices
The Future of Remote Work and Diversity in the Asset Management Industry
North American Metals & Mining first: BMO helps Sandstorm Gold Royalties achieve ESG goals with Sustainability-Linked Loan
Education, Employment and Economic Empowerment: BMO Releases Wîcihitowin ᐑᒋᐦᐃᑐᐏᐣ- First Annual Indigenous Partnerships and Progress Report
BMO Announces $12 Billion Financing Commitment towards Affordable Housing in Canada
In support of Canada’s bid to host the headquarters of the International Sustainability Standards Board
BMO supports Canada's bid to host the headquarters of the International Sustainability Standards Board
BMO Named to Canada's Best 50 Corporate Citizens Ranking by Corporate Knights
A North American First: BMO Helps Gibson Energy Fully Transition Credit Facility to a Sustainability-Linked Loan
Understanding Biodiversity Management: Best Practices and Innovation
Episode 29: What 20 Years of ESG Engagement Can Teach Us About the Future
BMO Financial Group 2020 Sustainability Report and Public Accountability Statement Now Available Online
Episode 28: Bloomberg: Enhancing ESG Disclosure through Data-Driven Solutions
BMO Ranked Among Most Sustainable Companies on Dow Jones Sustainability Index - North America
BMO investing in a sustainable future with $1M donation to the Institute for Sustainable Finance
BMO Financial Group Reaches Key Milestone in Matching 100 Per Cent of Electricity Usage with Renewables
BMO Financial Group Recognized as One of the World's Most Sustainably Managed Companies in New Wall Street Journal Ranking
Episode 23: TC Transcontinental – A Market Leader in Sustainable Packaging
BMO Financial Group to Source 100 Per Cent of Electricity Usage From Renewables
Episode 07: World Bank: Mobilizing Capital Markets for Sustainable Finance
Episode 06: Responsible Investing – Industry Trends and Best Practices from Canada