As public money for net zero stalls, the US has charged ahead of British investors
The next clean-tech boom – engineered carbon removal – is on the horizon. In the long run, it will be private investors at the front of this. And for our future economic growth, we should make sure they are British ones.
For some time, carbon removal technologies – which range from methods such as direct air capture through to enhancing natural carbon sinks – have been considered too speculative, but they are steadily shedding that reputation. The last two years has seen a sharp increase in developers popping onto the scene as well as the largest ever direct air capture plant opening in Iceland to record demand.
We need up to 10 billion tonnes of carbon removal annually by 2050 to avoid climate catastrophe. Direct air capture alone – a technology which sucks carbon out of the atmosphere with big fans – needs to hit 1 billion tonnes by 2050, up from less than 10,000 tonnes today. In investor speak, we are looking at an industry which needs to grow by a factor of 100,000 in the next three decades.
The United States has spotted this and is dominating investment both in the private and public realms. Biden’s infrastructure bill pledged $3.5bn to help scale just one of these technologies, direct air capture – 35 times the investment by the government in Westminster.
Consequently, four clusters are being built in the US, focused solely on direct air capture. This follows a long trend of public support from federal tax credits and state-level regulated markets.
Some shrewd companies and investors – such as Stripe, Microsoft and Mckinsey – have already spotted this boom coming down the track. Elon Musk has weighed in with his own $100m X Prize for carbon removal. These buyers are seizing the short-term reputational benefit and the long-term economic gains of entering this market early.
But these, mostly US-based, investments will only support and fulfill a small part of removal projections. Between 30-100 million tonnes of engineered carbon removal will be needed in carbon markets by 2030, according to a new report from carbon ratings agency BeZero Carbon. This is worth tens of billions of dollars. Enormous amounts of investment are needed to scale this market at the pace necessary.
First, the climate scientists set out the targets. Then, governments started to turn their spending turrets towards it. Next, the private sector will need to take the baton and help move this sector from being worth a couple of billion dollars today, to a couple of trillion dollars in 30 years. Currently, inflationary pressure across the world mean governments are reluctant to put more cash into the economy. The private sector should be ahead of the boom. The City can reap the rewards, but the window to be one of the first movers is closing as the US leads the charge, once again. It took years to come close to tech investment in the US, we shouldn’t make the same mistake twice.
In the difficult market conditions, this industry provides long-term growth prospects. The demand for these solutions is becoming more acute as it becomes harder and harder for households to invest in technology such as heat pumps. If you could wind back the clock and start investing in Solar PV thirty years ago, you would do it in a heartbeat. Engineered carbon removal is going to play a major role in our fight against climate change by mid-century. Now is the time for UK investors to get involved.