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12 May 2023

We need solutions that make a difference - supporting carbon removal the right way is key

We need solutions that make a difference - supporting carbon removal the right way is key

We need solutions that make a difference - supporting carbon removal the right way is key

By Stacy Kauk, Head of Sustainability at Shopify

The carbon removal market is bubbling over with new ideas as entrepreneurs pursue innovation and receive investment. But there is still a long way to go.

Carbon neutrality is not enough. To simply try and keep things as they are is the problem. We all know this; we need to reach net zero by the early 2050s to avoid even an increase in temperature beyond 1.5 degrees Celsius, and that will still have devastating impact. 

Alongside pursuing deep emissions reductions, we must also push towards large-scale carbon removal.

Governments are beginning to recognize this and the urgent need to incentivize innovation in this area. Billions of dollars are being made available for carbon removal projects via state initiatives around the world, and as a result the concepts start-ups are exploring are as remarkable as they are diverse.

But there remains a disconnect here. Based on data collected from the suppliers in our portfolio, there is still a large gap between the stage suppliers are at and where we need them to be, one which buyers must help to close. Buying carbon removal credits now helps suppliers scale and reduce costs, and is the only way to ensure this new sector scales and enough credits are available at a low enough price to eventually reach net zero. 

But most of these carbon removal ideas remain untested at scale. Public buy-in is therefore crucial; to gain that we need to build trust. That starts with reliable measurement, reporting and verification. Standards bodies must step up, or new ones even step in, to create methodologies for durable carbon removal pathways in a timely manner.

Bringing more buyers to the table

Carbon removal technology development is progressing as early-stage suppliers have achieved technical milestones on their way to running their first pilots.

Deployment currently faces many challenges however. Suppliers who have moved beyond pilot stage have faced supply chain issues, higher costs than expected, and public acceptance issues, causing slowed deployment and missed cost targets, which is to be expected in an emerging market. As it stands, no approaches are operating anywhere remotely near the scale that will be required.

More reliable financing is required to help these start-ups scale. But financing doesn’t come without buyers. That means we need to get more companies involved, purchasing carbon removal credits.  

But that can be hard to justify when tech remains unproven at scale. The carbon removal market is poised for phenomenal growth, but making the business case internally right now can be difficult when the choice is to pay hundreds of dollars per tonne for carbon removal credits - or just a few dollars per tonne via more established carbon offset credits.

Sure, you can protect forests now and those trees will continue to capture carbon. Offset credits in this way are a low-risk approach, at a glance, and sometimes a glance is all decision-makers will grant. But it’s not enough: if your business realistically hopes to achieve net-zero emissions, the Science Based Targets Initiative (SBTi) says you will still need to use permanent carbon removal credits for any emissions you aren’t able to reduce. 

There are ways to provide those decision-makers with assurances and ultimately bring more buyers to the table. Our own Carbon Removal Buying Guide has some great advice; stress the importance of locking in supply before large quantities of carbon removal credits are snapped up, underline that this funding helps game-changing suppliers survive and scale, highlight the ability of expert-led buying groups such as Frontier to help your organization minimize work and risk.

Trustworthy KPIs are critical

Nothing will convince any business of merit more than key performance indicators being beaten, and that’s just as true when justifying the purchase of carbon removal credits as it is any other investment.

But agreeing how long a yardstick should actually be in this instance remains tricky. Despite the flourishing number of approaches we’re now seeing when it comes to carbon removal, it remains the case that measurement, reporting and verification are still playing catch-up.

This can’t just be left to start-ups to solve however; it’s a joint effort. A standard is only a standard with collective buy-in, which means existing authorities need to move quickly.

The proposed EU-wide voluntary certification framework for carbon removals is a start, but we need more. Existing standard bodies should step up, or new third party associations should step in, to create methodologies for durable carbon removal pathways in a timely manner, and fulfill other roles like verification. Frontier’s work on verification confidence level for carbon removal is a great example of how consensus can be built around standards even as we work to iron out uncertainty, but we still need action.

Investment and trust together will build both

Only by building a market and trust at the same time can we help the carbon removal sector truly scale in the timeframe required. 

Usually one follows the other, so this requires a leap of faith for buyers and investors - but there are signs of positive momentum here. We saw a 2.7x increase in financing for suppliers in Shopify’s portfolio in 2022, largely driven by additional seed funding and initial venture funding. As a result, 53.3% of our suppliers grew their carbon removal capacity in 2022, as they built prototypes and worked toward their first pilots.

Ultimately, though, we need investors to get comfortable funding early projects without a buyer, and corporate buyers to sign large offtakes with projects that are ready to scale to unlock project finance.

We truly believe any business, of any size, in any industry can and should get involved - carbon removal credits can play a crucial role here if businesses are given the right guidance, and that guidance is backed, in tandem, by effective and transparent standards. If for all that to happen concurrently means taking a gamble, so be it: it’s a gamble we should all be willing to take.

More on Shopify's session here.

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