America's latest CDR bill is poorly timed

Congress should hold on being a CDR buyer until it is truly needed

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In early 2024, the US Congress is awfully busy solving an immigration crisis, sending weapons to Ukraine, and tweaking the tax system. These headline-grabbing bills are overshadowing the Carbon Dioxide Removal (CDR) Leadership Act of 2024, which is currently making its way through the House.

This 2024 CDR Act is a sibling to the bill that provided massive funding for carbon removal in 2023. The 2023 bill targeted the supply of CDR by granting and loaning billions of dollars to Climeworks, Heirloom, Oxy, and others to build out the first large plants. The 2024 CDR proposal targets demand by making the government a guaranteed buyer of CDR credits.

The basic structure should sound familiar. Operation Warp Speed accelerated the supply of COVID-19 vaccines and guaranteed demand, as the government promised to buy vaccines from Pfizer and Moderna. Warp Speed is arguably the most successful government initiative in recent memory,¹ so copying it for something as urgent as reversing climate change seems like a good idea.

Indeed, CDR influencers are trumpeting this as a monumental proposal, critical to scaling up America’s carbon removal industry:

But this bill is ill-timed. It’s unnecessary given the current state of the CDR market, which has very little in common with the COVID vaccine market of 2020. It’s also bad for the public pocketbook.

At the same time, the 2024 bill lacks the ambition CDR needs for success in the long-run. I’d prefer that Congress does nothing on the demand side in the near-term, returning to it (1) when the CDR market actually needs a big buyer, (2) when CDR prices have fallen and (3) if/when there is public support for a much larger program.

The US government does not need to buy CDR credits for many years

In Operation Warp Speed, the government committed to being the ‘anchor’ customer. They did this because there was low trust in the vaccine (mRNA was a new technology) and it wasn’t clear anyone else would step up as a big purchaser.

The dynamics in CDR in 2024 are very different from COVID vaccines in 2020. There is already an anchor customer — Microsoft has committed to purchasing 3.2 million tons of CO₂. Frontier, a buying coalition backed by Stripe, Meta, and others, will almost certainly develop into a second multi-million ton purchaser. The Feds proposal involves purchasing just 100,000 tons through 2025.

There’s actually too much demand right now. Of the ~5.5 million tons of CO₂ credits purchased, only ~4% have been delivered.² More orders are coming in than the industry can currently handle.

It will take at least 3-5 years before there’s capacity for millions of tons of CO₂ removal. These are mostly large construction projects with chemical engineering constraints that make it hard to scale up cheaply and quickly. That’s quite different from, say, COVID mRNA vaccines, which are literally self-replicating molecules that are subject to manufacturing scaling dynamics.

Given that demand is higher than supply, and that supply is fixed in the short-run, piling on more demand doesn’t do much except marginally raise the prices. If anything, guaranteed government buying programs could crowd out otherwise willing private CDR buyers.

The Feds are getting fleeced

My other gripe with this bill is that it promises to pay $750 per ton of CO₂ removed. This is clearly aimed at procuring the more expensive, high-quality types of CDR, like DAC, which currently has a spot price of ~$690.

If the government insists on buying CDR credits, it should avoid markets like DAC that are already popular and saturated with buyers. Instead, it should be looking for bargains in markets that are less well-known but equally effective. For example, it could look at biochar at ~$170 per ton or algae at ~$50 per ton.³

Better yet, why not wait for prices to come down across the board?

As CDR technologies scale, multiple factors will bring prices down:

• capital expenditures are spread across more tons of CO₂

• scaling laws in chemical engineering and manufacturing will slowly bring down operating costs

• there will be excess capacity in sub-markets of CDR, putting price pressure on producers

It is irresponsible and wasteful to pay $750 per ton with taxpayer money. Better to wait and put together a better arbitrage strategy that maximizes CO₂ removed per tax dollar.

Even better: don’t pay for CDR credits when government debt is at an all-time high and interest rates are far from favorable. Wait for CDR prices to come down, for interest rates to subside, then start a purchasing program.

CDR is a moonshot

Today we take about ~100,000 tons of CO2 out of the atmosphere through various CDR methods. To have a sizeable impact on reversing climate change, humans will need to take out tens of billions of tons each year.

This is why CDR has more in common with something like the Apollo Program, a massive supply-side initiative, than Warp Speed. Just like going to the moon seemed impossible in 1950, removing enough CO₂ from the atmosphere to matter seems way out of reach. Like going to the moon, the physics are not on our side, which makes it a very expensive endeavor.

Even though I like the idea of an Apollo Program for Carbon Removal, now is not the time to start. There are good reasons for waiting, some of which we’ve already covered:

• Costs will come down — $750 per ton for DAC could come down to $100-$200 per ton as these initial projects scale

• Growth could make CDR more affordable — continued economic growth could make large-scale CDR a smaller share of the overall economy

• Technology will improve — just like it took rockets decades to improve to the point that they could be built large enough to fly in space, these technologies will improve incrementally in the coming decade

• Public demand for CDR may increase — as the outcomes of climate change become more tangible, US voters might demand that the government do more to solve the problem

• Energy abundance — the US government could have more tools at their disposal to build a full ecosystem around CDR

With the last bullet in particular I’m thinking about things like the next wave of large nuclear reactors and scaled solar + batteries. These could provide excess energy which could be used to power large DAC and other CDR facilities.

A better path for CDR is to let private markets develop while considering which technologies would be suitable for a CDR Apollo Program — a massive supply-side program to help us jump from millions to billions of tons removed per year. I’d guess that 2030-2035 would be the best time to start such a project.

I recognize the irony of a blog called ‘Terraform Now’ suggesting that the US government hold off on an ambitious CDR bill. What we need are thoughtful, well-timed bills that move the needle when the market needs it. The 2023 supply-side bill was a great example. The 2024 bill is neither thoughtful nor well-timed.

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1. It’s obviously true that Warp Speed saved millions of lives and trillions of dollars of economic output that would have been lost in a more severe and long-lastding economic downturn. This shouldn’t be controversial in 2024

2. And almost all of those delivered credits are in the form of biochar, which many customers do not want to buy

3. All of these per-ton figures are from the amazing work of analysts at CDR.fyi