As the US Carbon Dioxide Removal Market Retreats, Other Governments Step Up

In less than a decade, carbon dioxide removal (CDR) has grown from an idea to an emerging industry that is widely accepted as a critical complement to deep emissions cuts in the efforts to curb climate change.

But in the last year, the industry landscape changed significantly. The United States, which historically led a handful of governments to build the sector, has pulled back, taking steps to halt or reverse almost all federal climate action. This includes delays on the CDR Purchase Pilot Prize, a Department of Energy program aimed at scaling up CDR technologies, and terminating several Direct Air Capture hubs, while placing others on hold.

At the same time, Microsoft, the single largest demand driver in developing the voluntary carbon removal market, has slowed its purchasing pace.

Despite these shifts, CDR purchases are continuing, in large part because many other governments across the world are demonstrating that momentum is building beyond the U.S. and voluntary market.

Now, governments have strong opportunities to continue to scale CDR by implementing policies and frameworks that can reduce reliance on voluntary carbon markets and encourage more supply and demand. Here, we look at how those policies and frameworks can further propel the industry’s growth.

Why Is Carbon Dioxide Removal Necessary?

Today, it is clearer than ever that meeting global climate goals will require both rapid emissions reductions and substantial scale-up of CDR approaches. While slashing greenhouse gas emissions remains the highest priority to limit the most severe impacts of climate change, CDR will be needed to reach net zero by counterbalancing the residual emissions that are too difficult or prohibitively expensive to eliminate.

Looking beyond net zero, carbon removal will also be essential to reduce carbon dioxide concentrations in the atmosphere and lower global temperatures to limit the most severe impacts of climate change.  

The world will almost certainly temporarily exceed the Paris Agreement’s temperature goal, which means the only way to bring temperatures back below its target before the end of this century will be to reach net-negative emissions (removing more greenhouse gases from the atmosphere than are emitted annually).

The scale of carbon removal that will be required to do that is enormous. Indeed, modelling that is consistent with achieving the Paris Agreement’s temperature goals suggests that, alongside steep emissions reductions, the world will need to remove between 2.7 billion and 4.1 billion metric tons per year of carbon dioxide by 2035 and 6.5 billion to 13.3 billion metric tons per year by 2050. For comparison, global greenhouse gas emissions were 60.6 billion metric tons in 2025 according to Climate Trace.

Deployment remains far from these levels today, with the vast majority of delivered removals to date coming from nature-based approaches like planting new forests or replacing those that have been lost. Novel CDR methods, like biochar soil amendment, bioenergy with carbon capture and storage, and direct air carbon capture and carbon storage are growing, with removals from these approaches quadrupling since 2017.

But, while investment in and development of CDR projects around the world have accelerated in recent years, driven by both public and private action, growth must increase substantially. As these approaches scale, it will be paramount to ensure responsible deployment that does not undermine the land, food and water systems communities depend on.  

How Can Governments Help Move Carbon Dioxide Removal Forward?

The sheer scale-up of CDR needed to help us meet our climate targets is challenging, particularly for a set of approaches that have no inherent market. Unlike other clean technologies — such as electric vehicles or renewable energy — that reduce carbon pollution while providing something people need or want, CDR’s primary benefit of cleaning-up the atmosphere is shared by everyone, leaving little reason for businesses or individuals to pay for it on their own.

Beyond the erosion of U.S. federal level support for CDR, the future of the sector was further called into question by a flurry of news headlines about Microsoft suspending its carbon removal purchases. Although Microsoft later clarified that it was merely adjusting the pace of CDR purchases, the news sent shock waves through the nascent industry, highlighting the precarious nature of depending on a single private buyer to underpin the majority of a market.

To ensure that the CDR sector develops in time to reach gigaton-scale by 2050, the sector needs to look beyond voluntary private sector purchases to policies that create responsible governance frameworks while creating demand and ensuring supply of removals.

Policies and Investments Moving Carbon Dioxide Removal Forward

It’s important to spotlight that the carbon dioxide removal industry is continuing to grow globally (albeit at insufficient speed and scale to meet climate goals).

Beyond Microsoft, other CDR buyers, such as Frontier (a consortium of large technology and other companies led by Stripe), have announced continued CDR purchasing commitments. And, while policy action on CDR is shifting away from Washington, governments including the European Union, Canada, Germany and the United Kingdom are also driving supply- and demand-side policies, as well as governance frameworks:

Policies That Can Scale Carbon Dioxide Removal Responsibly 

Carbon Dioxide Removal Governance Frameworks

In May, the EU established the world’s first government-backed certification framework for CDR, the Carbon Removals and Carbon Farming (CRCF) regulation.

It creates an EU-wide framework for certifying carbon removal, to support the EU’s climate commitments while giving investors and buyers more confidence in the market. It establishes certification methodologies for different approaches — so far it includes direct air capture with carbon storage (DACCS), biogenic emissions capture with carbon storage (bioCCS) and biochar— while relying on existing and recognized certification programs to issue certified CDR units. It also establishes a public registry for the certified units. Despite the importance of such a framework in creating a common standard, environmental groups and others have voiced concerns about its environmental integrity, particularly regarding biomass removals.

Demand-Side Policies

The lack of predictable CDR demand, one of the sector’s biggest challenges, can be addressed by creating policies that guarantee a CDR market, such as long-term offtake agreements and production tax credits. By providing buyers and revenue certainty, these policies help CDR project developers secure financing, build projects at scale and reduce costs over time.

Earlier this year, Canada’s government launched a dedicated CDR procurement program, with plans to invest around $7 million in various CDR purchases, while, in Brazil, the government is currently integrating CDR into its national Emissions Trading System (SBCE) and has established tradable removal certificates to stimulate compliance-based demand for CDR.

The European Commission also recently launched the CRCF Buyers Club which helps aggregate demand for CDR units certified under the CRCF and acts as a hub for their buyers and suppliers. The Club is meant to boost private demand for certified CDR units while building toward the larger goal of supporting the emergence of a European CDR market.

Members of the Group of Negative Emitters (GONE) alliance — a group of countries committed to achieving net-negative emissions and promoting CDR — have also begun to implement demand-side interventions to nurture CDR ecosystems within their countries. For example, Denmark’s NECCS Fund awards contracts to companies delivering negative emissions, or CDR. Sweden is using reverse auctions to allocate more than 3 billion euros ($3.5 billion) in support of bio-CCS, with payments distributed over 15 years to projects that can deliver permanent removals, creating a long-term government-backed revenue stream for delivered removals. And, in Finland, the government has allocated 90 million euros ($103.8 million) to a biogenic capture fund, which will be awarded as grants to projects that demonstrate their capacity to deliver scalable industrial biogenic CDR.

However, it remains to be seen whether the biomass-based projects supported through these various mechanisms in the EU achieve permanent net carbon removal given the weaknesses in the CRCF rules for BECCS and biochar identified by European NGOs.

Supply-Side Policies

Supply-side policies — such as research, development and demonstration (RD&D) funding or investment tax credits — help reduce cost, risk or uncertainty of creating CDR projects.

In the EU, RD&D funding primarily stems from the Innovation Fund and Horizon Europe. The Innovation Fund’s revenues are raised through the auctioning of emission allowances under the EU Emission Trading System (ETS) and are eligible to provide funding for the commercial demonstration of innovative low-carbon technologies. While CDR is not a targeted area for funding, some CDR approaches that have compatibilities with carbon capture and storage (CCS) are eligible if they meet the Innovation Funds’  project criteria. Europe-based environmental organizations, like CarbonGap, recently highlighted that several Innovation Fund projects are already planning CDR credit sales within the scope of the EU Carbon Removal Buyers’ Club, although operations are only expected to begin in 2028.

Countries across Europe, such as Germany and Norway, have also established dedicated CDR RD&D programs. For example, in August of 2025, Germany approved the allocation of over $500 million from the fiscal budget to CDR by 2033. In 2026, about $113 million is expected to flow into RD&D for CDR project funding, and about $13 million to carbon credit purchases. In early November of 2025, Norway’s CLIMIT program also announced that it was allocating 10 million krone ($1.6 million) in funding for various CDR pathways. And, in Brazil, the government has allocated 700 million reals ($130 million) for industrial decarbonization innovation, including CDR approaches like BECCS.

How Can Carbon Dioxide Removal Scale Up Over the Long-Term?

A vibrant ecosystem of CDR startups are beginning to deliver carbon removal at the scale of thousands to millions of tons per year thanks to private investment, public research and development funding, voluntary CDR purchases and advance market commitments. At the same time, governance frameworks and CDR demand- and supply-boosting policies have sprung up across the world, expanding on the voluntary market and helping sustain the early growth phase of multiple CDR pathways.

But, while policies like government procurement programs or production tax credits can help spur market development in the medium-term, they likely won’t suffice on their own to build up the sector to the extent needed to achieve net-zero emissions and, thereafter, reverse overshoot of the 1.5 degree C warming target. With novel CDR technologies expected to cost $100 per ton or more, total expenditures on CDR will need to reach more than $100 billion per year to reach net zero, several orders of magnitude more than can be expected from the voluntary market and government procurement programs.

In the long term, CDR will need to be required, just as solid waste management is required today. Policy specifics will vary from jurisdiction to jurisdiction, but requiring polluters to pay can be a common guide to policymakers. Companies responsible for extracting fossil fuels from the ground and emitting greenhouse gases should be held accountable for removing it from the atmosphere and disposing of it safely and permanently. If designed with integrity and environmental and social protections, such policies would encourage emissions reductions, and thus reduce CDR obligations, while ensuring that residual emissions are compensated for. Placing this obligation on polluters is also fundamentally fairer than asking taxpayers to bear the costs.

Some governments are also working on partially integrating carbon removal into compliance markets, such as the EU ETS and California’s cap-and-invest program, to drive sustained and long-term scale up. These programs will need to be carefully designed and implemented to ensure that partial integration of CDR avoids weakening emission reduction commitments, and that only high-quality projects are credited:

• In the EU: The European Commission recently published their long-awaited proposed revisions of the EU ETS, which introduces a limited integration of permanent CDR into the EU’s most important policy to reach climate neutrality by 2050. Under the proposed revisions, between 2031 and 2024 the Commission would auction 250 million metric tons of ETS allowances and use the proceeds to purchase and retire CRCF-certified CDR credits (although only BioCCS and DAC are eligible).
  
  The proposed revisions to the ETS system have been widely criticized by European NGOs and some governments for slowing the rate at which the emissions cap will shrink and for extending the phase out of free allowances. Environmental groups have also objected to the CDR program on the grounds that it allows CDR to substitute for emissions reductions and uses flawed accounting methodologies.
  
  At this point, changes to the proposal can still be negotiated. Subsequently, if the revisions are approved by the EU Parliament and Council, the Commission will develop implementing regulations — an opportunity to establish stronger safeguards for biomass sourcing and lifecycle assessment of forest carbon stock changes and emissions leakage.
   
• In California: California is also taking steps to more fully integrate CDR into its climate policies. Currently, direct air capture can be used for compliance under California’s Low Carbon Fuels Standard (LCFS). However, because the cost of LCFS credits is well below the cost of direct air capture, this option has not yet been exercised.
  
  Relatedly, the California Air Resources Board (CARB) is in the process of developing regulations to establish a carbon capture, removal, utilization and storage program under SB 905, which will include monitoring and reporting protocols. CARB has also been directed by legislation to consider allowing CDR to be used for compliance with California’s cap-and-invest program (subject to the limitation that offsets can be used for no more than 6% of a covered entity’s compliance obligation) and is developing regulations to govern CDR projects, which will include monitoring and reporting protocols.

What’s Next for Carbon Dioxide Removal Development?

Current U.S. policy pullbacks from climate action and Microsoft’s adjustment of pace in CDR purchases have clouded the near-term prospects for the expansion of the CDR industry in the United States. Meanwhile, growing interest and investment outside the U.S., including through the Group of Negative Emitters and Frontier’s expanded advance market commitment fund, means there are still opportunities for the nascent industry to innovate and grow.

It is clearer than ever that CDR has an essential role to play in combating climate change. To fulfill that role, support for CDR will need to transition from voluntary private purchases, to robust government-driven supply- and demand-side policies, to, ultimately, an obligation on polluters to remove the residual emissions they are responsible for as an integral component of comprehensive climate policies.

Looking even further ahead, greater support still may be needed after net zero to enable the world to deploy CDR at levels sufficient to reach net negative this century.