The World Economic Forum recently published an article that proposes key steps for constructing the financial architecture that can help unlock carbon dioxide removal (CDR) at scale.
The publication was co-authored by Carbonfuture’s Chief Communications and Trust Officer Leila Toplic and Eneida Licaj. Lead, First Movers Coalition, Finance Pillar, World Economic Forum, outlines ways for addressing the financial challenges currently preventing bolder CDR growth.
Highlighting that the technology needed for deploying carbon removal at climate-relevant levels already exists, the article notes that the big missing puzzle piece is tailored financial solutions that would work on both the supplier and funding side.
A key barrier in this reality is the missing middle financing, which, if addressed, would provide financial support for projects that are beyond early equity but are not yet bankable or derisked enough to appeal to lenders and are too capital-intensive for venture capital (VC) investors.
According to the article, the CDR industry is lagging at this stalemate due to a number of factors, such as misaligned expectations, where stakeholders might expect banks and VCs to do more, yet the way in which these financiers operate doesn’t align with the needs and specifications of carbon removal projects.
Besides the missing middle financing, the article mentions the difference in terms and understandings between suppliers and financing bodies, pointing to long and costly transaction cycles as another obstacle that slows capital deployment in the face of growing demand.
The article stresses that a functional financial CDR architecture will require a reliable, multi-year demand that can provide suppliers with the economic scaling boost while enabling a predictable cash flow that will strengthen the confidence for project investors and lenders.
Relevant: In A New Report, CDR.fyi & Planet2050 Reveal Financing Insights From Durable CDR Developers
Additionally, capital must move through a structured stack where each layer matches its risk tolerance, cost of capital, and expected return, and to reduce risks and gain the trust of financiers, suppliers need independent and transparent monitoring, reporting, and verification (MRV).
The publication outlines specific steps for corporates, governments, development banks and family offices, institutional investors and project developers, and it urges immediate action to scale CDR to levels needed to limit warming to 1.5°C.
Read more: Altitude Announces A Major Ramp Up Of Its Ascent 1 CDR Financing Facility