🚀 Scaling CDR to gigaton scale will require significant government support. But what policy would work best? I have been diving deep into the different options. Today: reverse auctions.
📉 Unlike traditional auctions - where prices go up as bidders compete - reverse auctions drive prices down incentivising cost efficiency crucial for emerging technologies like carbon dioxide removal (#CDR), where cost structures are not yet well established and can vary significantly.
And it works.
🇬🇧The UK’s “Non-Fossil Fuel Obligation” (NFFO) led to a price drop in renewable energy until they were approximately half that of the prices in Germany’s feed-in tariff.
🇨🇳In China, the average price for a concession project went down by a third.
🇧🇷 In Brazil, auction prices for wind have decreased by nearly 17% in the first few years.
Main advantages of reverse auctions for CDR:
⬇️ Encourage competition which has the potential to drive down costs
🪙Help discover the real market price at which providers are willing to offer their services thereby setting a benchmark price for CDR.
📋 Control costs and quantities where the buyer (e.g. government) can control the total amount spent on CDR and total volume of CO2 removed.
🏦 Providing a guaranteed buyer can help new CDR technologies enter the market and reach commercial maturity.
⚠️ Reducing risk by providing a stable revenue stream, helping CDR providers secure financing and invest in technology development.
Case study: Sweden
🇸🇪 The Government of #Sweden has set explicit targets for carbon removal from Bioenergy with Carbon Capture and Storage (#BECCS) of 1.8 Mt per year by 2030 and 3–10 MtCO2 per year by 2045.
🤑To reach this target and motivate scale-up of BECCS a reverse auctioning system has been proposed with a budget of around €3.6 billion for the period of 2026–2046.
🏭The aim is to achieve 2 million tonnes of CO2 negative emissions per year by 2030 with the first auction for 600,000 tonnes with storage beginning in 2026.
💰Supported projects will be able to receive results-based payments per verified tonne of biogenic CO2 stored for up to 15 years.
⏸️ However, these plans have been paused until the European Commission approves them and a framework for bidders needs to be put in place. So stay tuned!
🧰 If you want to dig deeper, I have previously covered some of the other main policy tools at our disposal:
❓ What is your take? What policies could work best to foster demand for CDR and scale up the industry?
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