Deployment incentives are particularly important for carbon dioxide removal (CDR) methods since there is generally no intrinsic market value attributed to the benefit they provide, which is primarily atmospheric clean-up of CO₂. Accordingly, dedicated policies are needed to require or incentivise the purchase of removals, especially those that are costly today.

At the EU level, there are no dedicated deployment incentives for CDR in place. In the latest revision of the EU Innovation Fund, it became possible to introduce carbon contracts for difference (CCfDs) that use money from the Fund to bridge the price gap between the market price of CO₂ and the cost of production for CCS and CDR methods such as DACCS and BECCS.

At the country level, Denmark is the only country with an operational deployment incentive for CDR. However, Sweden, the UK and Norway are all at various stages of developing their own deployment incentives to support carbon removal. Other countries such as the Netherlands, France and Germany are at various stages of developing deployment incentives for other climate technologies that could become relevant to CDR.

In the United States, the 45Q tax credit is the main CDR deployment incentive and the only one at the federal level. It provides a credit for each tonne of CO₂ removed with direct air carbon capture and storage (DACCS) and bioenergy with carbon capture and storage (BECCS). A lower credit level is also available for DAC and BECC projects that capture CO₂ for utilisation.

There are a couple of state-level policies with deployment incentives for CDR, including California’s Low Carbon Fuel Standard, and Washington state and New Mexico’s Clean Fuel Standards. Most recently, the 4 Corners Carbon Coalition – a local government-funded initiative – has emerged at the county level to provide grants to support a range of different CDR approaches.

What types of deployment incentives are there?

There are many different types of deployment incentives that can be used to support CDR. The table below lists the main types, but is not exhaustive.

Deployment incentives can be provided in different ways, depending on the type of incentive. For example, reverse auctions can be used to select projects that receive support through procurement or subsidies. For CDR, a reverse auction could involve an entity (e.g., government) defining a certain quantity of CDR they want to purchase or support and inviting suppliers to bid on supplying certain amounts for a certain price. A maximum price per tonne can be defined to create a ceiling on what the buyer would be willing to purchase. The winner of this competitive process will then deliver the tonnes at the price they committed to.

European Union

At the EU level, there are currently no deployment incentives for CDR. There is, however, an existing legal basis in the EU Emission Trading System Directive, which says that the Innovation Fund can provide support for low-carbon technologies through carbon contracts for difference. This prerogative could apply to CDR technologies already supported by the Innovation Fund, such as BECCS and DACCS. Furthermore, the Innovation Fund could also set up a pilot procurement programme for CDR under its “pilot projects” category.

European countries

Denmark is the only EU member state with operational deployment incentives for CDR through its funds dedicated to CCS and CDR. These funds provide support for an 8 to 15-year period through subsidies paid per tonne of CO₂ removed/captured and stored. The CCUS Fund provided a first round of subsidy to Orsted for a BECCS project. The NECCS Fund provided the first round of subsidies to three CDR projects. Following a restructuring of the funds, the CCUS Fund was transformed into the CCS Fund.

Sweden is close to introducing its operational deployment incentive in the form of a reversed auction scheme for BECCS. The Swedish government has set aside SEK 36 billion (EUR 3,3 billion) for BECCS from 2026 to 2046, to be distributed across suppliers who can capture and store carbon dioxide of biogenic origin at the lowest cost, determined through reverse auctions.

The United Kingdom is developing two deployment incentives: the greenhouse gas removal (GGR) business model and the Power BECCS business model. The GGR business model will assume a ‘contract for difference’ (CfD) structure, building on precedents from low-carbon electricity and CCUS. The Power BECCS business model is being developed as a ‘dual CfD’ with incentives for both electricity production and carbon removal.

While other European countries do not have concrete plans yet, some have initiatives in place that are relevant to the deployment of CDR. For example, the Netherlands offers a subsidy for CCS, the SDE++, which could be open to BECCS in 2024. France and Germany are both putting in place deployment incentives for CCUS. A direct payment scheme for CDR, the Luxembourg Negative Emissions Tariff, has been proposed in Luxembourg. Finally, Norway has started internally discussing a potential deployment incentive for DACCS.

United States

The 45Q tax credit is currently the main financial incentive for the deployment of carbon removal at the federal level. The credit is a performance-based tax credit designed to incentivise investments into both point-source carbon capture and sequestration as well as some types of CDR. For CDR, only DAC and BECCS projects are eligible to receive the tax credit.

The credit was initially enacted in 2008; enhanced in 2018 to make DAC eligible for the credit, among other changes; and enhanced further in 2022 through the Inflation Reduction Act (IRA). This 2022 expansion made several changes including increased credit levels and lowered capture thresholds.

45Q credits levels and capture thresholds, as revised in IRA

Notes: EOR = enhanced oil recovery; tCO₂ = metric ton of carbon dioxide; BECCS = bioenergy with carbon capture and sequestration

Projects that plan to claim the credit must be placed into service before January 1, 2033 and can claim the credit for up to 12 years after they are put into service.

Aside from the 45Q production tax credit, other types of deployment incentives are possible, but do not yet exist in the United States. For example, an investment tax credit could be provided to cover upfront capital costs associated with DAC projects, an approach currently being used in Canada.

There are a handful of financial deployment incentives for novel CDR approaches like DAC at the state level as well, with California’s Low Carbon Fuel Standard (LCFS) as the most prominent example, while other states like Washington and New Mexico have also set up similar programmes. While the programmes in Washington and California solely include DAC, New Mexico has yet to specify which CDR approaches will be included in its programme.

The California LCFS is designed to reduce the greenhouse gas emissions associated with the life cycle of transportation fuels by setting a declining emissions intensity cap for fuels used in California. Direct air capture (DAC) projects are eligible to receive credits under the LCFS if they utilise the captured CO₂ to produce synthetic fuels, or by permanently sequestering the CO₂ in geologic formations. While DAC projects can be located anywhere, not just in California, the synthetic fuel produced with the captured CO₂ must be consumed within California. DAC projects that permanently sequester the captured CO₂ can be located anywhere and do not need a fuel component to receive a credit through the LCFS. Although no credit based on DAC projects has yet been claimed under the LCFS, the financial incentive itself is a draw for project commercialisation in the US. The LCFS credit is $44/tCO₂ as of June 2024.

At the county level, the ‘4 Corners Carbon Coalition’ is a network of local governments across Colorado, Arizona, Utah and New Mexico that catalyse technology-neutral support for CDR projects through grants. The coalition prioritises CDR approaches that can demonstrate the following: a minimum sequestration period of 100 years, rigorous and transparent MRV, no harm or burdens on communities, as well as the delivery of economic, social and ecological benefits. Grants totalling $390,000 have already been awarded to four DAC-to-concrete projects.