Exploring Pathways for Government CDR Purchases

Meeting our net-zero goals will require the deployment of emissions reducing technologies and pathways for directly removing carbon dioxide from the atmosphere. For the latter category, innovation and funding from the bipartisan infrastructure law have the United States on a trajectory towards global leadership in deploying carbon dioxide removal (CDR) technologies, including direct air capture (DAC), but gaps remain to effectively scale these solutions. In this context, a bipartisan conversation surrounding the role of the federal government in purchasing carbon removal services has emerged, ultimately leading to congressional direction for the Department of Energy to “establish a competitive purchasing pilot program for the purchase of carbon dioxide removed from the atmosphere or upper hydrosphere” as part of the Fiscal Year 2023 appropriations omnibus bill.

With this new pilot program to procure CDR services, DOE can provide needed demand-side support for the carbon removal industry to catalyze investment and reach gigaton scale. Critical design decisions will determine the program’s effectiveness at scaling up the carbon removal industry and the type of carbon removal projects that will receive private sector investment.

To inform DOE and Congress in the effective design of the pilot CDR procurement program, the Bipartisan Policy Center convened a private, off-the-record workshop with NGOs and industry stakeholders familiar with the intricacies of procuring CDR services. The workshop included a discussion on goals and design characteristics of the procurement program, with questions about how to best leverage private sector expertise and catalyze additional investments to multiply federal dollars spent. While there was no consensus position among all participants, the following categories reflect considerations brought up during the discussion.

Defining Goals

There was agreement that goal-setting would be important in determining optimal design for the pilot program. Possible goals discussed in the workshop included:

• Building administrative capacity at DOE to expand toward a larger procurement program in the future
• Driving down the cost of CDR technologies
• Maximizing innovation potential
• Driving standards for removals that could permeate more broadly to other governments or the private sector
• Minimizing political risk
• Getting “wins” and delivering actual removals
• Showing proof of concept of the co-benefits of some CDR projects to make future investment more attractive
• Supporting DAC Hubs to the extent that some project types could make use of and contribute to that shared infrastructure
• Bridging the innovation “valley of death” by focusing on projects at the pilot and demonstration stages.

It is worth noting that some of these potential goals are in opposition. How DOE chooses to establish and prioritize the above goals will influence the execution and outcomes of the program.

Choosing How to Prioritize Projects

Throughout the workshop, a wide range of criteria were discussed for how best to prioritize projects and establish eligible technologies for the program. Weighing the relative importance of each of the criteria will directly impact the type of projects that receive support, future industry standards, and overall scale-up potential.

Participants raised project criteria that loosely fit within the following categories, but there was not a consensus on the order of importance:

• Permanence: Participants agreed that a CDR pilot procurement program should, at a minimum, prioritize more durable solutions. However, there is debate on the degree to which less durable solutions should be eligible for the program as well. While some participants proposed a floor of 1,000 years of permanence for technologies considered by the program, others proposed building a portfolio with a small portion of less permanent removals so that those pathways can access the investment needed to improve.
• Measurability: Participants agreed that measurability and monitoring is a key aspect of a quality CDR procurement program. But, there was debate over how to treat measurement uncertainty in the context of a procurement program. Closed-boundary solutions (e.g. direct air capture with geologic storage) have relatively certain and straight forward measurability compared to open-boundary (e.g. alkaline waste mineralization, ocean alkalinity enhancement) solutions, yet some advocate that open solutions can offer significant scale-up potential in the longer term. Determining the eligibility of open solutions requires weighing the goal of measurability with the goal of scale-up potential.
• Scale-potential: While there was broad agreement about the opportunities that DOE procurement presents in deploying a gigaton-scale carbon removal industry, workshop participants recognized the relatively small scale of CDR deployment that exists today. Participants discussed how any CDR procurement program should consider the potential for eligible CDR pathways to contribute substantively toward scale-up of the industry. Procuring CDR solutions that meet other program goals but have less potential to be scaled-up in the future may hamstring the program’s effectiveness of catalyzing investment toward a gigaton-scale industry necessary for net-zero goals. Some participants noted that there are CDR solutions that currently lack the desired permanency or measurability qualifications, but offer greater scale-up potential and could be improved, and should therefore be considered for eligibility.
• Cost-potential: While cost will be a component of any government procurement effort, participants considered technologies with the potential for driving down costs over time. A distinction was made between the current cost of carrying out a CDR service and the potential for CDR costs to become lower over time. One suggestion was to consider what it would take to get a technology from its current cost to DOE’s Carbon Negative Shot goal of $100/net metric ton within a decade. However, many participants agreed that many CDR technologies are still in their infancy and cost-potential is largely unknown. One potential solution could be to prioritize cost-potential where appropriate and use current costs as secondary criteria for evaluating projects, after consideration of the primary goals.

Balancing Risk and Innovation

The role of a CDR procurement program in the innovation cycle was one of the more debated topics during the workshop. Keeping a “wide aperture” for technology inclusivity was generally acknowledged as important, but there was some disagreement as to what level of technological readiness should be required. Procurement was seen as a strong tool for de-risking innovative carbon removal projects, allowing for greater investment that could lead to improvement of CDR technologies that otherwise would not have occurred. Some of the most innovative, yet early-stage projects, such as enhanced weathering and ocean CDR pathways, have substantial potential for scale.

However, procurement of riskier solutions may open DOE up to political risks. Some participants believe that a procurement program should be for more mature projects that can clearly be measured and verified. They argued that other DOE R&D and commercialization programs may be a better fit for supporting early-stage technologies and pathways with more uncertain monitoring, reporting, and verification (MRV) approaches, while DOE procurement should be a clear indication of verifiable carbon removal services.

While DOE will need to balance risk and supporting innovative solutions, there was general agreement among participants that DOE should establish clear, science-based criteria for program eligibility. DOE should create a diverse portfolio of CDR technologies, possibly including technologies with different risk levels.

Measurement and Transparency

There was general agreement that quality MRV is a critical piece of a CDR procurement program, and DOE should pay for the MRV of a CDR project as part of the procurement process. Some noted that it could be helpful for the price of MRV to be listed separately from the price of the CDR service rendered, as a transparent signal to the private sector of the need to pay for these verification services. Others noted the significant potential to leverage the national lab infrastructure to conduct MRV for the program, while others strongly preferring a DOE and lab lead program design. Notably, the DOE has issued a funding opportunity through the Technology Commercialization Fund to leverage national labs to support MRV best practices for CDR.

Private sector participants with MRV expertise can also play an important role in facilitating these MRV practices, especially in carrying out the verification activities over time. Workshop participants noted that if external entities were used for verification, program design should avoid incentivizing improper reporting.

Mitigating Political Risk and Leveraging the Private Sector

DOE has the potential to hedge risk in CDR investments by leveraging expertise and capital from the private sector. One point of discussion that was raised was the potential for a CDR purchasing “match,” which can multiply federal dollars and provide an extra layer of private sector due diligence. While this matching feature was generally viewed positively, many participants were of the opinion that the selection of CDR projects and portfolios should be carried out entirely by DOE.

Another idea that was raised and viewed favorably was the creation of an independent advisory board of public and private sector experts that could engage on key decision points for the program. This board of directors design has been successfully utilized by other government actors, such as the International Development Finance Corporation, to increase oversight, program effectiveness, and insulate the federal activities. A similar board of directors design was proposed within the American Energy Innovation Council’s 2022 report, Scaling Innovation: A Proposed Framework for Scaling Energy Demonstrations and Early Deployment.

Program Design

In discussing program design features, workshop participants raised that DOE should differentiate the goals of a short-term pilot program from a long-term procurement program. Some noted that a long-term procurement effort should strive for economic efficiency through reverse auctions and other price discovery tools, while short term pilot procurement (on the order of $100 million in the initial years) may be better administered through prize-authority and offtake-type arrangements to drive impact. There was no consensus as to the ideal award structure, but participants agreed that political support and guaranteed funding were essential for program success.

During the discussion, a question was raised about whether the federal government should procure insurance to manage risk from projects that fail to deliver removed tons. In response, at least one participant suggested that the risk could be partially alleviated if the program was designed in a manner where the government does not pay for a removal until the removal is delivered—such as through the advanced market commitment structure recently implemented by some private sector actors. In such a system, the government would want a milestones-based approach to know early on if the likelihood of delivery has decreased, so that they can then reallocate funding towards another CDR project.

As the carbon removal industry matures, the tools needed to support scale-up will need to adapt to project needs. It is important to design a program capable of meeting the needs of the current carbon removal industry that builds in flexibility as projects scale-up.