Summary
The Nordic Carbon Removal Association supports strong public policy measures to de-risk early investments and enable the commercial scale-up of permanent carbon removal technologies. Strategic funding, scale-up subsidies, and predictable demand signals are key to bridging the “valley of death” that often stalls climate innovations. While the voluntary carbon market has the potential to drive at least some of the change, policymakers will need to take additional action to generate the predictable and growing demand for carbon removals that is required to achieve the large-scale volumes of removed carbon that are necessary for net-zero. Predictable revenue streams that make projects bankable are paramount for the important push to large-scale deployment.
Accordingly, support mechanisms should evolve in tandem with market maturity. Early-stage public investment must give way to performance-based incentives, followed by long-term compliance demand. This progression is essential to unlock private capital and build robust, self-sustaining markets for carbon removal. A range of instruments are at the disposal of policymakers, all with different impacts. The policy instruments of choice must be tailored to the specific CDR methods, ensuring a focus on innovation and scaling to commercial size for the novel methods, and a focus on market-pull instruments when methods and value chains mature commercially.
Key recommendations:
Bridge the funding gap
Traverse the “valley of death” by boosting R&D and first-of-a-kind grants for novel methods. Deployment of CDR currently requires public subsidies to support the initial scale-up of the industry. Such subsidy mechanisms are particularly important in the early stages of industrial development, when actors rely on achieving a critical mass of initial projects. Reaching this critical mass helps drive investment decisions across the value chain, leading to cost reductions and efficiency gains over time. Dedicated project funding support and cross-border demonstration projects accelerate learning curves, cut costs, and make large-scale deployment possible.
Strategically, governments should employ a diversified portfolio approach, deliberately allocating support across multiple carbon removal methods . Such an approach should individually target the various CDR methods that are relevant in the Nordics, including BECCS, DACCS, biochar as well as emerging CDR methods (e . g . enhanced rock weathering, ocean alkalinity enhancement and direct ocean capture).
Lock in long-term demand
Continuous demand signals are essential. Once the technological and commercial maturity of the different CDR methods increases, policymakers can start looking to more permanent policy options for generating continuous demand for carbon removal. While the voluntary carbon market has the potential to drive at least some of the required volumes, policymakers should as quickly as possibly support the introduction of some kind of compliance mechanism for CDR. A likely possibility is some form of inclusion of CDRs within the EU ETS, which is currently under discussion. Another option could be designing a separate CDR compliance scheme, potentially covering emitters both within and beyond the current ETS scope. A compliance market for CDRs would create a more predictable long-term demand for CDRs by expanding the demand base.
In addition to adopting the compliance market instruments, other market-pull instruments such as open-ended contracts-for-differences or fixed tax credits – similar to the 45Q in the IRA – could also be introduced. These instruments would provide stable and predictable contributions to the business case for individual CDR projects. They are most useful when existing value chains have already been established and cost reductions have been achieved, ensuring that public subsidies per tonnes of CO2 removed are limited.
Targeted scale-up subsidies
Put in place predictable, performance-based policy instruments that provide stable revenue frameworks during the scale-up phase of CDR projects. Reliable income streams are essential to unlock private investment and move technologies from pilot to commercial deployment.
Public subsidy schemes such as the reverse auctions in both Sweden and Denmark are critical to ensure that actual project investment decisions are taken. Similar initiatives should be introduced across the Nordic region. Unlike the short-term commitments typical in voluntary carbon markets, subsidy schemes offer the stable cash flows companies need to build investor confidence, demonstrate revenue predictability, and secure favourable long-term financing terms. By actively committing public resources, Nordic governments can create immediate and predictable revenue streams for companies, supporting critical project milestones from operational break-even to commercial scaling – while supporting the development of the entire value chains around these projects. The design of the subsidy schemes could take different shapes and forms, recognising that private developers currently need offtake certainty.
The proposed EU Industrial Decarbonisation Bank (IDB) – which is expected to pool existing EU-level funding resources and mechanisms under a coordinated framework – could potentially play an important role in facilitating efficient access to and deployment of existing finance instruments, improving clarity and reducing administrative burdens for Nordic project developers.