EDITORIAL: The global CDR market: 'Microsoft and the Seven Dwarves'?

Quantum Commodity Intelligence –

Quantum's analysis of carbon dioxide removal (CDR) deals between May and August paints a picture that the majority of participants in the voluntary carbon market (VCM) are very familiar with.

The dominant buyer is of course tech giant Microsoft, which accounted for almost 17 million of the over 17.5 million CDR offtake agreements signed during the covered period. And since then, the company has announced several new deals in September putting it at the forefront already of the next phase of buying.

League of its own

Microsoft is in a league of its own when it comes to CDR buying. So much so that one executive at an Africa-based developer last week referred to the market – in this particular case the 'novel' CDR sector – as "Microsoft and the Seven Dwarves" when it comes to buyers.

"There's one really big voluntary buyer, a bunch of smaller ones, and then there's traditional CDR which does have some volumes with a range of other buyers, James Mwangi, co-founder and chief executive  of Africa Climate Ventures and founder of Climate Action Platform For Africa told a webinar hosted by the World Resources Institute.

One of the world's biggest airlines, British Airways, is hardly a dwarf in the aviation sector. However, its agreements announced this week to buy over 33,000 CDRs from a variety of sources around the world – which it said makes it the biggest CDR buyer in the UK – are dwarfed by Microsoft purchasing. The other major buyers out there seem to be also big tech companies or buyers' pools, such as the Frontier fund, but even their purchasing is not on Microsoft's scale.

One wonders what would happen to the CDR market, novel or otherwise, if Microsoft suddenly changed its buying plans.

Research consultancy Wood Mackenzie warned last week in a report that for many companies the CDR sector is still too risky for many investors due to inconsistent policy support by governments around the world, limiting widespread private-sector investment needed if CDR is to help deliver net zero greenhouse gas (GHG) emissions by 2050.

The report said that in the short term the voluntary market is critical to scaling up the CDR market, although alone the VCM is unlikely to deliver the gigatonnes scale that is needed to meet 2050 net zero goals.

The wider VCM itself is hardly set the world alight as a traded market at the moment. The market has effectively become an "investment opportunity" rather than a daily traded asset following a fall in liquidity over the last year, sources told Quantum last week.

The trend has been in the making for at least two years, but sources now agree it is unlikely to reverse in the short term. "We don't really see the VCM as a traded market where it's possible to make money by taking positions, rather it's an investment opportunity for the long-term to create a business to sell high-quality carbon credits," said a source at a large commodities trading house.

For now, the VCM trades more closely akin to certain retail products and to wine, where the characteristics of each product impact the price greatly, rather than to a globally relevant asset such as oil where liquid price benchmarks aid the physical trading of cargoes.

Complimentary tickets

News also broke last week that conference organiser Carbon Forward has offered "carbon credit buyers" complimentary tickets to its upcoming conference in London, in a bid to reassure market participants they will find enough business opportunities at the event.

The event organiser said free tickets are "available for attendees from medium and large companies that buy and retire voluntary carbon credits or are looking to do so in the future", although not all buyers are eligible.

This is not to single out one event, but to highlight a wider market issue. If there aren't enough buyers out there, then there are a lot of projects, reduction as well as removal, that are not going to be able to continue.

So fair play to Microsoft for its market purchasing, but let's hope there are others waiting in the wings.