Market Mechanisms for Carbon Dioxide Removals: An Overview

Carbon Dioxide Removal (CDR) is deemed critical to achieve the climate targets set by the Paris Agreement, underscoring the need for robust and scalable CDR markets. This review explores how CDR has been, and could increasingly be, integrated into existing and emerging carbon markets. Despite growing policy attention, the deployment of CDR, especially permanent forms, remains marginal and challenging to scale within existing carbon pricing and crediting frameworks. Although certification schemes are becoming more tailored to the unique characteristics of different CDR approaches, cost disparities between permanent removal credits and cheaper emissions avoidance credits continue to hinder uptake. In response, several jurisdictions are exploring hybrid policy models that combine market-based mechanisms with public financial support. Additionally, increasing interlinkages between carbon market mechanisms are expected to facilitate more effective and widespread integration of CDR over time. The report provides an overview of the role of CDR across three types of carbon market mechanisms: voluntary, quasi-compliance, and compliance-based systems. It highlights the defining features and interconnections among these markets, and assesses how each framework contributes to the deployment of removals, in particular novel CDR. While voluntary markets serve as innovation hubs for CDR, their limited scalability and voluntary nature highlight the importance of compliance markets and targeted policy support for permanent CDR. Those quasi-compliance and compliance markets, including mechanisms under Article 6 of the Paris Agreement and Emissions Trading Systems (ETS) like UK and EU ETS, are beginning to incorporate CDR more explicitly. This signals a shift toward broader carbon market integration and geographical coverage, requiring robust accounting and certification procedures for both emission reduction and removal projects.