A group of asset owners is calling on governments to regulate the market for Carbon Dioxide Removals (CDR) more heavily.
The Net Zero Asset Owner Alliance (NZAOA) wants clearer governance and support for CDR to make it easier for its members to invest in the market, to achieve their long-term climate commitments.
The coalition, whose members include Allianz, PensionDanmark, ERAFP, Storebrand and SwissRe, published a paper today making a series of recommendations on how to scale the market.
NZAOA bans its members from using carbon removals to achieve their sub-portfolio or sector-level decarbonisation targets before 2030, requiring them to focus exclusively on reducing the emissions of their underlying portfolio companies.
But the group has long acknowledged the role of CDR in enabling asset owners to meet their post-2030 net-zero targets, because they will be essential for ‘netting out’ residual portfolio emissions.
To support this, it has encouraged its members to consider allocating capital to the emerging technologies that will eventually underpin the CDR market, so that they have access to sufficient carbon removals in the future.
“There is interest in CDR among large global asset owners with long-term investment horizons, such as insurance companies and pension funds,” noted NZAOA.
“This is because their assets are directly endangered by damage events and the consequent loss of income and reduced potential for future financial returns.“
As such, it is of utmost importance that asset owners have a reliable enabling environment that supports economically viable business models for CDR over the long term.”
To achieve this, NZAOA said governments around the world should pursue “CDR positive policies”, including adding carbon removals into their compliance or regulated markets.
The European Commission has proposed including removals in the EU Emissions Trading System by 2026, for trading after 2031. Governments should also add CDR targets into their official climate commitments under the Paris Agreement, NZAOA said.
In addition, the paper calls for the adoption of shared definitions and standards, along with a robust certification process for CDR credits, more global trading infrastructure, and insurance options to make projects more bankable.
On the investor side, the report noted that “some large asset owners have the resources and capabilities to invest in asset classes such as venture capital and infrastructure equity”.
“However, building such dedicated in-house teams may not be cost-efficient for smaller asset owners,” it added.
It said asset owners should “rethink the organisational design of investment teams” to make it easier to pursue CDR opportunities, by creating effective combinations of private equity, ventures and real assets specialists.
NZAOA also suggested investors should engage more with ratings agencies and governments to promote a stable and predictable CDR market.
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