Carbon dioxide removal prices and the challenge of emissions trading system integration

Leonie Meissner, Josh Burke and Luca Taschini

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: Meeting net zero emissions by 2050 will require large-scale deployment of carbon dioxide removal (CDR) — technologies that capture carbon dioxide from the atmosphere and store it durably in the Earth’s geosphere. However, the market for durable CDR (methods that store captured carbon for centuries to millennia) is still in its early stages, with limited deployment, high costs and little public data on pricing. To address this evidence gap, the authors of this report analyse a consolidated dataset covering 43 million tonnes of contracted durable CDR across all major methods and geographies. This provides one of the first system-wide assessments of prices and contract volumes. The findings show that a rapid upscaling of CDR deployment is necessary. By the end of 2025, only 1.2% of contracted durable CDR had actually been delivered. Prices for CDR credits remain several times higher than carbon prices in the UK and EU Emissions Trading Systems (ETS) — the markets used to price emissions allowances. Crucially, expected learning rates — the cost reductions typically achieved through doubling of capacity — are very low or even negative for most methods. This suggests the existence of structural bottlenecks rather than technological maturity. As a result, durable CDR costs are unlikely to converge with ETS carbon prices in the near term and may in fact diverge further. These findings have direct implications for the UK Government’s ambition to integrate CDR into the UK ETS by 2029. Carbon Contracts for Difference (CCfD) — long-term government contracts that guarantee a fixed price for carbon removal — will be essential to bridge the gap between current market prices and the cost of CDR. Our estimates suggest that annual subsidy costs could reach approximately US$199 million (around £147 million) between 2028 and 2032 and increase significantly as removal targets scale up.

JEL-codes: J01 N0 R14 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2026-06-08
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