COMMODITIES 2025: Bullish demand expected for removals amid key issuances

This is part of the COMMODITIES 2025 series where our reporters bring to you key themes that will drive commodities markets in 2025.

Some market participants expect bullish demand in 2025 for tech- and nature-based carbon dioxide removals with an emphasis on high-quality projects, while others are more cautious regarding demand improvements until more supply becomes available later in the decade.

Developers were particularly optimistic about demand due to increases seen toward the end of 2024 in key segments, while intermediaries were more cautious about a demand push in the first quarter of 2025.

"I expect demand to continuously increase and move towards [nature-based solutions] removals and durable [carbon dioxide removal], but most of the market is still stuck in spot transactions so it's important to clear the backlog of issuances from Verra to unleash more demand," Ikarus Janzen, chief commercial officer at project developer Varaha, told S&P Global Commodity Insights.

"There are definitely increasing amounts of buyers willing to prepay for removals credits, and I expect continued increased demand for removals going into the new year," Ana Milena Plata Fajardo, CEO of project developer Biofix, told Commodity Insights.

The Platts Tech Carbon Capture Current Year price averaged $125/mtCO2e over the Jan. 2-Dec. 23 period. The Tech Carbon Capture price was assessed at $130/mtCO2e on Dec. 23, a 7% rise from the beginning of the year.

Meanwhile, the Platts Blue Carbon Current Year price saw bearishness across much of 2024, dropping 10% from the launch of the assessment on March 11 to be assessed at $25.25/mtCO2e on Dec. 23

Other participants are cautious about bullish market expectations for 2025, with some believing demand improvements may not occur until the second half of the decade.

"You're looking at late 2026 to early 2027 for material market improvements," James Row, founder of project financier and broker Entoro, told Commodity Insights, adding that tech-based removals will drive demand as more supply becomes available.

Supply expectations amid key issuances

Market participants expect key issuances with the natural carbon capture segments, particularly soil carbon credits, to take center stage in the nature-based removals space in 2025, as the market awaits the first issuances of credits under Verra's VM0042 methodology in the coming year.

Soil carbon offers additional co-benefits and shorter project development timelines compared with other nature-based removals such as afforestation/reforestation projects, according to market participants.

"I expect soil carbon to benefit very strongly, given that VM0042 projects will issue for the first time next year," Janzen said. "The shorter time from project financing to crediting, in comparison to [afforestation/reforestation], significantly favors soil carbon in addition to the multitude of co-benefits."

"Short-term availability very much depends on Verra's ability to fulfill their stated goals of reducing time to issuance," Janzen continued.

On overall removal supply, some market participants were skeptical of supply growth at current prices and risks related to nature-based projects.

"Supply of nature-based removals is likely to decline 10%-25%, as project developers won't be able to sustain themselves at current prices and buyers are unlikely to pay more for credits with the level of risk and baggage nature-based projects bring to the table," Row said.

Key regions

Several sources noted "huge potential" in Latin America and India for being key emerging regions for removals project development.

ARR projects with native species on private land in Latin America will receive the most demand, according to one source.

A second source conferred that buyers will increasingly move toward native species ARR projects in Latin America due to greater ecological potential and co-benefits compared with commercial species projects or other regions.

The Platts Natural Carbon Capture Current Year price jumped 12% from the beginning of the year to be assessed at $14.50/mtCO2e on Dec. 23 amid increasingly bullish sentiment for the segment.

"The market is very optimistic for ARR pricing going into 2025," a Latin America-based developer said.

"High-quality ARR -- those prices are moving up in the next few years," a US-based project financier said.

Meanwhile, market participants also noted India as a key geography for scaling removals projects due to the availability of required feedstock, the significant presence of agriculture lands, and affordable capital and operating costs.

"I believe India will be the leading country across all CDR pathways," Flo Oberhofer, managing director of PyroCCS India, said. "Biochar is currently expecting a peak, but the country has perfect conditions to also house [enhanced rock weathering] and [direct air capture] projects."

"The scalability of ERW projects [in India] by 2025 depends on overcoming challenges related to material sourcing, the logistics of land acquisition and widespread application," Shrey Agarwal, chief operating officer at Alt Carbon, said.