Why Carbon Removal Struggles to Attract Capital and How Carbon Credit Markets Can Fix the Funding Gap

The real bottleneck is bankability, not technology readiness

Bankability is now the binding constraint for many carbon dioxide removal pathways. Direct air capture with storage, BECCS, biochar, mineralisation, and several ocean-based approaches have moved beyond pure lab work. Many have pilots that run and produce measurable outputs. The problem is that pilots do not automatically translate into a revenue profile a lender can underwrite.

Technology readiness answers “can it work?”. Finance readiness answers “can it repay long-term capital?”. Project finance and non-recourse debt need predictable cashflows, long tenors, and contracts that allocate risk clearly. Most durable CDR projects still struggle on those basics, even when the underlying process is technically credible.

Contracted volumes for durable CDR have been growing quickly, including record contracting activity reported for Q2 2025 by market trackers. That growth matters, because it signals intent and helps developers plan capacity. It still does not equal bankable cashflow. A contract headline does not always mean firm payment terms, credit support, or delivery certainty that can carry CAPEX-heavy assets through construction and ramp-up.

Buyer concentration risk makes this harder. Market overviews of 2024 durable CDR demand highlighted how concentrated purchasing was among a small group of large buyers and buyer coalitions. Concentration can be helpful early on because it creates deal flow and learning. It also creates dependency risk for developers and lenders, because a small change in procurement policy or budget priorities can move the whole market.

Industrial operators often view CDR as residual emissions neutralisation, not a nice-to-have. But internal procurement and finance teams frequently still treat removal credits as discretionary sustainability spend. That framing pushes contracts toward short horizons, flexible terms, and “best efforts” language. Those are the opposite of what infrastructure-style financing needs.

The capital gap shows up right after early offtakes. Equity and venture funding can get a first plant built. Scaling to repeatable projects requires debt and infrastructure capital, which requires standard terms and clear risk allocation. That is why the World Economic Forum and others have been focusing on “financial architecture” for removals, not just new capture methods. The key question becomes practical: why do today’s CDR revenues still fail project finance requirements?

Why today’s carbon removal revenues fail project finance requirements

Project finance is built around contracted cashflows and downside protection. Lenders typically look for DSCR headroom, conservative stress tests, covenants tied to performance, and a senior debt tenor that matches the asset’s payback profile. They also expect clarity on what happens if something goes wrong, including delivery shortfalls, counterparty default, or regulatory changes.

Most CDR revenue stacks still look “merchant-like” to a lender. Prices are often not indexed. Demand is not always guaranteed. Payment is frequently “as delivered”, which shifts construction and ramp risk entirely onto the developer. MRV and issuance timing can be uncertain, and permanence or reversal obligations can create long-tail liabilities. The result is revenue that is visible, but not fully contractable.

The market also suffers from a timing and recognition gap: commitment is not the same as retirement, and neither is the same as delivery. Market commentary has repeatedly pointed out that announced forward purchases can outpace actual retirements and delivered tonnes, especially in durable CDR where monitoring, verification, and issuance can take time. Lenders interpret that gap as execution risk, even when the buyer’s intent is genuine.

Some early deals illustrate the challenge. Ocean alkalinity enhancement purchases, for example, have been reported with indicative price ranges in the hundreds of dollars per tonne today, including figures around $250 to $300 per tonne in public reporting on specific transactions. Those prices can support early supply. They still do not automatically create senior-debt-ready cashflows if the contract is short, cancellable, weak on remedies, or unclear on MRV acceptance.

Counterparty risk is another friction point. Many corporate contracts are effectively tied to annual sustainability budgets and reputational priorities. They can be “best efforts” rather than take-or-pay. A lender often wants investment-grade buyers, or credit enhancement such as letters of credit, escrowed funds, or parent guarantees. Without that, the lender is underwriting both technology risk and buyer payment risk at the same time.

Duration mismatch is the structural issue underneath everything. A DAC plant, a BECCS retrofit, or a mineralisation facility is typically an asset that wants 10 to 20 years of amortisation logic. Voluntary market offtakes are often shorter, include termination options, or leave key terms to future negotiation. That mismatch blocks debt sizing and pushes projects back toward expensive equity.

That is why the conversation is shifting from “more demand” to “better demand”. The market needs contract structures that turn willingness to buy into financeable revenue, including robust offtakes, carbon contracts for difference, and floor-price mechanisms.

Contract structures that unlock funding: offtakes, CfDs, and floor-price mechanisms

Investor-grade offtakes reduce merchant risk and volume risk. The goal is not legal complexity for its own sake. The goal is to make the cashflow legible to a credit committee.

A financeable offtake usually starts with tenor and volume. Tenors in the 10 to 15 year range are often discussed as the zone where infrastructure capital starts to engage, because they can match amortisation. Volume schedules should be explicit, with clear ramp-up assumptions and what happens if ramp is late.

Delivery definitions matter as much as price. Contracts need to specify what “delivery” means in practice: issuance in a named registry, acceptance criteria for MRV, treatment of uncertainty, and how disputes are resolved. Remedies also need to be real. Liquidated damages, replacement obligations, and step-in rights are common tools lenders recognise from other project-financed sectors.

Advance Market Commitments help by aggregating demand and standardising procurement. The World Economic Forum has described AMCs as a way to create credible early markets for removals. It is important to separate two mechanics that often get mixed up. A prepurchase is upfront payment, which helps working capital and can reduce equity needs. An offtake is pay-on-delivery, which protects the buyer but increases the developer’s financing burden. Many projects will need a blend, or an intermediary facility, to bridge that gap.

Carbon CfDs can directly stabilise revenues. The logic is simple: the project has a strike price per tonne, and there is a reference price. If the reference price is below the strike, the CfD pays the difference. If it is above, the project pays back the difference. This structure is familiar from power markets, but it can be adapted to removals if the reference price is defined credibly and the settlement and verification rules are tight. The benefit is that lenders can underwrite a floor-like revenue stream rather than a volatile market price.

Floor-price mechanisms can also be implemented without a full two-way CfD. A buyer consortium, a facility, or a public actor can provide a put option or guaranteed minimum price, sometimes with a cap or collar. The point is to convert a volatile revenue stream into something closer to an annuity. That is what debt wants.

Market analyses have discussed long-term durable CDR commitments with meaningful average price levels, sometimes cited around the order of magnitude of roughly $180 per credit in certain summaries. Even if that level is directionally supportive, the financing question is whether those commitments are convertible into bankable contracts. Standard terms and credit support are what make the difference.

Once contract design is on the table, the next question becomes political and commercial: who pays for de-risking, and at what stage? Corporate buyers can pay early premiums, but they cannot always carry the whole market. Governments can set standards and anchor demand, but they will not fund everything. That is where blended finance models come in.

Who should pay and when: buyers, governments, and blended finance models

Buyers can de-risk projects fastest, because they can sign contracts now. Companies with net-zero targets and hard-to-abate residual emissions can justify long-term removal procurement if internal governance treats removals as a strategic input, not a discretionary purchase. That shift usually requires clear rules on additionality, durability, exclusivity, and claims, plus a portfolio approach rather than one-off deals.

A practical buyer-led model starts small but does not stay small. Buyers often begin with pilot volumes to learn MRV, delivery timelines, and reputational risk. The scalable step is portfolio procurement across multiple technologies and vintages, with a delivery ladder that matches the buyer’s residual emissions pathway. That portfolio approach also reduces the risk of overexposure to one method or one developer.

Government-led demand can change the risk calculus by creating credible, standardised procurement. Public programmes that pilot CDR purchasing and contracting, including initiatives run through energy and climate agencies, can help establish templates and signal long-term demand. The value is not only the money. It is the standard-setting and the willingness to contract over longer horizons.

Blended finance is often the bridge between early markets and infrastructure scale. A typical structure uses a first-loss layer, a guarantee, or a concessional tranche from a public or catalytic capital provider. That reduces the weighted average cost of capital and can make senior lenders comfortable with construction and early operating risk. It is especially relevant where projects depend on supply chains like biomass or minerals, or on CO2 transport and storage infrastructure that has its own permitting and execution risks.

Macro signals matter, but they do not close the gap alone. The World Bank has documented that carbon pricing instruments are expanding in coverage globally. That trend suggests a long-term convergence between compliance incentives and voluntary removals. Today, there is still a gap between policy-driven carbon prices and the price levels many durable removals need to be financeable at scale. That gap is exactly where contracts, guarantees, and blended structures operate.

Pay-for-performance is attractive for integrity, but it shifts financing pressure onto developers. Paying only on delivery or issuance reduces buyer risk. It also increases the developer’s need for working capital and construction finance. That is why intermediate tools matter, including working capital facilities, warehousing structures against future credit issuance, and insurance products that cover performance and reversal-type risks.

None of these structures hold if MRV and liability are weak. Lenders and sophisticated buyers ultimately ask one question: what exactly is being delivered, and who pays if the tonnes fail?

Building investor-grade MRV and liability frameworks for durable removals

Investor-grade MRV is a financing input, not a reporting add-on. It means the measurement approach is defined upfront, uncertainty is quantified, audits are repeatable, and the data trail is defensible. It also means chain-of-custody is clear from measurement to issuance to transfer to retirement, with governance that prevents double counting and unauthorised changes.

MRV quality directly affects deliverability. If a project cannot reliably reach issuance, the offtake is not really an offtake. It is an option on future verification success. That distinction is why lenders care about MRV cycle time, audit readiness, and the operational controls behind the data.

Regulatory standardisation can reduce perceived risk. The EU has adopted the Carbon Removal Certification Framework, with implementation through delegated and implementing rules, as a signal toward harmonised definitions and oversight for permanent removals. Even for projects and buyers operating globally, this kind of framework matters because it pushes the market toward clearer categories, more consistent auditing expectations, and less ambiguity about what “certified removal” means.

Liability and permanence need to be explicit in contracts, not implied in marketing. Tools include buffer pools, replacement obligations, reversal insurance, and long-term monitoring requirements. Another key design choice is whether liability transfers with the credit or is retained by the project operator. Lenders want to see that “who pays if tonnes fail” is defined, funded, and enforceable.

Interoperability with claims and accounting is part of integrity. Buyers need to align removals with how they communicate progress on residual emissions, and they need to avoid double counting and ambiguous claims. Article 6 cooperative approaches under the Paris Agreement point toward more rigorous accounting concepts, even if many voluntary transactions are not structured as ITMOs. The direction of travel is clear: higher-integrity accounting increases the value of standardised MRV and traceable ownership.

Tokenisation can help if it is used for controls, not hype. The useful model is not “NFT marketing”. It is serialisation, registry mirroring, signed MRV attestations, transfer and retirement rules enforced by code, and integration with audit workflows. Done properly, tokenisation can reduce operational risk, improve traceability, and make it easier to build credit facilities or collateral-like structures around future issuance, because the chain-of-custody is clearer.

With contracts, payor mix, and MRV and liability frameworks in place, the remaining work is execution. Developers and buyers both need a roadmap that turns good intentions into repeatable scale.

A practical roadmap for developers and buyers to scale carbon removal supply globally

Developers should start by writing a bankability thesis, not just a technology narrative. The thesis should state which risks are being reduced, which are being transferred, and which are being priced. It should also be clear about the target capital stack over time, moving from equity-heavy to debt-capable once contracts and operations mature.

Developers should make MRV and audit readiness a 12 to 24 month deliverable. That includes an MRV plan with defined uncertainty treatment, a data governance model, and a clear path to third-party verification. It also includes operational readiness to produce consistent monitoring data, not just occasional pilot datasets.

Developers should negotiate offtakes with financeable clauses from day one. Tenor, volume schedules, delivery definitions, MRV acceptance, remedies, and step-in rights should be drafted with lender feedback in mind. Credit enhancement should be treated as a design variable, not an afterthought, using tools like letters of credit, escrow structures, or guarantees where needed.

Developers should build a lender-grade data room early. CAPEX and OPEX models need to be transparent. LCA assumptions should be documented. Permitting status, feedstock contracts, storage site access, and long-term monitoring obligations should be organised so that a lender can run diligence without reinventing the project narrative.

Buyers should move from spot purchases to portfolio offtakes. A portfolio approach can combine multiple technologies, multiple vintages, and a ladder of deliveries that matches internal decarbonisation pathways. It also reduces concentration risk and makes it easier to commit to multi-year budgets with clearer governance.

Buyers should set internal policy on claims and risk appetite before scaling volumes. Procurement teams need clarity on what they are buying, how it will be used in reporting, and what trade-offs are acceptable on durability, timing, and price. Buyer clubs and aggregators can help when standard terms and consistent deal flow are more valuable than bespoke negotiation.

Both sides should track shared KPIs that map directly to bankability. Useful metrics include the share of contracted tonnes that are actually delivered, MRV cycle time from monitoring to issuance, permitting lead times, counterparty concentration, and durability tiering. These KPIs should show up in contracts and in finance and ESG reporting, not only in sustainability narratives.

Market tools should be activated deliberately. Warehousing facilities against future credits, project bonds or green bonds, and insurance products covering performance and permanence-related risks can all reduce the cost of capital. Price mechanisms like CfDs and floors reduce merchant risk. Market reviews of CDR in 2025 have increasingly framed the goal as turning removals into infrastructure-like cashflows, because that is what unlocks scale.

The scaling loop is straightforward when the pieces fit. Standard contracts plus investor-grade MRV and clear liability reduce risk. Reduced risk unlocks more debt. More debt builds more capacity. More capacity drives learning and cost declines. Lower costs expand demand beyond a small set of early buyers. Carbon credit markets, at their best, are not just a marketplace. They are a stack of financial and contractual tools that can close the financing gap holding back durable carbon removal.