Near-term policy opportunities for carbon removal in California
California has established ambitious goals for carbon capture, removal and storage, including that this suite of technologies will provide over 20% of the state’s solution for achieving net-zero emissions by 2045. However, the state is currently well off the pace of this level of deployment, with no large-scale projects in operation and only a handful of geologic storage permits approved by the US EPA.
In this blog, we identify near-term, low-cost and viable policy opportunities that would remove key barriers to carbon capture, removal and storage while not crowding-out other important state priorities, such as energy affordability. These policies include: (i) regulatory reforms, such as establishing a clear permitting framework and removing the moratorium on CO2 pipelines, amongst others; (ii) market signals, including establishing that carbon capture is an eligible emissions reduction action under Cap-and-Trade as well as guidance for biomass pathways under the Low Carbon Fuel Standard; and (iii) direct funding, including allocating a portion of Greenhouse Gas Reduction Fund revenues for direct procurement as well as continuing to pursue potential, albeit uncertain, federal opportunities.
While this package of policies can support lower-risk projects, such as where prospective carbon capture or removal have a clear line-of-sight to a storage offtake and no/limited transport needs, achieving the state’s ambitious goals will require significant infrastructure deployment, including multiple (and shared) intrastate CO2 pipelines and large storage sites. To address this need, a more substantial ‘business models’ approach to carbon infrastructure, such as a regulated utility model as adopted in the UK, may be needed. We conclude by briefly summarizing this policy and concept for stakeholder consideration.
This blog is longer than our usual analyses with a goal of serving as a referable resource for interested readers. For a quick visual summary of the issue areas analyzed, see Figure 2. For more information, please contact Amanda DeMarco (amanda@netzerocalifornia.org) and Sam Uden (sam@netzerocalifornia.org).
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California has a goal to achieve net-zero greenhouse gas emissions by 2045 and net-negative emissions thereafter. In its 2022 Scoping Plan, the Air Resources Board (CARB) identified carbon capture, removal and storage technologies (collectively referred to hereafter as “carbon removal”) as needed to provide 100 Mt of carbon mitigation, or over 20% of the state’s total climate solution. This includes roughly 25 Mt of point source capture at industrial facilities, such as cement plants, and 75 Mt of atmospheric capture, including via direct air capture fans and biomass conversion facilities (Figure 1).
Figure 1: This diagram summarizes industrial and power sector point source carbon capture (25 Mt/yr) and atmospheric carbon capture (75 Mt/yr) pathways as identified in the 2022 Scoping Plan to achieve the state’s goal of 100 Mt/yr of carbon removal and economywide net-zero emissions by 2045.
Despite this ambition, California is currently off-track to meeting its carbon removal targets, with no large-scale projects as yet operating in the state and only two decades to stand-up a substantial new economy. How do we get from here to there? This blog identifies near-term policy opportunities that could provide a foundation for more rapid deployment, ranging from regulatory guidance on key issues, market signals, and state and federal funding options. Looking ahead, we also consider the potential for deeper-tissue reforms in support of carbon infrastructure deployment. We summarize the UK’s regulated utility model for transport and storage assets as one option for stakeholder consideration.
Three policy levers for near-term deployment
Policymakers could consider a package of potential policies across three key areas that would provide a foundation for near-term carbon removal deployment (Figure 2). In general, they are targeted to provide needed guidance, incentives (paid for by ‘polluters’ and not taxpayers), and some streamlining to help move forward lower-risk projects and get the state on track towards achieving its carbon removal goals.
Figure 2: This diagram summarizes three main areas and near-term policy opportunities to support carbon removal deployment in California.
Policy lever #1: Regulatory reform
Carbon removal developers are hesitant to execute projects unless they have a clear understanding of the requirements and standards for project development. For this purpose, lawmakers passed SB 905 (Caballero, Skinner), which directs state agencies to establish the regulatory foundation for carbon removal in California covering six key issues: permitting, pipelines, financial responsibility, unitization, safety and monitoring, and storage. Most of the relevant state plans and/or proceedings are currently in process, including the main CARB rulemaking, which kicked-off in March this year. We summarize the status of these and identify additional policy opportunities, some of which require legislation.
Permitting
Background: SB 905 directs CARB to create an optional unified permit application to support more rapid project review and permitting. Note that the unified application would not replace the role of individual permitting agencies.
Opportunity: Additional opportunities that could more meaningfully reduce lead times and increase certainty include:
Establish a CEQA lead agency for carbon removal to further improve streamlining and build project review expertise within a single agency;
Designate certain projects, such as renewable powered direct air capture, as an Environmental Leadership Development Project to enable judicial streamlining;
Review the possibility of adopting Class VI primacy in California, which could be a highly beneficial long-term option but requires the state to have sufficient technical expertise and staffing in order to rapidly review and approve permit applications.
Legislation required?: Yes for ELDP designation. CEQA lead agency and Class VI primacy could be established via the Executive Branch or legislation.
Pipelines
Background: SB 905 establishes a moratorium on operating CO2 pipelines until minimum federal safety standards are finalized. Federal rules are currently in draft but unlikely to be finalized, given the change in Administration.
Opportunity: To keep pace with the state’s carbon removal goals, the development of state regulations and elimination of the moratorium on pipelines is needed.
Legislation required?: Yes, see AB 881 (Petrie-Norris). See also previous guidance from the California Natural Resources Agency (CNRA) on a potential state framework for CO2 pipelines.
Financial responsibility
Background: SB 905 requires storage operators to maintain financial responsibility for CO2 leakage risk for at least 100 years following the last date of injection.
Opportunity: Given the long time horizon, it is anticipated that there may be limitations to available private sector financial instruments (insurance, etc.) to adequately cover all aspects of long-term liability. Additional mechanisms, such as a small $/ton fee levied on each ton stored, which is then deposited into a state-operated fund, could address potential gaps. This approach has been adopted in other states such as Louisiana, Texas, Wyoming, North Dakota, and others.
Legislation required?: Could be established by CARB (SB 905) or legislation.
Unitization
Background: SB 905 requires CNRA to publish a framework for governing agreements regarding two or more tracts of land overlying the same geologic storage reservoir (known as unitization).
Opportunity: The framework could have a stronger legal grounding if it was adopted as a regulation. Additionally, CNRA or another agency could also be provided with the authority to approve/deny proposed unitization agreements.
Legislation required?: Yes.
Safety and monitoring
Background: SB 905 directs CARB to establish standards for monitoring criteria pollutants and toxic air contaminants at the geologic storage complex (e.g. capture sites, ambient CO2).
Opportunity: CARB’s Low Carbon Fuel Standard CCS Protocol provides monitoring requirements for geologic storage that could inform the SB 905 regulation. However, there are limited standards related to capture and transport. The state could consider standards to include air pollutants (e.g. SOx, PM, NOx, nitrosamines/nitramines) for capture and transport.
Legislation required?: Could be established by CARB (SB 905) or legislation.
Storage assessments
Background: SB 905 directs the California Geological Survey to identify high quality, suitable locations for Class VI injection wells.
Opportunity: The state could reduce costs by prioritizing the evaluation of sites that are potential megaton storage sites. The state could contract for physical field testing on promising sites as a way to further de-risk projects that could support multiple sources of CO2. As storage evaluation and testing is an early, high-risk and costly step in project development, this could have a substantial benefit in driving carbon removal deployment.
Legislation required?: No.
For more information, see this comment letter submitted by Net-Zero California staff in partnership with Princeton and Stanford University scientists as part of the SB 905 rulemaking.
Policy lever #2: Market signals
Carbon removal technologies are relatively high cost and have long lead times. As a result, clear and durable market signals are needed to motivate investors. While CARB and Governor Newsom have established a commitment to carbon removal, and incentives such as 45Q and the Low Carbon Fuel Standard are important, there also gaps in state programs that are important to address.
Cap-and-Trade
Cap-and-trade is one of California’s main programs for reducing emissions from large point sources. Retrofitting carbon capture is one potential option for covered entities. However, it is currently not an eligible mitigation option under cap-and-trade, limiting the incentive for large emitters to invest in the technology. California can provide a signal to investors that the state is committed to carbon management into the long-term by authorizing its eligibility under cap-and-trade.
A second issue relates to atmospheric capture paths, such as biomass carbon removal and direct air capture and storage (as a reminder, see Figure 1, blue box). These technologies have been identified as needed to compensate for any residual emissions that may remain in the economy at 2045 (i.e., putting the ‘net’ in net-zero). As cap-and-trade entities are expected to be responsible for some residual emissions, an incentive for them to pay for these forms of carbon removal may be warranted. To facilitate this, one option is to establish new offset protocols, similar to forest carbon offsets.
A key issue, though, is that unless compelled or without some other added incentive, covered entities are unlikely to purchase these offsets, given the cost of carbon removal greatly exceeds the majority of alternative emissions reduction actions today. Moreover, there are open questions in the academic literature regarding the definition and scope of carbon removal for net-zero, such as what counts as residual emissions, whether all nature-based solutions should be eligible given their relative lack of permanence compared to geologic storage, and if so, what are the criteria that could ensure their eligibility (e.g. greater use of buffer pools, possible credit discounting), and similar questions. SB 285 (Becker) is a live bill that contemplates some of these issues. CARB also has potential as part of its forthcoming cap-and-trade rulemaking to analyze these issues.
For more information, see Net-Zero California’s submission to the CalEPA Independent Emissions Market Advisory Committee, who advises on cap-and-trade reform opportunities.
Low Carbon Fuel Standard
The Low Carbon Fuel Standard (LCFS) is a key program for decarbonizing the state’s transportation sector. Although vehicle electrification is the core goal of California’s strategy, clean fuels produced from waste biomass feedstocks, such as orchard residues and forest thinnings, has been identified as key to decarbonizing trucks, shipping, and aviation. Pairing biomass facilities with carbon capture could make these fuels net-negative, supporting both state decarbonization and carbon removal goals (Figure 3).
Figure 3: This diagram highlights the alternative options for developing clean fuels for decarbonization. Blue hydrogen is still derived from fossil fuels. Power-to-fuels and biomass-to-fuels are non-fossil feedstock options. Only biomass-to-fuels with carbon capture has the potential to also provide carbon removal.
The LCFS could be leveraged to incentivize the mobilization of waste biomass in California. A key technical need is to develop lifecycle accounting of wood waste pathways under the program. This would provide a needed signal and guidance to developers regarding the scope and size of a potential LCFS incentive, as well as the acceptability of alternative low-carbon fuels pathways under the program. The mobilization of waste biomass could also enable other state priorities, including reduced agricultural field burning in the Central Valley and catastrophic wildfire prevention. The latter is particularly important, as the state currently has limited options to pay for wildfire prevention at scale.
For more information, see our previous article: How can California pay for wildfire prevention at scale? (February 2025). See also: Addressing California’s wood waste crisis (November 2024).
Policy lever #3: Direct funding
As a more nascent clean energy option, carbon removal technologies could benefit from direct funding to support early-stage deployment. Additionally, the state’s goal of standing up a 100 Mt/yr carbon management industry in only two decades is expected to require public investment and/or related support for shared infrastructure, including intrastate pipelines and large-scale storage sites.
Greenhouse Gas Reduction Fund
Cap-and-trade auction proceeds generate roughly $7-8 billion annually, $4-5 billion of which is appropriated via what is known as the Greenhouse Gas Reduction Fund (GGRF) to a variety of state climate programs. However, there is evidence that these programs are not performing as cost-effectively as they could. Legislative leaders and the Governor have committed to reauthorizing the cap-and-trade program this year, suggesting an opportunity to review and revise current GGRF allocations.
Carbon removal currently receives no funding from GGRF (and, it should be noted, from any other state program). However, it is identified in the 2022 Scoping Plan as needed to provide over 20% of the state’s climate solution. This suggests that an increase in funding for technology deployment may be warranted. This could include grantmaking to help push high-cost technologies, such as direct air capture, down the cost curve. This could be articulated as part of a state procurement strategy, which the federal Department of Energy identified as a key policy need. SB 308 (Becker), a previous bill, sought to establish this mechanism for certain carbon removal, with a target of 2-3 Mt/year by 2030. SB 643 (Caballero), a similar bill being run this year, would provide $50M to CARB to purchase certain carbon removal.
An additional option is to deploy some of the funding towards carbon infrastructure. Pipelines and storage are key to enabling carbon removal, but are higher-risk projects that in most cases depend on coordinating multiple upstream carbon capture projects. Allocating a portion of public investment to support pre-investment development phases, ideally in the form of recoverable grants or a revolving loan, given the operations of the infrastructure is anticipated to generate revenue, is likely to be important to attract private capital and enable projects to progress to final investment decisions. (Note that we examine potential carbon infrastructure development models in further detail below).
For more information, see our previous article: Strengths and limitations of California’s cap-and-trade program (March 2025). See also: Data analysis of cap-and-trade program investments (December 2024).
Regional Direct Air Capture Hubs
In the Infrastructure Investment and Jobs Act of 2021, $3.5 billion was appropriated for four Regional Direct Air Capture (DAC) Hubs. In a previous award, $1.2 billion of this funding was allocated to two Hubs in Louisiana and Texas, at roughly $500 million each, alongside a host of smaller grants for planning, including to some California projects (Figure 4). In December 2024, the DOE announced its intention to deploy another $1.8 billion. Although there is uncertainty regarding whether this appropriation will remain, a $500 million grant could be catalytic for carbon removal in California, and the state has the technical characteristics, such as large-scale geologic storage potential, to be competitive.
Figure 4: This figure highlights the Round 1 awardees sharing in $1.2B in DAC Hubs funding.
At this stage, applications for the remaining DAC Hub awards are due in July of this year. We understand that there are multiple California projects that have submitted initial concept notes to DOE expressing an intention to apply for funding. The state may consider options to support these applicants and/or their potential coordination, to the extent it could improve the state’s competitiveness against other states. It is worth noting that the enabling IIJA statute identifies Hubs that are scalable (i.e. can enable a carbon management network) and in fossil-producing regions as preferred eligibility criteria.
Looking ahead: Barriers to carbon infrastructure
The above sections identify multiple reform opportunities that can provide a foundation and kickstart carbon removal deployment in California. This includes primarily by supporting lower-risk projects, such as where prospective capture operators have a clear line-of-sight to a storage offtake and no/limited transport needs. However, these projects alone are unlikely to be sufficient to generate carbon removal consistent with the state’s ambitious goals, which will require networks of intrastate pipelines and megaton storage sites. To facilitate deployment of these projects, additional policies are needed.
Summarizing the UK’s carbon “business models”
The UK, which shares multiple key similarities with California including size of economy (~$3-4 trillion GDP), total annual emissions (~400 Mt/yr), and climate ambition (net-zero emissions by 2050), has also established a goal of achieving greater than 100 Mt/yr of carbon removal by 2050.
In planning for this target, which started in roughly 2019, the UK’s Department of Energy Security and Net-Zero identified a fundamental issue, which is that carbon removal requires the coordination of multiple independent capture, transport and storage projects, which if not successfully managed could substantially delay and/or derail individual projects. For example, a bioenergy plant cannot justify investing in a carbon capture retrofit if it cannot offtake its CO2 for transport and storage. Similarly, a storage operator must line-up multiple capture sources of CO2 to justify its own investment. The result is an investment stalemate leading to sluggish and high-cost deployment (Figure 5, click to zoom in).
Figure 5: This diagram highlights the interdependency of disparate carbon capture, transport and storage projects. Note how the capture sequence (blue) is unlikely to be initiated without prior progress in the transport (orange) and storage (grey) sequences. Similarly as the sequences progress, note how a storage developer will only execute a final investment decision (red box) provided there is sufficient ongoing progress in the transport and capture sequences. For more information, see: Uden, Socolow and Greig (2023).
To overcome this issue, the UK established a Transport and Storage (T&S) Regulatory Model, where prospective T&S businesses would be regulated utilities similar to electrical transmission and distribution investor-owned utilities in California. The core thesis is that, as regulated utilities, the T&S businesses could invest and develop projects more quickly with the confidence that they would receive a guaranteed return, albeit a regulated/low margin one. Meanwhile, prospective capture developers would be able to more easily identify low-cost offtake opportunities to justify their investments. The UK government recently committed £21.7B over 25-years to deploy its broader carbon removal strategy.
While the UK’s approach offers an interesting case study, further work is needed to determine its applicability to California. In a forthcoming research report, Net-Zero California in partnership with scientists from Princeton’s Andlinger Center for Energy and the Environment and Stanford’s Center for Carbon Storage, will evaluate the potential for alternative models to enable carbon infrastructure in support of California’s carbon removal goals. This report is anticipated to be finalized in early 2026.
For more information, see a recent presentation from NZC staff as part of the SB 905 kick-off workshop on the UK’s T&S model. See also our previous article: The challenges of carbon capture and storage in California: Commercial frameworks (June 2023).
Conclusion
California is currently substantially off-the-pace towards achieving its carbon removal goals. However, there are multiple near-term, low-cost policy opportunities that can kickstart deployment, including various regulatory reforms (primarily via CARB’s SB 905 process but also some needed legislation), market signals (cap-and-trade, LCFS) and direct funding options (GGRF, Direct Air Capture Hubs). These policies could drive progress despite a recalcitrant federal Administration and without impacting other state priorities, such as energy affordability and climate resilience. Looking ahead, to overcome key investment barriers and enable carbon removal at scale is likely to require additional policies that support infrastructure, including intrastate pipelines and megaton storage sites. For this purpose, alternative models, such as a regulated utility model or a more targeted mandate from the state to directly deliver certain core carbon infrastructure for industry benefit, may be needed.
For more information on carbon removal policy, please contact Amanda DeMarco (amanda@netzerocalifornia.org) or Sam Uden (sam@netzerocalifornia.org).