(Bloomberg) — Morgan Stanley has entered into a deal with Climeworks AG to finance the removal of CO2 from the atmosphere, joining other Wall Street heavyweights including JPMorgan Chase & Co. in throwing its weight behind the nascent technology.
The agreement will enable Zurich-based Climeworks, which operates the world’s largest direct air capture project, to suck 40,000 tons of carbon dioxide from the air. The contract runs until 2037 and is intended to help finance the Swiss company’s expansion in the US, according to a statement on Thursday.
Morgan Stanley will “secure a sizable volume of carbon removal credits” as a result, Climeworks said.
Direct air capture, or DAC, which uses giant fans to extract CO2, is expensive, energy-intensive and not yet proven at an industrial scale. However, it is billed to play a key role in the fight against climate change.
To limit global warming to 1.5C, researchers estimate the world will need to remove as much as 10 billion tons of planet-warming gases annually by 2050. Climeworks’ largest plant, which is based in Iceland, will be able to extract about 36,000 tons of CO2 annually.
Morgan Stanley said the agreement, which marks its first-ever purchase of DAC credits, demonstrates the bank’s commitment to supporting the development of new climate technologies. By playing “an important role in helping to direct capital toward low-carbon solutions,” Morgan Stanley can “help drive the global economy’s transition to a more sustainable future,” Jessica Alsford, the Wall Street firm’s chief sustainability officer, said in the statement.
The announcement on Thursday didn’t provide details about the financial terms of the agreement, and spokespeople for Morgan Stanley and Climeworks declined to comment when contacted.
Morgan Stanley has said it won’t buy offsets to directly reduce its financed emissions, which are by far its largest source of emissions and represent the greenhouse gas pollution enabled from loans and investments. However, the firm will acquire offsets, with a focus on removal credits, to compensate for a certain portion of its operational emissions.
How Do Carbon Credits Work?
When done right, a carbon credit represents one ton of CO2 emissions that have been removed from — or not added to — the atmosphere, typically generated from forestry or renewable energy projects, but also in the form of outright extraction via direct air capture. Demand for such credits stems from a realization that companies will struggle to deliver the outright emissions cuts needed to align with the goal of limiting global warming to 1.5C.
Climeworks reached an agreement last year with JPMorgan, in which the Wall Street bank allocated $20 million to the Swiss firm as part of a $200 million commitment to pull carbon from the air. In 2022, Climeworks struck a 10-year financing agreement with UBS Group AG. Climeworks also operates as a key partner for a landmark carbon removal initiative in Louisiana that’s supported by the US Department of Energy.
Technology companies remain the biggest investors in such programs. Earlier this year, Microsoft Corp. agreed to buy 500,000 metric tons of carbon-removal credits in the biggest-ever purchase of its kind. Separately, Alphabet Inc. and Meta Platforms Inc. are among firms backing a $1 billion fund set up by Stripe Inc. aimed at scaling up the CO2 removals market.
Climeworks said its agreement with Morgan Stanley represents its second-biggest contract to date.
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