This week we recorded our business episode live in front of a Zoom audience. The audience was invited to pose questions to our hosts Radhika, Susan, and Na’im. They discussed-
-Which type of CDR will be the first to achieve 1 gigatonne of removal
-The effect of global economic turbulence on CDR’s prospects
-The First Movers Coalition
-Occidental’s plan for 70 DAC plants
-& more!
Full Transcript
Announcer: You’re listening to Carbon Removal Newsroom, a weekly show about current events in the world of carbon removal, from technology and innovation to policymaking and job growth. Brought to you by Nori, the carbon removal marketplace.
Radhika Moolgavkar: All right. Well, welcome to CRN Live for the June 2022 episode in business, where we’re going to talk about the breakthrough year for CDR investment. As always, I have with me Susan Su, who is a partner focused on climate investing at Toba Capital. She also serves as a board member at the Carbon Business Council and a board advisor to the Environmental Voter Project. Hello, Susan.
Susan Su: Hi Radhika, hi everyone.
Radhika Moolgavkar: And also joining me this month as in our regular panelists as well as Na’im Merchant, who’s a consultant who works with NGOs and startups on scaling carbon removal. He also writes the Carbon Curve newsletter about the carbon removal industry and the new carbon economy. Hi Naeem.
Na’im Merchant: Hey Radhika, hi everyone. Good to be with you.
Radhika Moolgavkar: Hopefully not sweltering too much over there on the East Coast. And then finally, I am Radhika Moolgavkar, Head of Supply and Methodology at NORI. So as always, great to have both Naeem and Susan here and our listeners as well as our live audience. So for those who are in the audience today, please feel free to submit questions. Asa, my lovely producer, will DM the questions to me and I will read them out loud and submit them to discuss with Susan and Naeem. However, we do have a few pre-submitted questions, so I will get those rolling with our panelists.
The first one was from a listener named Eric who asked, who will get to one gigatonne per year scale first or forced to even remove one gigatonne total? What technology do you think it’s most likely to be? So I’ll start with you, Susan, and then Naeem, would love to get your thoughts.
Susan Su: Well, I think this is a great question. And, you know, first of all, it’s a question that everybody is asking from, you know, policymakers to investors to operators and builders and people in the science and research community as well. And it’s not easy to answer. I actually spent a bunch of time doing some math this morning because of this question, and I actually ran out of time, so I didn’t fully get to finish. But, you know, when I think about the host of technologies, and I think, Eric, specifically the word choice around technologies is really interesting because...
Oftentimes when we think about carbon removal, not everybody, but a good number of people tend to have a certain picture of what that means in mind. Now here on the Nori podcast, we tend to be pretty, I would say like broad ranging in that definition. And obviously Nori is not making direct air capture machines itself as a company. So I think that is what contributes to that. But I think even just the word choice of technology sort of like Well, what do you consider technology, I guess, is what I would kind of throw back to you.
There is actually a wonderful interview, if you don’t mind me referring you to another podcast, with Yishan Wang, who’s the founder and CEO of a company called Terra Formation, with Jason Jacobs at MCJ. I think they did it like a year or more ago. But one of the things that I loved about the takeaways from Yishan’s interview, Yishan used to be the CEO of Reddit. He’s a software guy. There’s a lot of people that are skeptical of nature-based solutions such as tree planting, rightfully so. But Yishan’s defense to all of that is that, hey, it’s a so-called technology that is here today, available right now.
We know how to do it. We’ve known how to do it for a really long time. We actually know how to do it pretty fast. And so when you ask the question, what technology is going to get to one gigatonne first? Well, you have to look at who has a headstart and what is already really scalable and has the potential to get to high velocity. So I actually did a little bit of math around this and determined that it takes about We’ll take about 6. 6 billion new trees to reach one gigatonne of carbon sequester.
So this is like, like, let’s just consider a net new for Eric’s question. Now for scale, Europe, the continent of Europe has about 400 billion trees. So that would be a 1. 65% net new increase. In trees, I know it’s like very general and we can go like all into footnotes around what kinds of trees and things like that, but let’s just keep this simple for the sake of the fact that this is a podcast. So 6. 6 billion new trees would be about a 1. 65% increase. If we assume 407 trees per hectare, which is one of the more recent numbers from the UN, then that means you’d need approximately 16.
4 million hectares for the additional trees needed to sequester one gigatonne of CO2. That’s approximately an area that’s 17% the size of the Sahara Desert. It’s pretty big, but it’s not that big when you consider the fact that today dry lands all around the world cover 6. 1 billion hectares. So again, we’d need 16. 4 million dry lands, which is like all of these kind of desert and other types of like dry grassland that’s not really being very productive otherwise cover 6. 1 billion hectares around the world. Now, just for comparison, Climeworks, which I would say is probably one of the further along DAC companies that’s out there, they’re removing around 900 tonnes per year.
That’s 816 metric tonnes, tonnes with two Ns. So at that rate, at that current rate, it would take 1,111,111 years to remove one gig I think we forget that sometimes. Now let’s assume an exponential learning curve on technology that we don’t necessarily get from tree planting. I’ll just say this to wrap up, but like a recent MIT study found that I think that most technology, some technology improves really, really fast. There is truly an exponential learning curve, but actually most technology, particularly that has to do with anything in the physical world, actually improves at a very, very slow rate.
More than 80% of all technologies improve at less than a 25% rate per year. That was an MIT study coming out, I think it was last year. Just to get to Eric’s original question, we really have to think about what can we deploy now? And it’s not a matter of choosing one child over another, but really what does that portfolio look like and what does that portfolio look like over time? How do we overlap things? And how do we sequence things in a way that a baton pass can happen between what works quickly and what works in a proven way today versus what is going to need to take us through that last mile tomorrow or more like 10, 15 years from now.
Radhika Moolgavkar: All right, Naeem, I want you to jump in here and defend DAC for the four against the, you know, the nature-based solution.
Na’im Merchant: I did not do my math homework for that question. That was awesome. I, you know, I think, I think The trouble with doing something like this as well, if we’re talking about definitions, is how are we defining carbon removal? Are we defining carbon removal as anything that removes carbon from the atmosphere? Are we talking about technologies that do so in a way that is measurable, additional, durable? That’s, I think, a key point that we need to consider in this as well. And if that’s the case, as Susan pointed out, the installed capacity of DAC right now is so small that it’s hard to imagine getting from where we are now to one gigatonne per year.
But as far as durable carbon removal solutions are concerned, that’s going to be probably the fastest to get there. But if we start throwing afforestation in the mix, it’s really hard to kind of Compete with that, though, again, I think it’s important to kind of get clear on the definition of carbon removal. I think there’s been some, there’s a recent article by Robert Hoagland and others around kind of suggesting that we redefine carbon removal just to include what is durable carbon removal and, you know, Afforestation, reforestation, and improved forest management techniques would fall under nature restoration, which I think could make sense.
In which case, maybe we stop commoditizing the carbon removal benefit of nature-based systems and acknowledge them for the very complex benefits and values that we get out of nature-based solutions like reforestation or afforestation or IFM. And stop making it about how much carbon they just remove and so we maybe stop using that one metric as how well we’re doing with protecting nature and expanding forests and so on. So I wouldn’t get into this to try to promote DAC per se, but I just think it’s important to get clear around the definition of carbon removal and what we’re actually talking about here.
Susan Su: Yeah, I think Naeem makes such a great point. It almost flattens the multidimensionality of what really needs to happen. Into one single metric that doesn’t even really quite fit everything. I mean, if you’re talking about afforestation, there’s also potentially a financial benefit to reclaiming some nonproductive land that really offers no value to any living thing. There’s, you know, of course, like other ecosystem benefits. But I think, like what you just said, Naeem, is such a great way to like really underscore the fact that it’s a portfolio approach, not only to solutions to solve climate change, but it’s also a portfolio approach to Even just thinking about metrics.
It totally makes sense that we galvanize people around CO2 emissions and volume and things like that just to keep it simple. But we could spend this entire hour talking about all of the different equations and the factors that need to go into those. And actually, we’ll just share. So my amazing summer associate, Kelly LaBeouf, that’s working with me at Toba this summer, just want to give her a shout out. She actually, in like the last nine minutes, did a quick Excel model and determined that it would take, if we assume a rate of a 100% rate of technology improvement year over year, which is really high, but sometimes it’s as high as like 250% for some technologies.
So I picked like a high middle there. So a doubling in the efficacy rate, then it will take about 20 years for Climeworks to reach a cumulative of one gigatonne removed. Now, 20 years may or may not be very long in your opinion. Do you think 20 years is a really long time? Do you think 20 years is like just around the corner? That’s for you. You know, personally, everybody that’s listening here to kind of noodle on that and think about, well, what if it were only a 50% efficacy rate improvement or what if it were like 200%?
We’re really optimistic. Either way, all of these things are counterfactuals at the end of the day. And I think that I kind of like stand behind Naeem’s point that it’s really about all of the, what kind of world do we want to live in? Not just like, did we hit our metric goal? But do we wanna live in a world populated by DAC machines or do we wanna live in a world that’s got these other ecosystems? It’s all of these other kind of qualitative questions that also need to be part of the conversation.
Radhika Moolgavkar: So Naeem, just as a follow-up to how you’re describing nature-based as maybe ecosystem, and this is my own personal question, how are things like ocean Deep Ocean CDR thought about, which are kind of a hybrid in a way of the two, and how would you classify those? Carbon removal or something else?
Na’im Merchant: I think it comes down to what job are you hiring that particular solution to actually do, right? And when it comes to direct air capture, for example, it offers really no other benefit or value other than removing CO2 from the atmosphere. And If it does that in a way that is measurable and verifiable and additional and durable, then that should be carbon removal. I think it shouldn’t come down to necessarily the technique or approach of engineered versus natural or whatever the case may be. It really should come down to if the carbon removal part of it is kind of a co-benefit, of all the other benefits that particular solution or pathway offers, maybe let’s not include it in the carbon removal definition, and then we can start having a more multi dimensional conversation about that particular pathway.
So I think the definition should come down and I don’t know that the folks that wrote the article I mentioned earlier would necessarily agree with this, but I think it should come down to what’s the job to be done if it’s removing carbon from the atmosphere that wouldn’t have otherwise happened. And that’s the sole purpose for what’s happening there. That’s a good way to kind of draw a distinction as opposed to one particular pathway over another.
Radhika Moolgavkar: All right, well let’s move on to the next question because we want to make sure we get time for all of them. A lot has happened in the global economy since our last live show inflation stock market stumbling recession on and on. Including so lots of supply chain problems So how do you guys think about the macro economic situation affecting activity in the carbon removal field name I’ll start with you.
Na’im Merchant: I mean, a lot’s happened, like you said, in a very short period of time. So it’s really very hard to tell. I think there might be some concerns around ability to raise money, I think. I think supply chain concerns might be less of a problem for early stage carbon removal companies that are not building giant plants. But for others, that’ll be more of an issue. Some carbon removal innovators have successfully raised a good amount of money earlier this year or late last year, and they might be OK for a little while.
But the macroeconomic situation has changed so rapidly that I think it’s really too early to tell how that’s going to What about you, Susan?
Radhika Moolgavkar: What are the trends you’re seeing in the last few weeks?
Susan Su: Well, this is something that we actually spend a lot of time in our fund talking about because we’re both VCs and we’re also LPs. And we also are investors across really a pretty diverse array of asset classes. So I work on the venture fund side, but then we’re backed by the single family office. The family office has all of these other investment activities that it handles. And it kind of acts like a mini, everything from a mini asset manager to doing even public equities work and stuff like that. So this is very much Our main headline pretty much every single day.
And I just think it’s really bad. It’s just bad. I’m not going to equivocate. And I’m going to say that there are a lot of folks on Twitter. This is like, I’m sure I always say things on the Nord podcast. And I’m like, people must hate me so much because I’m always that like very, you know, squashing your dreams person. But I’m here to squash dreams today. And I think that there’s a lot of people on Twitter that are like, Climate tech, full steam ahead, not going to touch us. We need this bubble.
And I get that. I think it’s so, so important to be optimistic and to keep, as I just said in our chat just now, driving forward because the downside risk of doing nothing is unacceptably high. But on the other hand, I think it’s really, really important to understand the capital markets and to be realistic about what their trickle down effects are going to be, which in this case, I’m just going to tell you right now, they’re going to be bad. And they’re going to be bad in a number of ways.
One is that it’s definitely going to impact a lot of the big corporate buyers, especially those who are, if we’re talking about carbon removal specifically, it’s going to affect the demand side because some of the corporate buyers, especially those that are like, you know, NASDAQ listed companies, all the tech companies, Wherever their altruism comes from or wherever their desire to work on emissions comes from, at the end of the day, they are going to just have much, much tighter balance sheets. And they’re being judged on much more so by the markets on cash on hand and much less so on future growth.
Everybody kind of knows this. So I’m not saying anything non-obvious here. But that’s going to affect the marketplace dynamics and possibly liquidity. Now, it could potentially be not that bad because we have had a lot of supply constraints in the carbon markets. And so maybe it kind of evens things out. But if you think about the actual technology development that still needs to happen, I don’t think we’ve seen this completely shake out yet. But I do think that there’s going to be A change, shall we say, in terms of the way early stage private equity that is venture capital is deployed into Into deep tech or sort of like far away from revenue types of businesses.
Initially, I think it actually is sort of good if you don’t have a ton of metrics to show because then you’re not going to be subject to like a whole bunch of, you know, sharpened pencils, metrics-based scrutiny. But then we’re going to like, we’re going to enter into a phase two. Where funds that currently there’s a lot of dry powder sitting in venture capital funds, but that is going to decrease naturally as those funds get deployed. And then if, again, like Naeem said, none of us know exactly what’s going to happen, but if this becomes a bear market, that is a true bear market and lasts for a longer amount of time, then those funds will have a harder time actually raising their next fund and continuing to like basically perpetuate the capital flow into the early stage ecosystem.
And like just anecdotally, I will say that a lot of funds are deploying have still been deploying quite fast in Q1 and Q2 of this year. And that’s part of what makes things seem like it’s all fine and it’s good. But then you don’t think about like, well, where’s their LP money coming from? Where’s the money that those LPs are deploying coming from? How does the food chain all connect together, and what happens when, call it a keystone predator in the food chain aka like the really big pension funds, and LPs have to rebalance because they’re now overweighted in early stage How does that all the way trickle down to affect XYZ, early stage, deep tech, carbon removal company that actually is still seven years away from being revenue viable and is going to need financing on CapEx and OpEx and R&D all the way from now until seven, eight years from now.
So I think those are the questions that we should be asking. I think it’s going to be really, really hard. So initially, again, initially good because it’s kind of like, oh, you can raise on a wing and a prayer. You don’t have to like show any spreadsheets. It’s almost better because like your spreadsheets aren’t going to, everybody’s spreadsheets look bad today anyway. But then over time, especially if this market persists, I do believe that things will get more and more difficult, which makes me kind of upset, honestly. And I hope things turn around, but, you know, like all my fingers and toes are crossed, but we just don’t know what will happen.
Radhika Moolgavkar: So I think, Susan, you already answered this question, which was, do you think there’s something about the CDR industry that might be protective of it? But I got the sense from your answer that probably not. It’s deep tech, needs many years to be figured out. Naeem, do you have any different perspective on it? Or do you see a way where the CDR industry might be able to pivot to address these private equity issues in a policy or governmental way, potentially?
Na’im Merchant: You know, I don’t see an opportunity to pivot, really. I think, you know, just to add to what kind of Susan was saying, from the demand side, I think you’ll also see a situation where, you know, between these advanced market commitments from Frontier, First Movers Coalition and South Pole, They’ve aggregated the aggregate demand there so far outstrips available supply that it also adds the kind of like, well, what’s the point to kind of leveling up demand right now in this economy? So I think that’s another thing that’s kind of going against kind of carbon removal at this point.
And I don’t know that there’s a lot that the carbon removal industry can do to pivot here. One small way that the carbon removal space and maybe direct air capture companies in particular You know, can try to be a bit more maybe resilient to some of these economic times or, you know, if they had a pretty kind of clear path to carbon removal and sequestration, you know, maybe it’s time to start thinking about some of the carbon utilization pathways that maybe have gone underexplored as a way to maybe diversify their use cases a little bit, not to say that’s going to make them extremely attractive investments all of a sudden, but more just kind of as a as a potential way to You know, limit the downside pain, you know, having a more diversified approach to the different use cases for your technology might be able to make your offering more resilient.
But again, that’s a big question mark. And I’ll say again, I think we’re very early here and how this is all going to kind of impact the CDR spaces is still a very big unknown.
Susan Su: I will say one other thing on this to answer your question, Radhika, I think one great thing about carbon removal Particularly whether that’s deep tech or whether you know it’s nature base is that private funders aren’t the only way forward, and there are a lot of ways to sort of fit into both other types of financing, but also other types of. You know, stakeholders, whether that’s oil and gas, helping out with infrastructure, or whether that’s state governments, you know, doing matching funds or acting as a buyer in a way that, let’s say, Just for example, an enterprise software company just does not have that as an option on the table.
So I do think there are some silver linings because of the kind of must have sort of urgent nature of the problem that smart companies will definitely be looking into immediately.
Radhika Moolgavkar: So we got a question from the audience and it says, how should we consider the issues of generalized inflation via the internalization of carbon economy at the economy takes place? Will carbon economy driven inflation register as significant in the coming three to five years? Does that question I see a couple of puzzled looks, so maybe it doesn’t quite make sense and the person who wrote it could reword it a little bit. Maybe that would be helpful and I’ll move on to another question. So one of the pre-submitted questions, which I’ll turn back to, was how is carbon removal addressed on federal, state, and public lands and who would benefit from the sale of these carbon offsets?
I’ll start with you Naeem on that one.
Na’im Merchant: You know, that’s a good question. Honestly, I don’t know how that works out. I think there have been some kind of efforts to for environmental NGOs and as well as companies to partner with governments around public lands and how You know how those are then ultimately used against net zero commitments and offset sales, but I, I’ve got to admit I don’t know how the kind of revenue split ultimately kind of works there. It’s important though that we’re careful with federal state and public lands. These are protected lands and so to think about then the sale of carbon offsets is a bit of a head scratcher for me because typically these are lands that are protected.
And so then you have a real question mark around additionality. So that’s just something to be mindful of as we think about how federal, state, and other public lands are used as it relates to carbon offsets. But in terms of how that’s been deployed successfully, I don’t know that example or case study is necessarily a successful one. So it’s just an area to tread lightly is what I can say.
Radhika Moolgavkar: Susan, anything you want to add?
Susan Su: Naeem mentioned it very briefly, almost like he says so many good things and they’re packed into like a small amount of space. So I would just maybe call out the point about additionality to draw a little bit more attention to it. I think that’s a really good point because in theory, these lands are already sort of protected in some way. I think the second part of the question of who actually benefits from the sale a really good question because John, who asked it, is basically implying like, hey, does the government, can the government make money from carbon removal?
And that is a good question. I don’t know the answer, but I would say that So if the answer is in some way, yes, then the companies, they’re still going to be, and there already has been with various kind of reforestation or market management processes. Companies and organizations, there’s a service layer, and I think those will still be in the hands of the private sector, but it’s sort of a good thing to ask ourselves, like, do you make, is value capture, does more value capture sit at the service layer? You know, going and reforesting or replanting or whatever it is managing, or does more value capture sit at the actual kind of like offset whole credit holder layer?
Probably the latter. And so I do think we have to be very, I would say, careful because in some ways, you know, the landowner as well, when it’s the landowner and the policymaker are one and the same. I think you can just get into, well, I don’t know, if it were me, I would have a hard time not letting, you know, there might be like a slippery slope, I should say, in terms of How some of those credits are actually accounted for and what good they’re actually doing.
Radhika Moolgavkar: So there’s a follow on question for Naeem from Catherine, who says, Naeem mentioned additionality on public lands, but what about a situation where the land management is improved and there’s clear additionality from enhanced carbon capture and reduced fire risk? Naeem, anything you want to add or how would you like to answer that?
Na’im Merchant: I think it’s a really good question. I think that can make a strong case for additionality. I think the challenge is how do you really measure that? How do you measure that in terms of a counterfactual? And the fact that the counterfactual is so hard to know, it makes it hard to really make a clear case for additionality there. You know, yes, in an ideal world where we can kind of check all of those boxes and we know for sure that we have reduced fire risk by X percent and we have enhanced carbon capture by Y percent, maybe you can make a clear additionality argument there.
But the, you know, our at least current inability to really measure those things makes it really hard to get around the additionality concern in my view.
Radhika Moolgavkar: That could be a more broad statement for carbon removal and additionality in general. And I would just add a little bit coming from a property law background that a lot of this will also be driven by statutory stuff that the federal government has not put in place, but has the right to put in place more than likely. So some of these questions May be answered based on who is controlling these public lands. And I also think this question extends past public lands and forest management, but how you use these public lands, do you apply different types of carbon removal, things like DAC or mineralization, or if you look at coastal areas and the legal ramifications around that and restoration.
So it’s probably even a broader question than how we addressed it. But I will move on to the next question. First Movers Coalition, which Naeem mentioned. So I think most people listening know that as of May 20th, new corporations and eight new governments, including the India and the UK, joined the First Movers Coalition, a group committing to buy low carbon industrial products to speed decarbonization in these sectors. And at the same time, they announced carbon removal was added to the list of six sectors the coalition is buying from. So they obviously highlighted the issues around procurement that we’ve already talked about.
So where do you think this group will turn to find billions of dollars worth of CDR in the global supply when, you know, we’ve been talking about thousands of tonnes, basically. Naeem, I’ll start with you and then Susan would love your insight as well.
Na’im Merchant: Well, I hope this financing facility will go on for many, many years, because it will take a very long time for this group to find billions of dollars worth of CDR. And, you know, I think, you know, what concern I have around this is that, you know, in the face of a supply crunch for carbon removal, buyers can have a tendency to Loosen the definition of carbon removal as a way to meet supply and demand here. So I’m not quite sure where this group is going to find billions of dollars worth of CDR, especially if we’re talking about carbon removal pathways like direct air capture, Biomass carbon removal and storage and some of the more durable kinds of carbon removal.
That’s very hard to imagine. What something like the First Movers Coalition Frontier and others have going for them though is that the idea here is that these are very long-term financing vehicles. And so maybe that means that this is something that’s ramped up over the course The advanced market commitments that exist in the global health space, for example, still exist in some form or another today. That’s 20 plus years. So, you know, there’s a lot of, you know, There’s a lot of money being kind of advertised here as part of these funding coalitions and advanced market commitments.
But I think the way they’re going to ultimately meet demand with a supply crunch right now is either expanding the definition of carbon removal to include things that maybe shouldn’t be in there, which we can talk about for a long time and I hope doesn’t happen. Or they can take a really kind of strategic paced look at this and spread those investment dollars out over a longer period of time. Because if you speak to a lot of carbon removal providers and innovators out there, that’s what they’re looking for. They’re looking for long term commitments in order to raise more money.
And so that’s something that a procurement vehicle like this can hopefully offer. And I think that’s one way they can get there. But we’re a far, far cry from billions of dollars worth of CDR today.
Radhika Moolgavkar: Susan, actually, I’m going to pivot to another question that’s related for you is that, you know, governments will likely want to spend domestically to spur jobs and growth at home. If you listen to last week’s episode, Chris Barnard, who is our policy person, was saying how the US has a substantial lead on the rest of the world in deploying and developing CDR technologies. But do you think a commitment like this could help the rest of the world Catch up to the US or maybe even surpass the US in terms of their investment in early stage companies.
Susan Su: I think that it would be great to geographically diversify where CDR is happening. It obviously needs to be sort of a globally shared endeavor. I think it kind of goes back to what we were talking about a bit at the beginning, which is how do you define CDR? What exactly are we talking about? Like that portfolio of solutions is so wide. If we’re looking at, you know, kind of high upfront cost, technology driven solutions, Almost like deep tech or frontier tech CDR. I don’t know that it’s going to, it may be a while before other places can catch up to The US for a number of reasons, including some of the existing infrastructure that we have here from our rather well established oil and gas industry, in particular, related to hydraulic fracking, which has a lot of adjacencies to CCUS carbon capture utilization and storage, but also just carbon removal.
When it comes to, you know, maybe things that are a little bit lower altitude on the technology scale, then yeah, absolutely. I think, in particular, because of some of the both ecosystem and socioeconomic Co-benefits of investing in carbon removal, whether it’s reforestation or improvements in the way agriculture is done, then I think it would be wonderful to see that. And I do hope that other governments will invest there. And it’s a little bit hard for me to say because I also think that depending on whether you’re looking at the, you know, where on the spectrum of economic development we’re talking about here, there are so many other investments that I would put first.
So many other investments that are very, very, very urgent. Again, it’s like, it’s so hard to choose a favorite child. Like we need to do everything first. But when I look at stats like the fact that, you know, India is still financing new coal plants and is at 1% solar penetration when we all know, I mean, we know India, it would be an amazing place for solar. Like, come on, are you kidding me? Community solar, utility scale solar, solar would be so great there. And we’re still... Um, quite early, just even on, you know, clean energy in a lot of places, that’s kind of where my mind goes to is not, will they spend domestically, but should they really be spending domestically in this category over other areas in particular, when for a lot, especially a lot of middle income countries, they, um, may be heading into something of a credit crunch, given a lot of stuff that’s happening for them.
Um, Some of which is actually driven by climate crisis, actually. So it’s a very, very gnarly and thorny topic. But I would just say, if I were one of those governments, I’d definitely be looking for things that have a lot of co-benefits because I need to get the most bang for my buck.
Radhika Moolgavkar: Okay, so another question came in through the chat, which was as a breakthrough year in CDR investment, how much has been invested in early stage CDR companies this year or the past 12 months? What CDR technologies have received investments and what’s the typical seed or series A round size for new CDR companies? Susan, I’m going to pitch that over to you, I think, because I think it’s been closer to your wheelhouse than Naeem, but you both are welcome to give your best answer because those are pretty specific details.
Susan Su: Yeah, I actually don’t know the total over the past 12 months, but I think it’s quite a lot because, and I’m sure we’ve talked about this on a couple of previous podcast episodes. So the number is out there, but I don’t have it off the top of my head. But the Climeworks round was like $650 million. So we know that it’s more than $650 million. And there have been a bunch of other, you know, smaller, everything from like a $4 million seed round up to, you know, 10, 20, 50. So it’s a bunch.
I want to say it’s probably like if I had to guess, it would be in the billions, maybe, maybe. I don’t want to misspeak, but you should Google that and verify in terms of the technologies that have received investment. I mean, it’s across the board. There’s been everything from living carbon, which is helping trees to enhance their carbon sequestration to really large kind of utility scale or like plant scale carbon removal. And I think that’s really awesome. I mean, I’ve seen everything from like Uh, you know, like Verdox with their electro swing thing where you can barely wrap your head around how that works to, um, I know we already mentioned terra formation, but I don’t know if that was actually technically in the last 12 months or maybe it was like 15 months ago, but you know, that is as far on the other end of the scale from burdox as you could get to, you know, depending on, do you consider marketplaces like Pachama to be part of this family?
In terms of the typical round size for new companies, I think they are still what I’m seeing, at least for seed rounds. Series A, what does Series A even mean anymore? That’s anybody’s guess. But for those seed rounds or for the first or maybe the early second round going in, I’m seeing them Fairly on par, maybe a little bit larger than a typical seed round for a climate tech company. So anything from the, you know, two to four to sometimes there’s always crazy outliers, two to four to sometimes maybe like even 10 million as the round size in that first round.
And then series A is, you know, really the sky’s the limit depending on how those funds have been used. But I would maybe just tie that up to say like, it definitely, if we’re talking, if we’re looking backwards over the past 12 months or the past year, it’s definitely been a very hot space going forward will be harder to say.
Radhika Moolgavkar: And then you want anything you want to add to that or alright, so the person who asked the inflation question came back in so let me try that one again it says. How much inflation can be attributed to the cost of carbon emission of carbon efficiency versus the effects on personal consumption in the three to five in the next three to five years, and do you see the farm bill and its carbon effects as inflationary. Either of you have a thought on that one?
Susan Su: I believe Neil is asking as we, and I could be wrong, but I believe it’s a question kind of more generally about how if we take carbon into account, So how does that drive up the cost of goods and services? In what will be, perhaps he didn’t ask this, but perhaps a good question to ask ourselves is, what is the overall impact on our socioeconomics and the way that things are going? Look, I think... This is part of why going back to one of the comments we were kind of making earlier, this is a little bit of a tough time because we already have a lot of inflation that’s being driven by other reasons.
And now we’re also sort of like our climate change bill is coming due. And I hate to say it, but this is kind of what happens when you kick the can down the road and you like don’t pay all of your creditors for many, many And then all of a sudden they all come knocking on your door at the same time. I mean, that’s what can happen sometimes. I don’t know how much inflation can be attributed to having to take carbon emissions into account versus other macroeconomic reasons. But I do think that there’s...
Unfortunately, what I think it’ll probably mean is that, especially here in the United States where it’s so politicized, what it’ll probably mean is that the carbon bill is going to keep getting pushed off into the future. Now, Neil specifically asked about the cost of carbon efficiency. To make products and provide services, I’m not sure exactly what I think that means, you know, to make products and services more carbon efficient and how that does have an increased cost. But I will say like maybe one positive on that, Neil, is that, you know, with everything that’s been going on over the past year and a half, With all the global supply chain disruptions, I do think that there’s, you know, a very strong increased drive to onshore things, and to shorten supply chains, and so there are maybe There will be some ways in which we can sort of get two benefits for the price of one, which is, hey, we get to strengthen our or make our supply chains a little bit more resilient, a little bit shorter, a little bit more local.
But at the same time, we are also achieving greater carbon efficiency. So there’s probably some areas where it’s not necessarily at odds. But overall, I do think that it’s going to be really hard, particularly actually everywhere in every economy, it’s going to be hard to pay for all the stuff that we’ve been putting off.
Radhika Moolgavkar: Can down the curb. So, Naeem, I want to pivot to a different question. As I’m sure you’re well aware, Occidental Petroleum just announced that they were going to be building 70 DAC plants by 2035, partnering with Carbon Engineering. On the face of it, seems like great news, but there has been some analysis that finds that they’ll be using the California low carbon fuel standard to subsidize the plant’s costs and that it’s the potential that some of that CO2 removed from the air is then used to pump even more gasoline from the ground in the process known as enhanced oil recovery.
So what do you make of this announcement and does it leave you feeling positive, negative, or neutral?
Na’im Merchant: Listen, I feel positive about the fact that there’s plans to build 70 DAC plants by 2035. Let’s also just check that with the fact that we have one real DAC plant today, and maybe one of a megatonne scale size maybe by 2025. So that’s a big announcement, but I think we need to kind of take that with A grain of salt a little bit just given kind of our starting point right now and you know we’ve been talking about today with the economic downturn and how that might affect. You know, you know future plans for for scaling up carbon removal.
I think the issue on enhanced oil recovery is a difficult one, I think, you know there’s. There’s a real perception issue here. I think that EOR could be problematic from a perception standpoint for direct air capture. I’ll stay away from the substantively is EOR good, bad, or whatever. But I think Direct air capture being seen as some kind of tool of the oil and gas sector could be really problematic for direct air captures long term scale up. Even if there are some really credible and important, you know, technical roles at the oil and gas or infrastructure related roles that oil and gas sector could play in helping scale up direct air capture.
So, you know, I’m, you know, I’m pretty I’m pretty concerned that even if someone pencils out the math and says, yeah, net zero oil via enhanced oil recovery is really a thing, but it ends up being a situation where then direct air capture loses support or has pushback from key constituents and key stakeholders, then on net, that’s probably not good for direct air capture. You know, for example, if we look at nuclear, you know, nuclear energy is, you know, relative to other, you know, source of energy pretty safe. But, you know, there’s a perception around nuclear that’s hard to shake off.
And for that reason, we’re shutting down nuclear plants and likely are going to need to replace them in the short term with more fossil energy. That’s the kind of outcome I’m worried about with direct air capture. If we’re not careful about thinking about the role that oil and gas is going to play in scaling up this technology. And if it’s going to be used for enhanced oil recovery, I think that could work against direct air capture in terms of its long-term scale potential from just purely a perception standpoint. I’m not going to get into the technical arguments of whether EOR is a legitimate benefit using DAC or not.
And I say that because if we’re going to use direct air capture to pull more oil out of the ground than we otherwise would have, then it can be a hard argument to make that UR is going to generate net zero oil.
Radhika Moolgavkar: Do you see any problems or does it give you actually some hope that the state of California is sort of subsidizing the first mass buildup of DAC in the U. S.? And adjacent to that question is, if we don’t engage with the oil and gas companies, how do we move these problems forward? Because they’re not going anywhere anytime soon. So is it a positive that we see a big company making a commitment to a legitimate technology?
Na’im Merchant: I think that’s a positive. Like I said, I think if you’re going to do direct air capture at scale, it’s going to need to involve at the very least the technical expertise, the decades long technical expertise at the least of the oil and gas industry. So I don’t know how we really get away from that. It just, I think that it’s the delicate dance is how do we make sure that direct air capture is not seen as, or in substance, is not a tool for business as usual in the fossil fuel space.
And that’s going to be a difficult thing to do. In terms of California’s low carbon fuel standard, effectively subsidizing this, I think that’s a positive thing. I think it’s important that we’re Mindful of what that means in regards to if this entire plant is being, or a large portion of that plant is being subsidized by LCFS, and then companies are trying to sell carbon removal credits, you might have some double counting there that I think we should be just mindful of. You know, mechanisms like LCFS, policy, you know, policy mechanisms like 45Q, they were designed to do this, to help stimulate growth in this sector.
And they can be reformed and changed and improved in ways to make direct air capture, to really help scale up direct air capture in ways they’re maybe not doing to the extent they could now. But I see it as generally a positive first step.
Radhika Moolgavkar: Susan, anything else you want to add?
Susan Su: Nope, but I just thought it was a really thoughtful point about the risks on the social license front.
Radhika Moolgavkar: Yeah. All right. Well, so we had another question that was pre-submitted and we are interpreting this one. One of the listeners asked, was curious about price discrepancies, and we’re going to assume that he’s referring to the price differences for different types of carbon removal tech and or What a buyer pays for maybe different types of carbon removal offset. So maybe Naeem, you could give an answer to that in terms of the different types of tech. And then Susan, maybe you could give the answer to the different types of offsets, emission avoidance versus carbon removal.
Na’im Merchant: Yeah, I think from a tech standpoint, though, actually, before I get started, it might actually make sense to start with the avoidance removal difference before getting into the different types of removal tech. I know, Susan, what do you think?
Radhika Moolgavkar: I’ll flip it to Susan then.
Susan Su: Asking the question again, Radhika.
Radhika Moolgavkar: I think this person was asking about price discrepancies. And so I think that we think the question could go in two different ways. One is like the type of carbon removal tech, which Naeem is going to answer. The other part is like the removal versus the emission reduction and the value difference between the two. And why there’s a price discrepancy between those types of carbon credits.
Susan Su: I mean, It’s why there’s a price discrepancy is typically due to the cost to generate that type of credit. And sometimes that’s a valid cost. And sometimes it’s valid meaning there’s a reason that has to do with that is somewhat affiliated with quality. Sometimes it’s correlated with credit quality and sometimes it may not be. I tend to think it typically is, particularly in this category. I think that’s also why we see these most rigorous buyers going for the highest quality credits. And I think that the fact that the discrepancy is so big is actually really troubling.
Because there are a lot more people that don’t have a scientific counsel that’s helping them to buy carbon credits. And the general public, as they sort of onboard to this behavior, whether that’s through something, the Shopify store that they go to, or some Delta tickets that they buy, or whatever it is, Are not going to be able to exercise that level of discernment or really, quite frankly, research and analysis. And so I guess I’d love to see there being, this is nothing new, but like we need to Do a lot more work on standards that apply to everybody as opposed to voluntary standards and over time we should see those price differences decrease because when you in any kind of market where you’re selling something that has.
You know, really an order of magnitude, literally an order of magnitude of difference in price for supposedly the same thing, one tonne is one tonne is one tonne. You should really be asking yourself questions about who’s wrong on that spectrum, because There’s either not transparency in the market or, well, there’s definitely not transparency in the market. There’s not free flow of information to tell you what is the full supply chain, the value chain that gets you to that one tonne in either of those cases. And signals that you should probably be asking more questions because in the very, very low price case, there may be, let’s just say, externalities that are not truly being factored into the sticker price that you see.
Radhika Moolgavkar: Naeem, anything you want to add?
Na’im Merchant: I think Susan’s absolutely right around the need for standards in the space to make real sense of quality. I think that would certainly help us make sense of these discrepancies. I also think that there’s an important kind of difference here as well is that the price For certain types of carbon with the light, for example, direct air capture or some forms of biomass or enhanced weathering types of carbon removal that are very, very early stage. You know you’re paying for a first of a kind plant divided up by the number of tonnes that plant that very small plant is going to going to kind of generate in terms of carbon removal.
And so then it’s a very high cost per tonne, obviously, and then you know you’re hoping that over time, you know those costs come down as you benefit from. Learning by doing that brings down kind of cost as well as economies of scale. But I think that there’s going to be a need for not only greater clarity around what’s high quality and what’s not quality, but what’s actually included in the definition of carbon removal and what’s not. Then maybe we can stop calling certain very well-intentioned forest projects poor quality. Maybe they’re not poor quality, they’re excellent projects for a number of different reasons, but from a one metric of carbon removal standpoint, they’re not doing a great job.
That doesn’t necessarily mean that they’re poor quality. And so when we get a little more clear around the standards and definitions, Especially if those are originating from financially disinterested folks, I don’t know if that’s government or an NGO or a coalition of scientists, whatever the case is, but a financially disinterested group that can establish standards and definitions around what is carbon removal, then you can get to a place where your typical buyer that we’re going to hopefully start to see more of in the future that Susan was referring to, Doesn’t need to do extensive amounts of research to understand why are there such price discrepancies between A and B.
And I think that’s kind of the direction the carbon removal space needs to go in order for any of this to start, you know, normalizing in any way possible.
Radhika Moolgavkar: All right, last question for you both. We have one minute, so quick answers. For the next six months, Naeem and then Susan, what are you going to be watching for in the business space for CDR?
Na’im Merchant: I’m going to be watching for more companies coming on board, more industries coming on board on advanced market commitments or carbon removal funding coalitions. I think that I’m going to keep an eye out on that. I don’t know if this trend is going to continue, given this economic kind of outlook that we have right now, but I think that this is a really intriguing model for carbon removal procurement and supporting the carbon removal space. And seeing more governments, local, state, federal governments, think about procurement of, at least at the local level, of procurement of carbon removal through funding coalitions might be a way to kind of streamline this process.
And that’s what I’ll be looking up for if that momentum for the last, that we’ve seen the last couple months in that space continues going forward.
Susan Su: This is an easy one for me. I’m going to be looking at valuations and velocity. So the companies that have been funded on the private side, you know, how are those turning out, basically? A lot of companies are going to need to be raising follow-on funding. I don’t know about in the next six months, but very soon. So what will those rounds look like? Who’s going to be participating in them? How will they be priced? How fast will they go? All of that I’m going to be keeping a very close eye, especially given how things have been over the last three, four months.
Radhika Moolgavkar: All right. Well, with that, thank you both for joining our live episode of the Business CRN. And this will also be dropped as a podcast later this week. And everybody have a wonderful rest of the week and weekend. Thank you.
Announcer: Thanks so much for listening to Carbon Removal Newsroom. If you like the show, the best way you can help us is by giving us a great rating and review in Apple Podcasts, following the show on Spotify, and by sharing the show on social media. Tell your friends and help us spread the word about what’s happening in the world of carbon removal.
