Panelists Susan Su of TOBA Capital and Na’im Merchant, author of the Carbon Curve, join host Radhika Moolgavkar of Nori for this business-focused episode of Carbon Removal Newsroom.
Na’im recently published a piece titled “8 Unique Direct Air Capture Companies to Watch in 2022” where he wrote, “2030 is a critical decade for DAC in which companies, researchers, and policymakers working on DAC to figure out how to do three things— 1. improve DAC’s performance, 2. bring down costs, and 3. responsibly deploy the technology.”
Three well-known ‘incumbents’ have been working on DAC since 2009, and they all had big developments in 2021: Climeworks, Carbon Engineering, and Global Thermostat. However, the scale of the problem will require many more companies to capture billions of tonnes of CO2 annually, globally.
There are many new entrants into the DAC space, but there is limited public information on many of them. Most of these startups are attempting novel technological approaches distinct from existing deployments.
Na’im, Susan, and Radhika discuss what sets this crop of DAC companies apart from those that came before, which ones they are excited about, and how they would be planning their approach to market if they were on the inside of one of these startups.
In our second segment, we dive into Bloomberg New Energy Finance’s inaugural Long-Term Carbon Offset Outlook 2022, released earlier this month. The report models several supply and demand scenarios for offset prices.
Main author Kyle Harrison says, “No matter the scenario, corporations and other entities looking to buy carbon offsets shouldn’t expect them to be a get-out-of-jail-free card for much longer.”
While the conversation begins as a breakdown of the BNEF report, it zooms out into a wider trading of philosophies about how the carbon offset market should be regulated. Na’im and Susan elucidate some of the most contentious issues surrounding carbon offsets.
We end the show with some good news— fewer oil derricks in Los Angeles and a lot more cultured meat in China.
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: Hello, everybody, and welcome to the January 27, 2022 edition of Carbon Removal Newsroom. Today we’ll be focusing on business articles. It’s our first podcast without Holly, so we have a new guest podcast. Host who will be with us, and I’ll be introducing him in a second, but I’ll start with Susan Su, who is a partner focused on climate investing at Toba Capital. She also serves as a board member of the newly created Carbon Business Council and a board advisor to the Environmental Order Project. Hi, Susan. Welcome.
Susan Su: Hello.
Radhika Moolgavkar: And today as our guest host, we have Na’im Merchant. At Na’im Merchant is a consultant who works with NGOs and startups on scaling up carbon removal. He writes the Carbon Curve newsletter about the carbon removal industry and the new carbon economy. He recently published a piece titled Eight Unique Direct Air Capture Companies to Watch in 2022. And that will be our first topic of discussion. So Naeem, thanks so much for joining us today.
Na’im Merchant: Yeah, thanks so much for having me.
Radhika Moolgavkar: And always, this is Radhika Moolgavkar, Head of Supply and Methodology at NORI. So, you recently posted, Naeem, about these eight DAC companies to watch. You wrote that in 2030, it’s a critical decade for DAC in which company researchers and policymakers working on it will have to figure out how to do three things. One, improve its performance. Two, bring down cost. And three, responsibly deploy the technology. So we all know, probably, or most people listening have probably heard of the three big picture, big incumbents that have been working in the space since 2009.
Climeworks, Carbon Engineering, and Global Thermostat. But obviously the scale of carbon removal is gigantic. We’ll need lots of different companies to capture billions of tonnes of carbon dioxide annually globally. So maybe you can give us kind of a brief overview of these new entrants or maybe some old entrants in the DAX space and what has made you so excited about them.
Na’im Merchant: Yeah, absolutely. You know, I’ve been, you know, working in carbon removal for a couple of years with an interest in kind of helping catalyze the market for permanent or durable carbon removal solutions. And as you mentioned, for years there’s been, you know, three kind of trailblazing incumbent players in the direct air capture space who We’re each hitting important inflection points recently. But what’s been really exciting to me is to see new direct air capture companies emerge and seeing universities and research institutions get funding for direct air capture. And like I said, I think this is a defining decade for DAC because it’s a decade where direct air capture companies need to figure out how to improve performance, how to bring down costs, and how to responsibly deploy the technology.
And so, you know, I think it’s a kind of important prerequisite to getting all of that done. It’s better if more people and more companies are working on tackling those challenges. They’re more likely to find a solution. And so I wanted to kind of, you know, shine a spotlight on these kind of eight companies. There’s many more, and I probably do a follow-up post on that soon, who are kind of taking really novel approaches to direct air capture, whether that’s through kind of You know, novel technologies or materials or approaches to remove carbon dioxide from the atmosphere.
And something that I’ve noticed across a lot of the organizations and companies is a focus on modular design. So they’re thinking about manufacturing direct air capture units as opposed to constructing gigantic direct air capture plants, which I think is important in order for DAC to come down the cost curve. So something that’s been really interesting over the past year or so is seeing more and more of these kind of companies come up and emerge that have these really interesting kind of features.
Radhika Moolgavkar: Cool. And Susan, as you were reading his piece or probably already knew most about these DAC companies, was there one or a couple that really caught your eye? And if so, why?
Susan Su: Yeah, well, I’ve been a longtime fan of NOIA just because I love the business model. It helps others win as they win. And I like that it leverages existing infrastructure. I also really like, or I am intrigued by, I should say, rather than expressing a bias preference already, but I’m very intrigued by carbon capture. Just because of the level of funding that’s behind that one and also the team that’s behind it. I mean, they’ve got senior people from some of the OG carbon capture. And I think that’s really meaningful that folks have chosen to leave decades in the making projects and carbon capture to come and join carbon capture.
It’s kind of confusing because the company’s also called carbon capture. They’ve got a great name, but it’s also probably a little bit hard for them to own. So I’ll be really curious to see how they take this kind of legacy, deep legacy experience in the space and put it into something new. And then finally, I’m really intrigued by Verdox as well, just because it is very unique. Truly breakthrough science, but the actual design of their mechanism is quite simple and that enables it to be easier to scale. One thing in terms of what I look at more generally in all of these companies is what is the dumbest technology?
What is the minimum viable technology we need to solve the problem? And I think that, you know, Verdox has like this really complex stuff housed in relatively, I don’t want to simplify at all what they’re doing, but relatively easy to build and sort of fail proof tech. So I think that one’s really interesting too.
Radhika Moolgavkar: So I love that there’s now an OG in carbon removal. That tells you we’ve evolved because I’m pretty sure a year ago we might not have said it or two years ago. But maybe Naeem, you could let our listeners know who haven’t yet had a chance to read the article, those three companies that Susan just highlighted, kind of what the differences are between them and how they are similar and how they are different.
Na’im Merchant: Yeah, that’s a great question. So I guess to start with NOAA, you know, you have very interesting model. NOAA has developed a direct air capture approach that retrofits existing cooling towers. You’ll find cooling towers on a lot of kind of large buildings and industrial buildings. And they can, instead of kind of building a new direct air capture unit from scratch, can retrofit an existing cooling tower. And what’s interesting about that is, as Susan mentioned, it kind of creates a revenue stream for the business or the building that, you know, uses NOAA’s technology.
And it brings down the kind of overall capital costs that are required to develop a direct air capture, you know, installation for NOAA. So that’s a really interesting kind of approach that NOAA has taken. I’m also, you know, I think Susan’s point around carbon capture, the company is, you know, similar to, I don’t think it is, you know, as maybe different as some of the incumbent direct air capture companies in terms of their technology per se. But as Susan mentioned, it’s, you know, received a significant amount of funding in recent kind of months, but also has just this amazing kind of team behind it, is incubated at Idealab.
And so there, you know, there’s something really kind of unique and interesting about carbon capture. And then finally on Verdox, I think, you know, as I mentioned in my article, I think what Verdox brings to the table is something that could be potentially kind of game changing or a paradigm shift in carbon capture technology because they kind of use this electro swing technology as opposed to kind of a typical, you know, heat swing technology that you typically see in, in many direct air capture technologies. So when I visualize, you know, direct air capture energy requirements, I kind of compare DAC to a sponge, a sponge that’s collecting carbon dioxide from the atmosphere.
And eventually that sponge gets saturated and you need to squeeze out the sponge. The process of squeezing out the sponge requires a lot of energy. So for many companies that’s applying a high degree of heat to this sorbent or solvent, effectively the sponge that was used to capture CO2. And that requires more heat than renewable sources of energy like solar wind can deliver. And so, you know, those companies might need to use waste heat or fossil fuels to power that stage of the process. And that can be a bottleneck to deployment.
So when you can, you know, like Verdox, use this electroswing adsorption technology that uses electricity to trigger a chemical reaction that makes it possible to use Renewables like solar and wind as your energy input. And that can really bring down the cost and make the technology more scalable. I just add a few caveats to that is that, you know, Verdox is still at this kind of prototype stage, you know, so what you can do in the lab is very different than what you can do at scale. And their technology also uses carbon nanotubes and other kind of materials that are many times more expensive than materials used by other data companies.
So that’s kind of a barrier that they’ll need to contend with. So those are kind of the Some background on some of those three initial direct air capture companies with Highland.
Radhika Moolgavkar: So I could go so many ways, but I think the first thing I kind of want to focus on, and I’d love to get both of your perspectives on this, is that of the three that you mentioned, only the first, NOIA, seems to be like an additional revenue source for a building versus the sole revenue source being a carbon credit. And so what do you both see as being the overall business model for these DAC companies if carbon credits don’t hit the highs or even come close to the highs that are being predicted?
How do they monetize their technology if the carbon credits don’t meet the value that some people are predicting? And I’ll start with you Naeem and then Susan, I’d love your thoughts as well.
Na’im Merchant: That’s a really good question. One area that I’m particularly interested in is We’ve seen a lot of companies like CarbonCure, CarbonBuild, and others that infuse concrete with CO2. And so what that allows for is a company that’s building a direct air capture unit can site that direct air capture unit at a concrete plant. And sell that CO2 to the concrete producer at the price that they would normally pay some external kind of provider on the CO2 merchant market. And so that can take up some of the bridge costs, I guess you would say, for making CO2 available.
So I think that could be an interesting way to kind of bridge the gap where you kind of mentioned a situation where the price for carbon credits might be too high for You know, for consumers. And so, you know, having that additional revenue stream and it’s still carbon removal because the carbon that’s captured by that director capture unit is infused in concrete and stays there permanently allows you to have, you know, the revenue stream Susan, what do you have any thoughts?
Susan Su: I am actually going to go out on a little bit of a limb and go ahead and disagree with that. I think that no matter what, if you are performing high-tech direct air capture that has a lot of costs, not just the energy inputs, but really the research and development inputs to it, and whatever capex is required to get those technologies to scale, whatever you do with that carbon, whether you make a concrete product out of it or you Make a carbon fiber bike out of it or you simply put into the ground, it’s going to be expensive because of all of those upstream production costs inherent in every unit of that CO2.
So I personally think that there are there are actually a number of. You know, kind of carbon to concrete plays out there, some really interesting ones, but the question there is, can that concrete be or cement or whatever product they’re making, can that actually be cost competitive? And if not, then you’re talking about looking for buyers that are willing to pay the same green premium that you’re asking them to pay in the voluntary carbon markets. It is the exact same thing. And I actually have a lot of faith in the carbon markets, even when they’re only, you know, quote, only voluntary.
I think that there, we see it in consumer, for example, there’s a lot of discretion between different customer and buyer segments. People will Shop at Parachute Home for really expensive sheets versus shopping at Target for organic sheets, organic cotton sheets at a fraction of the price. Why is that? Buyers self-segment into different price and premium kind of tiers. And I think we’ll see the exact same thing when it comes to whether it’s carbon credits, whether it’s concrete. But I don’t think that it makes sense to say, well, utilization is better than voluntary markets because you get to make money off of it.
Either way, somebody is going to make money off of it. And in both paths, you’re going to need to rely on a consumer that has differentiated preference or a buyer, I should say, because most of the buyers are going to be enterprises.
Radhika Moolgavkar: Really interesting. It’ll be, I have to say, I hope Susan’s prediction about the voluntary markets is correct and that it explodes in the way that people, some people are predicting and seeing. I’ve always thought about it as sort of two revenue, you always need a couple revenue streams right now while carbon credits are at the price they are maybe forever. I’m in soil ag right in the soil. Carbon removal is what we call the cherry on top and so I still struggle to see the cherry on top when you’re talking about DAC where their main perspective is or their main revenue sources carbon credits and until.
And I don’t know when and if and when the price will be high enough that DAC will make sense for anyone besides the really are like aggressive Microsoft and stripes of the world. But my second question around this was more around like DAC and its acceptability was around number three, where you talked about responsibly deploying the technology. You didn’t go into it in great detail in your article name, but I was assuming you meant by that, like just responsibly deploying it from a climate justice perspective and also maybe from a government policy perspective.
So can you give us any thoughts on how or if you how you predict the future around government policy will be in this area? And I’m most particularly curious about the permitting aspects of it and also like the pipeline development aspects of A lot of these DAC projects.
Na’im Merchant: Yeah, I didn’t go into too much detail on that on the article itself. I think, you know, I think that there are a lot of different ways this can go. It’s really hard to kind of predict where policy is going to kind of help solve this problem. I think that there’s a real issue and we don’t talk about it enough in regards to kind of carbon storage and transportation and some that supporting infrastructure that’s necessary to make something like direct air capture work. You know, at least as far as direct air capture to sequestration.
And, you know, I think that I did kind of look at it from a climate justice point of view in that we kind of need to learn how to deploy direct air capture in a way that involves communities and engages communities in the process while also kind of being able to be deployed in a fairly streamlined manner. And figuring out that balance is going to be really, really hard. And I think that’s where I think policymakers And community groups have an important role to play. So I’m not sure exactly where that’s going to go.
I’m concerned about the fact that right now, if you wanted to capture large volumes of CO2 and store it in a classics well, that’s not a trivial thing to do. There’s a lot of regulation and permitting that’s required. And in a context where we need to be removing large volumes of CO2 from the atmosphere, that’s something that we need to figure out. And I think what we’re seeing right now is that in the absence of clarity around infrastructure or CO2 storage and transportation and not really knowing how to do this in a just way, some of these early stage direct air capture companies are partnering with concrete producers and concrete plants to be the provider of CO2 because that’s a way to lock up small volumes of CO2, get your early units of direct air capture into the world, and still be able to claim carbon removal and earn some kind of carbon credit for that.
And I think that’s the strategy that a lot of them will take in the absence of policy that we really need to see at the state and federal level around Some of these infrastructure challenges on storage and transportation that I think importantly takes no equity and justice into consideration.
Radhika Moolgavkar: Thanks. Susan, I’m going to pivot now a little bit more to the generic general business news of the last few days, which is obviously The market has been going crazy, up and down, a lot of uncertainty. The Fed made their announcement yesterday that they were gonna be raising interest rates immediately. I think one of the impacts, right, is climate tech stocks have fallen. Another impact I was reading about this morning is some of the valuations around these startups have been lowered or they’re being renegotiated as they’re going through series, different series of funding.
So I’m curious if you think this will have a near term effect interest on investors in projects like hardware intensive DAC that are more longer term and what you see kind of as the future for some of the, or the near term feature, the like next 12 to 18 months for these DAC companies as they think about their funding and finances.
Susan Su: Yeah, I think let’s move it a little bit. Always look upstream at what’s been going on. 2021, as we all know, was just a massive year for fundraising and that’s true for companies, but that’s also true for funds. So pretty much every climate tech fund that I know, as well as a bunch of generalist funds that have raised side vehicles or have made carve outs, they are completely flush with cash. They have never been so flush with cash in their history. And that cash has a ticking clock on it. And so I think investors will continue to deploy.
Now, I don’t think that you can take a look at the clean tech stocks. I wouldn’t even necessarily call them climate tech stocks, the clean tech stocks, the public equities. That have been taking a plunge and say, well, that’s going to affect early stage private equity in climate tech simply because the companies that we see at the early stages are so completely different. Climate tech of 2021, 2022 is completely different than the clean tech companies that have had a chance to SPAC or go public over the last 10 years. They’re a lot broader, first of all.
They are started by a completely different breed of founder, operated by a different breed of operator. And so I think it’s a little bit apples to oranges to compare. But I also think just the broader point is that fortunately, a lot of funds sort of got just ahead of that cycle. They locked in their raises and they have more chests to deploy into companies. Now, I think in particular, when you’re looking at very long cycle Categories like direct air capture or just like technological carbon capture, carbon removal. Nobody thought that this was going to turn a profit in a year or in 12 months anyway.
I do think maybe we’ll see a little bit more coming down to earth on valuations. And that’s honestly a good thing. I always tell founders, you do not want to Inflate to the moon on your seed or your Series A, especially if you’re a climate tech company that is pre-revenue, pre-traction, there is no need for that. You’ll have plenty of time to catch up on valuation later, and it is a long road. It is a long life. It’s not about your Series A valuation. It’s about how you perform later on and how a current valuation sets you up to Not fail or not appear like you’re failing or raising a down round, but appear like you are continually climbing up this curve of goodness.
So I think it’s going to be all good. And I think DAC is just, it has, you know, sort of left the station already. I think that and fusion, there’s just so much excitement around it. And there’s a lot of deep pocketed long-term capital. That’s very interested in that category, almost sort of for passion reasons. And I think that’s okay. And I think that will continue to fuel a lot of growth in this area in terms of early stage venture.
Radhika Moolgavkar: Very sage advice, Susan, as a person in a seed-ish company. I appreciate that. So final question to you both, and I’ll start with you, Susan. So if you were running one of these startups, you were doing the pitches to investors, how would you set yourself apart from all the other DAC? Because it seems like DAC is now getting inundated. So how do you set yourself apart and what are you thinking about when you pitch to an investor? And Susan, I guess you are an investor, so maybe you might take it from the opposite perspective.
What would you want to hear as an investor?
Susan Su: I can share an example from a separate category I’ve seen recently, which is, you know, there’s a lot of climate tech, a lot of corners of climate tech that are just like very long cycle, kind of long haul problem solving challenges. And I think what’s really common when you have that is to say, well, we’re working on all of this science and technology. It’s a huge engineering problem. It’s an R&D problem. And we’ll figure out The business model, we’ll figure out the unit economics later. And what I’ve started to see is really kind of a rebuke of that, where there are entrepreneurs coming to the table with just incredible pro formas, like the best financials, and these are projections, right?
So they’re not based on anything except for a bunch of really, really good, well thought out and well defended assumptions. So I’m starting to see a level of detail and a level of financial rigor. And some of these other categories, and I’m sure it’s happening in carbon removal as well, but I think that’s where companies can really set themselves apart from maybe like the first generation that was a bit more almost academically focused on The science and engineering challenges. Now we have the suits coming in and I actually think that’s a great thing.
And I actually don’t think it’s different people necessarily either, right? But it’s just sort of like learning to have a different type of conversation with investors. So I think the more detail on business model on specific even sort of like bottoms up unit economics is something that can really set a company apart in an investor conversation.
Radhika Moolgavkar: And what about you, Naeem? What would you focus on?
Na’im Merchant: Well, I really agree with Susan’s point on the bottom-up unit economics. I think that’s what it ultimately will, you know, come down to. And I think, you know, I think that it’s tempting at times to think about, you know, direct air capture coming down the cost curve the way solar did. But, you know, these are different technologies and DAC has unique challenges. But solar has come down in place 90% in the last 10 years. And I don’t know that DAC necessarily needs to achieve that pace, but I think I would want to see how a startup has kind of addressed some the challenges that kind of go back directly to cost around how efficiently they capture CO2, minimize energy requirements, have a modular design that allow for kind of bringing down costs down the line.
So I think The business model, all of those pieces are important, but I think having a clear kind of roadmap to bringing down or lowering the cost of director capture is going to be really critical. And that’s what I’d like to see.
Radhika Moolgavkar: All right. Well, thank you both. That was a really interesting conversation about DAC. I think about as deep as we dove into that space in a long time. But now I’m going to pivot a little bit to a report that the Bloomberg New Energy Finance Group published. It’s their inaugural long-term carbon offset outlook 2022. A little bit of a mouthful there, but hey, I’m happy to see that they’ve started reporting on it because I think it means that we’re just getting more traction in this area. This outlook models several supply and demand scenarios for offset prices, and they had three scenarios particularly.
One was the voluntary market scenario where Any type of offset was permitted. Additionality was not considered. Results in a very high supply and low prices in 2030 and 2050. The middle scenario or second scenario was a removal scenario where only removals were allowed. So that’s just carbon removal and sequestration. So you’re not discussing avoided admissions. It still assumes a lot of forestry, which we have discussed on earlier podcasts and some of the challenges around that. Again, results in low supply or Not again, but in reverse, it reverts low supply and high prices in 2030 and 2050.
Then finally, they took a look at the hybrid scenario where market transitions from the voluntary market of today to a removal only market by 2050 with high additionality. In this case, countries not corporations are the main buyers by 2050 and it results in a manageable price rise and sufficient supply in 2050. And this report at least found that this was ideal for buyers and sellers. Susan, maybe you can give us a little more detail than I did about the different model scenarios and which do you personally think is most likely to occur?
Susan Su: Sure. I mean, I think you did a good job just kind of highlighting and there’s somewhat, I would say, self-explanatory also, right? So voluntary is a little bit of business as usual, or as it currently stands, a continuation of what we have today. Hybrid, I really think of hybrid as hybridizing with some regulation and what they call the best outcome. Well, they call the hybrid scenario the best outcome, but I think there’s an implicit even better outcome, which is like strong regulation. So we have this spectrum of government input into these markets.
You know, I personally think that I’m like pretty cynical in general about regulation leading behavior change in industry. I actually think regulation follows behavior change, because if you just think about it, if you’re a politician, how can you or any kind of regulator It’s like we kind of forget that their job is to stay in the job and that their job is, and this is not even in any way a criticism of them whatsoever, right? This is just the reality of the world. They maintain rather than create breakthrough. That’s just the nature of regulating and of governing.
And I think that’s totally okay. We shouldn’t be looking to our governments to We should be expecting them to be sort of in a laggard position of what is already happening. And I think that the voluntary markets, I actually, I don’t remember if we talked about this on this podcast or if I just have had this conversation a number of times with other folks in the space, but I think the name voluntary markets is really problematic. What is, you know, how much of our social contract is voluntary? Probably all of it.
You don’t have to follow any laws. You could probably get away, for the most part, you can get away with a lot of things. None of it is voluntary, and yet we still fulfill our obligations to our neighbors, our coworkers, and even to strangers in the streets. And I think that’s just part of being in society. And I think not to get too philosophical about it, but I think that governs these markets as well, which is once there are enough participants that implicitly agree to the same shared behavior, then can you really call a market voluntary anymore?
I would also cite another example, which is the fashion industry has been spotlighted over the past five or so years quite heavily for its waste, its emissions, its effluent, and just in general, how terrible it is for sustainability on this planet. And there have been massive changes in the fashion industry. And I would say That if you look at every single fast fashion purveyor out there, they’ve all got a sustainability pledge. They’ve all got several sustainability lines of clothing. Now, is that going far enough? Absolutely not. Absolutely not. We’re not going to kid ourselves.
We know that H&M and Zara are still burning inventory, even as they have their better cotton pledge items. But could you have imagined those same companies even eight years ago devoting Let’s call it shelf space. Shelf space on their websites and in their stores to products that are probably lower margin. Well, I actually don’t know if they are lower margin or not, but they’re certainly speaking to a different type of consumer, which is increasingly a majority consumer. I think that’s a really good example of industries self-regulating without needing a lot of government intervention.
And I’m not in any way trying to tow some kind of libertarian line here at all. I think regulation is really important, but I don’t think it drives change. And the last thing I would say just on the fashion point is, can you imagine 10 years from now, or let’s say like 15 years from now, you know, the today’s 10 year olds are 25 and they have purchasing power. Can you imagine those people being okay with clothes being incinerated or being okay with A child labor and like extracting materials from the earth in order to produce another t shirt that’s going to be thrown away after a couple of days, I cannot imagine that I cannot imagine that generation of people of consumers being okay with that and because, and I think we would all agree like that’s just not the direction we’re headed in, and that didn’t require.
You know, sort of this hybrid model that the BNF study is implying. And that’s just an example from fashion. So I think we’re going to see the same thing in carbon markets. We’re going to see a lot of self-regulation and we’re going to see people starting from consumers, but moving all the way up to enterprises, understanding that there’s a really big difference between the, you know, sort of junk credits that are out there and real carbon removal credits.
Radhika Moolgavkar: Well, I would say I have children that you were mentioning of that age, and I totally think you’re right. They just look at the world in such a different way, and it’s not even maybe from what they learn at home. I think it’s just from what they absorb in the world around them, and you can see it from all the way from their views on the social issues to environmental issues and just their expectations of things, and so as they learn more, I can see them putting their expectations to their brand power.
I mean, right now they’re stuck with their parents, but eventually they’ll be able to do what they want to do. So I completely agree with you on that, Susan. And I also completely agree with you on the whole idea of government Being a leader, I worked in the government for a long time, and it is hard to lead when you’re also answering to constituents and you’re also spending taxpayer dollars. Like you aren’t free to do what you want because you have a different type of responsibility to the fiscal health of your company and company being the government.
So I think those are really important points that you made. Naeem, you’ve been covering suppliers of the offset market that are more focused on permanent additional removals. So what do you think these markets need to do to support the types of companies we were just discussing rather than have a flood of cheap avoided emission credits?
Na’im Merchant: Yeah. It expensive. I have a different view, I think, than Susan on this. I think I don’t have faith in the voluntary markets as they’re set up right now. I don’t have faith in self-regulation. Maybe if there wasn’t the urgency to address this problem, I would feel differently. I think that regulation has its pitfalls and it doesn’t always work all that well. I’d also like to think that we can live in a society where We can expect more from our political leaders. I understand that we haven’t seen a lot from our political leaders as of recent, but there’s no reason that shouldn’t be any different.
And especially when it comes to rising to a challenge like climate change, I think we should be expecting more. So I don’t disagree that there are some challenges with regulating carbon markets and where there could be some kind of problems with With that along the way, but I think we need to, I think, fully, if we really understand the scale of this challenge, we, I don’t think, can leave it to private actors to self-regulate and figure this out. I think the implications of that have been staggering. I think, you know, we are seeing carbon offsets being purchased for forests that were never under threat of being cut down, for example, right?
Like, and there’s nothing stopping Private companies from paying $4 a tonne for that offset. So I think it’s been, I would argue that the voluntary offset market as it exists today might have actually done more harm than it’s done good on balance because we’ve left it in the hands of private actors where the incentives don’t align. So I think that to answer your question, I think these markets will need to do a better job of differentiating permanent carbon removal from these cheap avoidance credits. But unfortunately, the current system doesn’t incentivize that in any way, right?
So that pressure will need to come from the outside and whether that’s civil society groups or that’s NGOs or that’s government, but I don’t think the private markets are set up to do what needs to be done here. So I think there needs to be credible, rigorous, Standards that set permanent removals apart from the rest to help justify the higher cost. I think there needs to be better kind of storytelling and education to private buyers about why carbon removal matters and why avoidance credits, while they might be cheaper, aren’t delivering much in return.
But I strongly believe that there’s going to be a need for the public sector to intervene where either private sector demand falls short Or where the incentives of private sector actors are not aligned with the public good. And I think that this is one of those problems that justifies a stronger role for the public sector and more regulation and less kind of trusting companies to act like H&M and Zara. That’s great, but we’re talking about a pretty urgent problem here.
Susan Su: Well, I don’t cite H&M and Zara as leaders. They’re definitely followers. They’re following companies that are entering the market and challenging them by being much more cutting edge and more forward thinking on sustainability and fashion. And I think likewise, the companies that are buying the $4 offsets are completely different from Stripe, Shopify, Microsoft that are buying the $600 or $700 offsets. And I think what happens is if I’m one of those buyers that I’m like, Really working hard to not only determine what is a high quality offset, but spending all this extra money to obtain them, I start getting pretty pissed off that there’s other people claiming to be like me, but only paying $4 a credit.
And I think that tension within the private markets, which we should not think of as a monolith, I think that’s actually what ends up moving the voluntary markets forward. I do think that part of the reason why the markets have not moved forward or been better is because there’s a lot of opacity. And whenever there’s opacity in a marketplace, opacity is the enemy of liquidity. OK, like so many people do not get involved because they don’t have trust in the market. And that’s where government actors can play a role. It’s not in necessarily regulating, but at least in defining.
And I think that would be something great to start seeing, which, you know, we need to agree on just what these different words even mean. But I have a lot of faith that there’s already quite a lot of differentiation within the voluntary markets in terms of buyer behavior, and that creates a productive, like I said, I think tension or conflict that will move the market forward.
Na’im Merchant: I think we need to stop pointing to Stripe, Shopify and Microsoft as these examples of what’s gonna drive the change we need to see in the carbon markets. I’m a big fan of what they’ve all done and a few other companies that have kind of followed early on, but they’re leading, they’re vanguards, they’re pioneers. That’s not going to do the heavy lifting of driving scale up in carbon removal that we need to see. And we can’t expect other actors to follow the same rules. And so having government play a role where they define is just not sufficient.
We need to have a role where government sets in clear kind of guideline standards and regulation in order to get the scale that we need. If it weren’t for that, I think, yeah, we could probably count on more companies trying to get the brand lift. That’s Shopify, Stripe, and Microsoft have gotten. I just don’t think that’s realistic for now that, you know, the next set of companies that don’t have much to gain reputationally for supporting 600, 800, $1,000 per tonne direct air capture to follow in their lead. I think we need to, we are now kind of entering a stage where We need to more strongly kind of regulate and set standards around carbon removal because not every other company, in fact, I would argue the vast majority of companies don’t have the foresight that Stripe, Shopify, Microsoft and others have had early on in this space.
Susan Su: I would just add one tiny little story, which is super interesting on this to leave everybody with, which is that a friend of mine who works in carbon offset research at At the University of Cambridge advises these different company leaders and said, you know, I have a CEO of a Fortune 1000 mining company that I talked to, and his biggest worry is that he doesn’t want to appear on the front page of the next Washington Post or Wall Street Journal as the bad guy who bought a bunch of ghost credits And is pulling the wool over everybody’s eyes.
And that is today without any regulation. And this is a mining company. They don’t have to do any of this stuff. I’m not talking about Stripe or Shopify. I do think that there is a connection. I’m not saying government doesn’t play a role. I just am not holding out. Look, given the current situation that we’ve been in, not only in the United States, but really globally, for there to be enough power there. But I do think that there is actually a lot of power in social norms and social license to operate.
And that is going to, I mean, so it’s already affecting a mining company of all company types, right? He doesn’t have to care about that stuff at all. And yet he does, because there’s a shareholder at the end of the line to answer to, there are some institutions to answer to, and everybody’s getting wise to what’s good and what’s bad out there.
Radhika Moolgavkar: I am going to have to wrap this up right now. This has been a great debate, and Naeem, maybe we should have you on again so you and Susan can get even deeper into it. But in the interest of giving Susan a few minutes to talk about some good government action, I will let you give us the good news of the week that you were previewing for us earlier.
Susan Su: Yes, so we have the theme of this week’s or this month’s, I guess, good news from our flavor of the podcast is actually around places where government is playing a really important role in doing the right things. From two very, very different corners of the world. So the first is really, really big news that I think hopefully everybody in the United States knows about or will know about, which is that the City Council of the City of Los Angeles has voted to ban oil and gas drilling in the city. Now, why is this a big deal?
It’s probably one of the most progressive and aggressive moves of any city in the United States. And it’s incredible to see a city government wielding its power in that way. Los Angeles has more oil and gas drilling sites than most, I think, or any other urban zone in the United States. It has over 5,000 wells in the city, which is Really crazy. And for anybody who is familiar with Los Angeles and has driven around the city just to do everyday things, you know what I’m talking about. You’ve seen the literally oil derricks just kind of on the side of the road, hanging out in and near neighborhoods.
So that’s going to be a very, very big change. And I think it’s really a huge move for both environmental justice, but also just showing that, you know, oil and gas and the energy and transition doesn’t just live in some distant oil field in, well, maybe not distant if you live in these states, but, you know, in some oil field in Texas or some fracking site in Pennsylvania, it can be right in an urban backyard and there are ways to start Influencing it and cities are wise to it. So I think that’s really exciting.
The second instantiation of this kind of like government is working good news is that China just revealed its five-year agricultural plan And it now includes cultivated meat, a provision for cultivated meat for the first time ever, which signals a huge commitment to both R&D and scale-up investment in a transition to a more sustainable food system for the world’s largest and most populous country. China’s Ministry of Science and Technology also recently launched a program called Green Biological Manufacturing. Think about those three words together. Green biological manufacturing. They’re acknowledging that it’s about sustainability.
They’re acknowledging that it’s about SynBio. I think it’s really exciting. And just to top that off, I’ll leave with a stat which some people may already know. Which is that actually in China, 90% of consumers have surveyed, have self-reported to being very open to the idea of cultivated meat and to all proteins, which is a stark contrast from societies and economies here in the United States and the rest of the Western world. I think that’s really, really exciting because China is a large consumer economy and if its consumers are willing to transition to a different way of life, then that means great things for our future.
Radhika Moolgavkar: Well, thank you very much, Susan, for the good news and for joining us on the podcast, as always, to talk business. It’s been a few months, so it’s nice to have you back. And Naeem, thank you so much for your time and for agreeing to guest host. I hope we can have you again on with your New Year’s resolution of lots of content. We’d love to highlight more of it as the year goes on. To all of our listeners, thank you so much, and we will see you next week.
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 an Apple podcast, 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.
