The Science Based Targets Initiative (SBTi) recently came out and announced they would be issuing guidance for how some carbon offsets may be used to address Scope 3 emissions (activities beyond direct business operations and energy). This set off a firestorm of protest within and outside of SBTi, as well as some calls of support.
It was essentially a tabula rasa one could project one's carbon hopes and fears onto: would this lead to increased financing of sustainability efforts, or result in a race to the bottom of low-quality credits finding a new market? Something in-between, or just too early to tell?
In today's episode of Carbon Removal Newsroom, host Radhika Moolgavkar, Nori's VP of Supply and Methodology, is joined by her business panelists Susan Su, a venture capitalist at Toba Capital, and Na'im Merchant, the Co-founder and Executive Director of Carbon Removal Canada, to make sense of this news.
They also cover other CDR industry headlines from April, including sustainable aviation fuel, biochar in the global south, and significant subsidy announcements from Denmark and Canada for carbon removal projects.
On This Episode
Susan Su
Na'im Merchant
Resources
"Inside the Controversy That's Divided the Carbon Offsets Market" at Bloomberg
"Carbon Offset Market Faces Chaos as African Mega-Project Collapses" at Bloomberg
"Removals are better than some reductions - The case of electrofuels for aviation" by Robert Höglund
2023 Global Biochar Market Report
Mission Zero's fundraising news
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: Welcome to the April 30th edition of Carbon Removal Newsroom, the business edition. Joining me today are Susan Hsu, a partner focused on climate investing at Toba Capital, a board member at the Carbon Business Council, a board advisor to the Environmental Voter Project, and host of the Climate Money Podcast. Hello, Susan.
Susan Su: Hello.
Radhika Moolgavkar: And Na’im Merchant, the Executive Director of Carbon Removal Canada, an Elemental Accelerator Policy Fellow, and the author of The Carbon Curve, a newsletter and podcast about the policies and technologies needed to grow the carbon removal market. Hi, Naeem.
Na’im Merchant: Hi everyone.
Radhika Moolgavkar: And I’m Radhika Moolgavkar, VP of Supply at NORI. So I’m sure as anyone who follows the carbon removal world has heard of the turmoil this month at the organization known as the most prominent verifier of corporate climate plans. The Science Based Targets Initiative, or SBTI, announced a policy change earlier this month that will make it easier for corporations to use carbon offsets rather than lower their carbon footprints. The new policy has divided the carbon industry, Supporters of the change see it as a way to drive much needed revenue towards climate solutions.
Many of these advocates work for offset providers or corporations with net zero plans. On the other hand, opponents feel that loosening the rules makes it more likely that corporations will simply pay for cheap offsets rather than doing the more difficult work of reducing their own emissions. Days after the announcement, some staff at SBTI called on the CEO to resign, and a few days later, he released another statement defending the policy change. Media coverage and hot takes followed, and so on today’s episode, our business panel will tell us what they think of the new policy and what the resulting controversy says about the state of carbon markets and carbon removal.
Plus, we’ll do a lightning round of other CDR industry headlines from April, including sustainable aviation fuel, biochar in the Global South, and some big news from Denmark. So let’s just jump into it and start talking about SPTI. Susan, what’s the challenge with Scope 3 emissions? I think most of us know it, but let’s just start there. And why are they such a big deal and why have they become the third rail for SPTI?
Susan Su: Actually, before we get to that, if I could invite Naeem to maybe give us a little summary or update about this change, about the specific SBTI policy, because not everybody may be familiar with that, and I bet you Naeem is. Naeem, do you feel comfortable giving us a little overview?
Na’im Merchant: Absolutely not.
Radhika Moolgavkar: Well, okay. Let’s see. I could do it very briefly. At a high level, my understanding is that for many years, and I can’t say for how long SBTI has been around, they have not included carbon offsets as part of their approval of corporate climate plans. I think about 18 months ago, I started hearing some rumblings that they were reconsidering this position, maybe as it related to carbon removal. But really nothing was announced till about a week ago when what SBTI put out was simply a statement saying that they were going to include offsets in allowance and corporate climate plans and that guidance was to follow in July.
Then there was a public outcry of both the use of offsets and some governance issues, which we won’t talk about here within SBTI. And really that’s, I think, where we’re at. Naeem’s nodding with me, so I would think he agrees with my synopsis. And now maybe we can jump in, Susan. Is that a good framework to start with?
Susan Su: Yeah, I think that’s great. Thanks for taking us through that. So the question was specifically about scope three. Scope three emissions are those that are related to Let’s see, what is a quick way to summarize this? Think about scope one as if you own an asset and it is using fuel, that’s scope one. Scope two is if you own the asset and it’s using electricity. And then anything that you don’t own, but that’s still creating emissions, whether that’s a building that you’re occupying, an airplane that you’re buying a seat on that’s traveling somewhere, The embodied admissions of an item that you buy in order to do business, that’s all under scope three.
So just from that, you can kind of tell that, well, scope three is kind of most of it, right, for most businesses. So why are they such a big deal? Well, they’re a really big deal because it’s kind of like one man’s floor is another man’s ceiling. One company’s scope three is another company’s scope one or maybe their scope two. And so it gets really tricky from an attribution and accounting perspective to assign responsibility and ownership And of course, also the converse of that to deflect responsibility and ownership. And that’s part of the challenge with scope three.
And another part of the challenge is also that sometimes scope three is drawn out over a very long period of time. So let’s say you’re a furniture business and you sell furniture that’s meant to last for, let’s say you’re not IKEA, it’s meant to last for a pretty long time. Scope three would also include the disposition, the ultimate end of life of those items. But that might not happen until 30 years from now or more. We don’t know. And so when you introduce those kind of variables and you really start thinking about how gnarly scope three is, that’s why they’re such a big deal, because it feels almost impossible to really figure out.
Who should be taking care of them, who should be responsible for them and how and how much they even are, first of all. But I do think folks are starting to work on that in a really serious way. I mean, it’s been a problem for a long time, so I think that’s important. And why have they become a third rail for SBTI? Well, for many companies, scope three is the biggest bulk of their emissions. If you’re a fossil fuel company, it’s all about scope three. And so, you know, it’s a way to sort of make your emissions footprint by not taking scope three into consideration.
It’s a way of making your emissions footprint look a lot smaller than it really is by taking scope three into consideration. It can, you know, perhaps double count emissions, yours versus Toyotas or yours versus the fleet operators, for example. So there’s a lot of just kind of complexity there and figuring that out. And then when it comes to now with SBTI thing, hey, companies can use I think the fear, as Radhika, you kind of summarized, was that people just won’t work on it anymore. And it’s a hard problem, so it’s easy to look for an out.
And so that’s how I understand it. But I’d love to hear both of your perspectives on it, too.
Radhika Moolgavkar: Yeah, well... I won’t exactly give my perspective, but I will say there’s an interesting, again, conflation that we are always dealing with in the CDR industry of emission reduction credits versus removal credits. And so that was what struck me a little bit about the conversation. The constant lumping together. So Naeem, I’m kind of curious how you see this because we’ve talked a lot on this show about the CDR industry always needing more investments. And obviously if SBTI allows credits, it could drive investment into more durable solutions. So how do you think about that?
And do you think this is overall a good thing?
Na’im Merchant: I mean, I think it potentially could be. And I think, you know, I hadn’t been tracking this specific guidance around, you know, SBTI here, maybe as much as I should have. But ultimately, I think what struck me was just kind of what it looked like was just kind of... That SBTI jumped the gun on this decision a little bit. I know that there was supposed to be some guidance coming out in July, and that’s partly what the problem is here is that it seems like this decision was made in a way that wasn’t going through kind of the more rigorous processes or steps that I think people have perceived SBTI to be undertaking in terms of providing guidance to companies around their net zero plans.
I think that’s the bigger issue here is just that so many companies and so many governments that are thinking about their path to net zero as relates to their scope one, two, and three emissions rely on SBTI to sort of be this, you know, this expert advisor, this, you know, A cautious kind of guider on how to actually do this. And I think there’s a potential loss of confidence here that is really the complicating piece. You know, yeah, it could be better for carbon removal in the sense that, you know, now it’s possible that, you know, carbon offsets can be, you know, incorporated and used against scope three emissions and carbon removals are often kind of within that broader term of carbon offsets.
In some cases, though, you know how much I hate using that term. The point is that if it’s done this way, if it’s seen as something that wasn’t rigorous and didn’t go through a process of proper governance and consultation, Then it really won’t have that much of a benefit for carbon removal because I think it’ll shake people’s confidence in the judgment that SBTI is releasing whether that’s good for carbon removal or not. And that’s what I’ve been hung up on as I’ve heard about this story. It was just like, oh man, like we really kind of depend on SBTI and their guidance for a lot of companies, especially ones that are kind of Depending on or like these next wave of carbon removal buyers or how governments think about carbon removal on the guidance that SBTI publishes.
And when a situation like this is handled in this way and you have these issues with the Board of Trustees releasing plans before what sounds like there were supposed to be more clear rules coming out in July, it shakes confidence in a way that then makes SBTI lose credibility. And so if they... If they’re interested in allowing offsets for scope three emissions, well, You know, it carries less weight. So I don’t think it really has much of an impact. I think that there’s some trust to be rebuilt here for an entity that has, you know, carried a lot of trust for a very long time around this issue, even on things, you know, whether I agreed with their guidance or not, SBTI has always been a very, very trusted kind of guidepost around the path to net zero for a lot of major companies.
Radhika Moolgavkar: That’s a really interesting point. And we always talk right on the show about how something shaking trust in a market this early could be pretty devastating. I don’t think we ever, I at least never imagined it coming from something like SBTI. I always thought it’d be a spectacular project failure of some sort, but good point. Interesting to ponder for sure. And I don’t know if the CEO’s response, Louise Amaral, who said that not all Scope 3 emissions are created equal, actually helped with the trust issue, but he did acknowledge there’s no easy solution.
So Susan, what do you think SBTI should do to drive decarbonization? But also, they have lost corporations who are willing to work with them because maybe it’s so difficult to meet their targets and It’s almost like they feel like it’s a lost cause. Maybe I don’t know why these corporations have dropped out. But what do you think of that?
Susan Su: Yeah, I mean, I think maybe partly it’s, they feel like it’s a lost cause, partly there could be political pressures, which I think we kind of alluded to before with the like sort of anti-ESG, anti-woke movement in the conservative wing of US politics. But in terms of like trying to First of all, if you’re SPTI, I totally agree with Naeem, your number one job is to be trustworthy and authoritative at all times. And so that has to be... That has to be like written up on every single wall of their building.
And it should be like everybody’s screensaver and everything like that as a reminder that everything that they do in terms of CEO communications, even these employees threatening to resign, which I understand as an activist movement within the organization, these individuals probably felt that was the only thing that was left to them. But it’s also important to understand that all of that Shakes public confidence and it really erodes their trust and authority. And so even if the CEO felt that he was doing the best thing, even if those employees in kind of opposing him felt that they were trying to do the best thing, they were all doing the worst thing in different ways.
Instead, you know, I’m sure some of these, it was very poorly handled overall, right? The board, everything. And so I think that’s what you have to think about is the public perception of an organization that so many look to and that is really a nexus within the private sector and public as well, between the public and private sectors. That they just can’t be doing stuff that’s going to make them look like there’s confusion or that they’re flip-flopping or that things could change in the future. So I’m going to hedge or I’m going to drag my heels because who knows, maybe a different pronouncement will come down in a year.
And that’s what’s going to start happening, by the way. So in terms of the question of what should they do to drive decarbonization while also appeasing their more reluctant constituents that are like threatening to back out because it’s too hard. Well, don’t appease them, first of all. That’s number one, don’t do that. Because again, comes back to trust and authority, like what things are going to build it versus erode it. Kind of pandering to your lowest common denominator when you’re an organization like this, which really should be the judge and the decider, is not something that is going to help build trust and authority.
In order to drive decarbonization, I think they need to be super clear about what are the things and even prescriptive. About the frameworks for pursuing decarbonization, the order of operations. So, you know, first these things, and when these things are exhausted, then these stage two things. When the stage two actions are all exhausted, then the stage three actions. And carbon removal fits in there, probably not in stage one. And they need to be really clear about that, and they need to... Kind of go back to their drawing board and figure out exactly what that order of operations is and then be absolutely decisive and unequivocal and then stick to their frameworks that they put out.
That’s what I would do. But hey, I’m not running that organization. If I were, I’d be in a very different place. So I’m sure there are a lot of other challenges we don’t know about.
Radhika Moolgavkar: All right, so Naeem, final topic or final question on this topic, and it sort of goes to the trust issue, but in a slightly different approach, right? I mean, we all have talked ad nauseum and have read about many high profile failures of large offset projects. So in a way, is this the right time to widen the use of offsets, particularly, I mean, avoidance and reduction offsets? What do you think of that strategy?
Na’im Merchant: I think you know my answer on avoidance and reduction offsets in general. But I think, like, so no, like, we definitely need to not widen use of avoidance and reduction offsets. And, you know, the Oxford offsetting principles, as we know, have been updated further around this. And so, you know, the general consensus, well, not the general kind of expert advice here from another kind of credible group is that we should be moving to removals and ideally long duration removals. But more importantly, like, I think that we just need to be not widening the scope of where we use offsets, but to Susan’s point, We really need to get really clear on what is the purpose of offsets or carbon removals against which emissions?
Where does it make sense? What is the order of operations? That’s the sort of guidance that I was hoping for from SBTI was just like, yes, this is really gnarly and difficult, as Susan said. And that’s why SBTI is there to help us kind of guide us down this really tricky path of where can we You know, reliably and smartly apply the use of carbon removal, you know, in a company supply chain, or, or through other kind of aspects of their business but like, but like it has to be I think the missed opportunity here.
Was clarifying just where exactly it makes sense to use removals. And the other thing that we were looking at for SBTIs while, you know, is to not necessarily apply like a temporal side of like when to use removals, but like recognizing that if we are going to be using removals to some increasing, you know, increasingly important degree as time goes on. The guidance needs to be there around what does starting out with removals look like in a way that grows over time to get it to a place where it needs to be.
I think one of the major concerns I’ve always had with SBTI guidance, to the extent that it mentioned carbon removal at all, was this idea that You had to do everything else first, and then you could flip a switch and you can use the rest for removals. And that’s not just how it’s going to work. We need to build the market for this in the first place. And so where’s the opportunity to build a market for carbon removal and kind And I’m just like saying scope three is not the kind of precise guidance that I would have expected from SBTI around this.
And so, if anything, we need to narrow the use of offsets and get clear on where does it make sense, when should we use it, how do we I agree with Susan as well. It’s time to go back to the drawing board, not influenced by the folks that are angry about the outcome that just happened, that they have a right to be angry about that, but Double down on their expertise and their trusted hand on this and figure out where does it really make sense to apply this in a really thoughtful way.
Radhika Moolgavkar: Well, hopefully their July guidance will help with this. I mean, that’s the other thing. We’re operating in a bit of a vacuum. We don’t actually know what they think. I would also advocate for a bit of pragmatism because if you don’t have pragmatism, nobody participates and we need everyone to feel like they can jump into this and do it and meet important guidelines. If you give up, that’s not good either. So, all right, we’re gonna turn- You stole my word, Radhika.
Susan Su: I was gonna use the word vacuum also, but in a different context, which is that I worry that This type of incident creates a power vacuum that can be filled by just a slew of anybody and consultants and folks that maybe don’t have as much of the same rigorous kind of scientific backing and that then it sows this sort of disarray and confusion. I’m actually really glad that Naeem brought up the Oxford offsetting principles. It’s odd. I hear it far less often than I think I should.
Unknown speaker: I hear about the Oxford. And it’s kind of like, why is that?
Susan Su: You know, and I’m not sure personally why it isn’t more widespread or, you know, part of the common discussion. But Somebody needs to kind of step in and be very, very strong here. And everybody needs to, in the industry, whether that’s also the Oxford Offsetting Principles people, everybody needs to kind of fall in line, I think, and make it very clear, this is the way that we’re all going to decarbonize. Or you’re basically not in line and you’re saying you’re not wanting to decarbonize because that is also what is going to bring the laggards in is making it sort of this all or nothing like here’s everybody and there’s no alternative.
Radhika Moolgavkar: All right, we’re going to turn to sort of our lightning round. So the next few topics will have either one or two questions and we’ll jump into sustainable aviation fuel. In a recent blog post, Robert Hoagland argued that, and I’ve heard others make this same argument, that buying high quality CDR would be a cheaper way to decarbonize aviation than developing sustainable aviation fuel or SAFs. So Susan, if there are cases where carbon removal is cheaper than decarbonization, how will we know and how can we sort of assess at an industry level whether CDR is the right way or a different decarbonization path?
Susan Su: Yeah, the ETH Zurich report that we talked about, was it last month or two months ago? I don’t exactly remember. But it was the report that said direct air capture is going to struggle to hit $100 per tonne. In fact, it’s actually going to kind of be more in the $300 to $800 per tonne range, looking at the three incumbent DAC technologies that are out there. And the Specific call out that report made was, however, even at these high prices, it will probably still be price competitive to sustainable aviation fuels.
So it is probably a very good option there, because since we have multiple companies producing it, and they’re quite large, and they’re Also working in tandem to reach deployment scale, we may just be able to actually supplement the very limited amounts of sustainable aviation fuels that there are and will be using more expensive direct air capture. So I thought that was like a very important kind of point there. And in terms of the question of how do we know when to focus on carbon removal versus decarbonization from a price or from kind a cost perspective, Perspective, I think that depends on two things.
It depends on what kind of carbon removal and what kind of decarbonization. And there’s, as we know, so many flavors, every flavor under the sun, when it comes to carbon removal, there are things as cheap as $50 a tonne and as expensive as $1,200 a tonne. And when it comes to decarbonization, depending on what kind of company you are, where it’s located, The operations, there are things that are more within reach on decarbonization and there are things that are potentially completely out of reach. And so I think the way that you have to know is actually going to be long and probably ongoing process.
Exercise within the CFO office of any major organization. Actually, that’s really where the good stuff is going to start to happen is when this becomes a normalized part of financial accounting within an organization is to understand, okay, well, we know we’re going to do this. That’s the first thing. We know we’ve got these commitments and we’re going to fulfill these commitments. Let’s find the most cost-effective way to do them. And going back to our previous point, And while still adhering to the agreed upon frameworks for quality and authenticity and success.
And so that’s, I think, how you have to sort of like go case by case and just do the spreadsheets and kind of do the budgets. And then in terms of which industries get to buy CER rather than have to change their ways, I think And no industries are just like, I don’t want to change my ways just because. There’s always a reason. And the reason comes down to two things. The biggest one is, of course, cost, which we just talked about. And the second biggest one is actually it’s really hard to.
To do behavior change at the organizational level. So there’s cultural change that needs to happen. There’s process, sometimes destruction that needs to happen. And that’s really challenging. Those kind of things, that’s kind of like, to me, that’s like, okay, that’s your problem. You need to manage that. But on the cost front, I do think there are probably some forms of assistance that certain industries can Can get, whether it’s to help them with decarbonization or whether it’s to help them with CDR. And by the way, we have those already, but incentives that are financial, like at an even stronger level could be something that we think about that can help industries to get on board and make decisions about which path they need to take at what time.
Radhika Moolgavkar: So Naeem, on that same show that Susan referenced earlier, we learned about your very deep thinking into SAFs. And I’m just curious, I assume you agree with Robert, but yeah, do you agree with Robert and his analysis? Did it make sense to you?
Na’im Merchant: I mean, I generally agree with Robert just because he’s a really smart and thoughtful guy around like, you know, he doesn’t put something out there unless he’s really kind of thought it through. And I appreciated this analysis. I will say like, Just as I was skeptical of the ETH Zurich paper in terms of their cost projections for direct air capture, I then have to apply that same principle to how we think about cost projections. I hate the term sustainable aviation fuels, and you can go back to another episode where I get on my soapbox about that.
But ultimately, I think that there’s a need for that. We need for just like a greater discussion around this and more more analysis around this. I think what Robert has done has like kind of introduced an argument that we just we haven’t really spent enough time on. And that I think that generally speaking, you know, sustainable what’s currently called sustainable aviation fuels, which really means aviation biofuels right now, are generally kind of taken in a more positive light. Then even direct air capture, which I don’t always think is fair. And I think Robert has introduced an argument into the debate that’s important.
It’s basically saying that there are limits for electrofuels. It’s obviously going to be more energy intensive than just DAC alone. And with aviation biofuels, which again make up the vast, vast majority of what is currently called sustainable aviation fuels, there are real limits to scale there. And so, you know, we should be having a conversation not so much about, you know, is, you know, is that going to be better than aviation fuels or or electrofuels or whatever it should be? Why aren’t we adding direct air capture as an option to thinking about decarbonizing aviation more broadly and like broader conversations about how to get there?
And we’ve seen some like, you know, announcements from some airlines and around DAC and no one’s made any like kind of, you know, firm commitments around this. But I think that’s going to be an important part of this conversation. It’s just like, how do we include DAC as part of the picture to decarbonize aviation? Recognizing that These other things that are worth continuing to invest in and worth continuing to try to get right may have their own limits the same way that DAC has its limits. And so it’s not about like doing less for me.
It’s about, great, here’s an opportunity to try to do more. This is the argument of carbon removal is one more tool in the toolbox. And that’s how I would apply it here. So all that to say, I’m keen to see responses to Robert’s piece around this and see what more people who do this sort of thinking around techno-economic analyses and other kind of cost analyses as relates to climate technologies. I would love to see more folks weigh in on this debate. I think it’s an important one. I think we need to have it.
Radhika Moolgavkar: All right, let’s move on to Denmark. Denmark announced the award of $166 million of subsidies to three BEX projects. These projects will eventually count towards the country’s climate commitments. So Naeem, what do you think of this approach where a country subsidizes CDR companies and it gets to count the removals towards its NDCs?
Na’im Merchant: Well, generally, like, this is great news for Denmark and for carbon removal, and I... I mean, this is exactly the type of investment that carbon removal needs, and it looks like European nations kind of putting money behind areas of carbon removal that European nations do well, in particular biomass-related efforts, and that’s great. That’s good. I think we’ve got to be careful about how we account for these against our NDCs and how we attribute the environmental claims. That’s just going to be a tricky subject that we need to figure out. I think that if there’s a recognition that, okay, we have to earnestly undertake that effort to really understand how we attribute the environmental benefits that are generated from these projects in our NDCs, then we should double down on those efforts to do it.
But I don’t think it should preclude countries from making these sorts of investments. They just need to go in recognizing that how these are going to be applied against NDCs isn’t fully settled in the world of carbon removal yet. And so recognizing that going in will be important. But ultimately, I see this as a positive thing. I think that there’s generally more work to be done around thinking about how we claim the benefits of things like this against our NDCs. And if anything, this should just make the rest of us working on really kind of...
Really tricky issues like this to start figuring it out sooner. So I hope this serves as a forcing function to figuring out how we account for carbon removals and NDCs because this is starting to get real.
Radhika Moolgavkar: All right, Susan, on to biochar. So the International Biochar Initiative’s annual report found that six of the top 10 biochar producers are based in the global south. And that those countries are responsible for 75% of deliveries in 2024. So what do you think of the Global South taking the lead on biochar? And do you see this as offset money flowing from corporations to countries that have had, you know, been more deeply impacted by the climate crisis?
Susan Su: Well, I think that it is great for there to be different forms of climate driven economic development across different economies, whether that’s different regions of the United States or different regions of the world. Because, you know, I always think back to J. K. R. Shaw’s 2013 book, Creating Climate Wealth, which is such a great classic and really inspired me. That concept of creating climate wealth, we want that to be distributed. So that everybody can participate in it. However, I will also say that it’s important to think about the deliveries coming from somewhere versus the kind of primary enterprise value an organization that’s doing that work could actually be flowing to a different economy.
So if we look at fossil fuels, while fossil extraction I guess prior to the fracking boom in the United States, a lot of fossil extraction happened in places that were not the headquarters of the companies that were doing the fossil extraction. And therefore, you know, there wasn’t just because they were delivering the raw material doesn’t mean that they were capturing a lot of the benefit from that. So I think that’s one thing to be thoughtful about. And then when it comes to biochar, it’s taking agricultural Byproducts, it’s taking other types of biomass that tend to be more abundant in certain places.
I mean, Mexico is a huge, Mexico is basically like the bread basket, the fruit basket, the vegetable basket for the United States and Canada, right, as well as other parts of the world. Maybe not the bread basket, but certainly the produce basket. And so there’s going to be a lot of stuff that can be turned into biochar. And it sort of makes sense that a lot of these so-called Global South regions might have a lot of the raw material to go into something like biochar. But would I consider that sort of a climate justice thing?
I don’t think so. Climate justice to me is way deeper and way bigger than that. I mean, we’re saying like, we’re going to just, you know, Kenya can do some DAC or Mexico can do some biochar and now we’ve got climate justice. No, that is, no, no, no. I think anybody listening to this podcast knows exactly what I’m thinking. And so maybe I don’t need to say it, but Climate injustice goes much, much further than simply just a very niche, nascent industry happening in one place. We haven’t even talked about it.
Resilience, adaptation, climate disaster, that all is what needs to be part of the climate justice discussion. And I would also finally say as like a last point here, biochar producers, even if they are based in, founded by people in the regions where they’re operating and that have been historically kind of extracted from and have been feeling the worst effects of climate change. There’s still such a small, if you are a biochar producer, by the way, let’s just be honest, if you’re working in carbon removal, you’re pretty elite, like you’re not somebody that is toiling in a field.
And so when we think about climate justice, we need to Not necessarily, we need to think about the entire society of a place, not just US versus Mexico. Mexico has plenty of people that are doing much better than many people in the US. So we need to really think quite holistically about that. And I personally wouldn’t consider this an effective form of climate justice. It’s really just the beginning. Although I’m very happy for countries that can find climate wealth.
Radhika Moolgavkar: All right. Well, speaking of wealth, there was some big news from Canada’s federal budget. So Naeem, can you tell us what it was, what it means and how significant it is for your country’s CDR industry, which I’m sure you get some credit for this. So good job.
Na’im Merchant: Oh, well, I mean, I think I think the credit goes to so many people, including just the leadership we’ve seen from the government of Canada, primarily around carbon removal and how we apply this in just a really smart and thoughtful way. I’ve just been blown away by speaking to folks in government about carbon removal here in Canada, about just an openness to how do we approach this in a thoughtful manner. And this is one example. So let me dial back a little bit. A few weeks ago, the Canadian government, Like the rest of the economy needs to get to net zero.
And they published a winning government strategy, basically kind of a roadmap on how we’re going to kind of achieve our climate goals across all the things that government does, the federal government does. And one thing that we were really excited to see in that strategy was Was that there was clear guidance on how to use carbon removal to address, you know, hard to decarbonize emissions. So, for example, in national security fleets and marine vessels and Coast Guard, like, you know, how do we make sure those can be operationally So they’d had kind of set, you know, emissions intensity needs to go down by 50% by 2040.
And you can not only use, you know, low carbon fuels and other efficiency improvements, you can also use carbon removal on the path to getting there. Additionally, other aspects or other elements in the Canadian government can use up to, whether it’s buildings or some conventional fleets, up to 10% of the path to net zero getting by 2050 that up to 10% can come from carbon removal. And so that clarity and guidance in terms of how different departments in the Canadian government, and like all governments, are pretty large emitters in an economy, was really welcome.
Like, wow, okay, we have a massive emitter here That is taking account of its GHG inventory and thinking clearly about how they can use different tools to get to net zero, including carbon removal. And in some ways, almost in a compliance approach in the sense that they’re saying, hey, you know, Certain fleets need to get down their emissions intensity by 50% by 2040. That’s a requirement and carbon removal is one of the tools to get there. So that could be a really exciting demand signal. So we were thrilled to see that.
And then, you know, just last week, the Canadian government released its budget for 2024. And as you can imagine, any policy think tank, we pulled that document up a second and went live and just control F looking for carbon removal wherever we could and found in a tiny footnote on page, I think it was 393, that the low carbon fuel procurement program in Canada was So a fund that can be used by departments in Canadian government departments to reduce emissions intensity of fuels can use carbon removal as part of their way to get there.
And what’s exciting about that is you have then a strategic framework for how carbon removal can be used for hard to decarbonize emissions in the Canadian government, and you have a Funds set aside that can be used in order to get there. So it’s not just a demand signal, it’s a funded demand signal. And that’s really exciting. And now the work that needs to be figured out next is, okay, well, how do you actually develop a procurement program? And how do you, for carbon removal, the government’s not used to buying carbon removal credits or anything like that.
And how do we make sure that’s done in a high integrity fashion? And how much should be used for carbon? So these are all the questions the government’s got to figure out next. But wow, we were blown away. Like what a great start. A strategic plan for how to get to net zero using carbon removal as one tool in the toolbox. And then within that, here’s some funding to actually go and do it. And by the way, we are required to get to net zero. So we are serious about this and not just some like fun voluntary thing we want to do to look nice, like we’ve got to do this.
So I was really impressed and blown away. And it’s really exciting to see alongside the announcements in Denmark that we just talked about and some of the other news that’s been coming out, like we’re starting to see this market mature. And I think that’s what the announcement in Canada was really about.
Radhika Moolgavkar: Yeah, it’s very exciting, Naeem. So congratulations to everybody above me to the north. So final question, and it’s for you both, is something I think we talk about very regularly is fundraising for all of these startups. Captura and Mission Zero just raised a ton of money in Series A funding. I can’t even keep up with Captura because I feel like every time I turn around, they announce a little bit more and a little bit more. But yeah, So I’m curious if either of you see this as an upward trend in funding for CDR, or is it too soon to know?
And I’ll start with you, Susan, and end with Naeem.
Susan Su: Funding is getting a little bit better across climate overall, so it makes sense that CDR would be part of that. But also say, though, that Captura and Mission Zero, I mean, you said it, Radhika, like Captura seems to be raising, you keep hearing the name all the time, right? I wouldn’t say that the continued success of two kind of outlier darlings necessarily Predicts what is happening across the industry at large. These are kind of standout companies in a number of ways. Mission Zero got really early traction and buy-in with Stripe.
I think Klarna is an investor. I mean, there are always going to be outliers, and I do feel that these companies are outliers anyway. Does it also mean that the funding environment might be thawing for broader carbon removal for the other companies that aren’t necessarily as exceptional? I’m not sure that this is necessarily a sign that’s coming just yet, but I think it’s really great that these companies are making headlines.
Radhika Moolgavkar: Naeem, anything else to add to that?
Na’im Merchant: Yeah, not a whole lot to add, except for just a question to Susan. I mean, when I was thinking about these raises recently in this environment, and I’m just curious to know, if you’re a company that’s raising money in a more difficult fundraising environment, is there a correlation on the vindication of what these companies have? Is there a strong enough correlation between The fact that a company’s been able to raise a little bit less money but in a difficult environment to the team and the technology and all the pieces they have in place, or if you’re raising a lot of money in a very sloshy environment, then that doesn’t mean as much.
I’m just curious what this means about companies that are able to raise in this environment.
Susan Su: Yeah, it’s definitely a very strong positive signal to be able to even raise in some cases like a flat round. My understanding with at least one of the financings was that it was a small step up from the last round, which was pretty recently. So you can kind of guess which company I’m talking about. So that’s awesome. Like in this market, even just kind of like maintaining valuation and taking a small amount of dilution, but at least getting the capital in Is like an okay outcome, like you did okay. And so being able to actually step up and attract really top tier investors is great.
I think investors are looking for deals now in terms of getting a lot of value for their cost basis essentially. And so that’s a little bit of what we’re seeing. And then the final point that I would make is in carbon removal, when it comes to carbon removal, I think there’s kind of like a certain type of investor Many investors won’t touch anything in carbon removal, but then plenty of others that are doing climate investing, climate tech, they sort of need to have a horse in the race because yes, there’s a lot of fear, uncertainty, and doubt.
Yes, the voluntary markets. Yes, we’ve all been through the ringer, but what if this really becomes as big as the CDR people? Say that it’s going to become, and you wouldn’t want to not have at least one or a couple of the bets, you know, kind of on that outcome. And so if you’re an investor with that type of thinking, you’re going to be looking for the kind of most standout companies, the sometimes best known companies, the companies that just have an incremental edge over the others and kind of pile in.
So I think when we see this type of market, Most companies will struggle, but then the outliers will tend to outperform because it’s sort of a flight to safety mentality and behavior. Or flight to quality, I should say, rather than safety, because this is definitely not safe. Dear mom and dad, do not put your money into DAC startups or venture capital funds. Just a flight to quality is how we should turn it.
Radhika Moolgavkar: Cool. Well, thank you both so much for that interesting podcast and have a wonderful rest of the day and week.
Susan Su: Thanks, everyone.
Na’im Merchant: Thank you.
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