20 March 2022 |

OFFSETS TAKE OFF 

By Nick Van Osdol

OFFSETS TAKE OFF 

Banner week for Direct Air Capture technology. 

First, Airbus placed an order for 400,000 tonnes of carbon removal credits from 1PointFive. These are future credits – that CO2 hasn’t even been removed yet. 

This is both a big signpost for where the voluntary carbon offset market is headed (big time demand)… as well as an amazing signal of confidence in 1PointFive’s tech and a key source of capital as they bring the tech online to actually remove that carbon from the atmosphere. 1PointFive’s DAC tech consists of mechanical systems that remove CO2 via chemical reactions.

In parallel, Heirloom raised $53M in Series A funding from Breakthrough Energy Ventures and the Microsoft Climate Innovation Fund. Heirloom’s differentiation comes in the cost category; many engineered DAC solutions are expensive, especially compared to nature-based solutions, like sequestering more CO2 in soil by implementing regenerative agriculture practices.

How does Heirloom remove excess CO2 from the atmosphere? 

  1. They heat limestone (calcium carbonate). 
  2. This process actually releases CO2 from the limestone, which Heirloom captures. 
  3. The remaining material is carbon oxidate, which can then be exposed to air to trap more CO2, turning it back to limestone.
  4. Back to step #1.
  5. Heirloom cites the ability to repeat this process up to 15 times before the material can no longer capture more CO2.
A mammoth installation at an art museum

Limestone, the abundant and cheap material central to Heirloom’s tech

The process is broadly known as carbon mineralization. Heirloom also uses renewable energy to generate heat, making the solution renewable end-to-end. 

Over the next ~decade, they see the potential for this to scale to a gigaton level emissions removal solution. Breakthrough Energy agrees, as that’s a prerequisite for them to invest. 

Direct Air Capture gets mixed reviews in the broader climate community. Often championed by oil & gas companies as a way to offset their monumental emissions footprint, some environmentalists soured on the industry given that association and the suggestion that the tech could somehow become a comprehensive solution for ~50B tonnes of annual global emissions. 

That said, even if emissions dropped to 0 tomorrow by some stroke of divine intervention, carbon removal would still be important to return atmospheric CO2 levels to a ‘healthier’ level.

ELSEWHERE IN OFFSET MARKETS

Of course, DAC credits aren’t the only ones getting a ‘ton’ of looks right now. PE firm Kimmeridge Energy Management pledged up to $200M to Chestnut Carbon LLC, a reforestation carbon offset developer. This is a long-play for Kimmeridge; if the voluntary carbon offset market blossoms from $1B to tens of B’s as it is expected to in coming years, the value of the forest Chestnut is planting now could be considerable.  

Contrast with DAC however, reforestation and forest management credits have been beset with issues of late. It’s long been too easy to game the carbon credit system, e.g. by selling credits for forests that were never in danger of being logged in the first place

MY TAKE

Reforestation is a tier above prevented deforestation, but still requires a lot of long-term forest management. Chestnut Carbon will focus on the U.S., which is easier to monitor than say, rainforests in the heart of the Amazon. 

Still, if I were allocating $200M like Kimmeridge Energy Management did, I’d probably have looked to at least diversify with exposure to DAC and other nature based solutions, rather than going all in on reforestation alone. There may come a point where modal large-scale buyers of credits act more like Airbus than not and reach up the cost curve to support technologies that store carbon more securely than in a tree. A lot can happen to trees.

Perhaps most relevant in all of this is the demand signal that all of the above sends for the voluntary carbon market. As companies roll out ambitious net zero plans, investors and carbon credit buyers alike are focusing on solutions that are more quantifiable than credits that represent avoidances of future emissions. 

And companies like Airbus are willing to pay a premium; DAC solutions are inevitably more expensive than preventing deforestation or reforestation, like what Chestnut Carbon is doing. 

The one-two punch of Airbus signing up for a massive future purchase order of DAC credits + seeing funding for DAC solutions take off is powerful; venture funding is one thing, but seeing real demand start to accrue for these companies’ revenue generation mechanism is equally critical for their ability to scale their solutions. For 1PointFive to reach the scale where they can satisfy Airbus’ order will take years. 

The presence of long-term investors and buyers across the board is very heartening. 

DEAL HEAT 🔥

Here are financing rounds and new funds that caught our eyes this week 🙇.

ELSEWHERE IN CLIMATE TECH