16 April 2022 |

Keep Cool 04/14: Making CDR a movement

By Nick Van Osdol

WHY NO LOVE FOR THE GOV?

On 4/12, we covered Stripe’s new Frontier fund, a nearly $1B vehicle for advanced market commitments for carbon removals. A number of massive companies contributed the funding, including Meta and McKinsey, for example. 

Nowhere was the virality of this story more on display than on climate tech Twitter over the past few days. Perhaps more so than any other story I’ve seen since I started covering climate tech, this one really took off. And for good reason – it’s a massive commitment and effort for one company to make / take on. Its impact for the carbon removal industry will be significant.

In parallel? Every once in a while, my newsletter readers do my job for me. Seriously. 

In response to the newsletter I wrote on Tuesday about Stripe’s fund, Pete Chargin, a go-to-market strategist for climate tech companies (who also contributed to this piece), wrote in to direct my attention towards a similar effort underway in the public sector. There’s a few key differences we’ll explore; two that stood out to me include:

  • Scale: The US government’s proposed carbon removal pre-purchase plan is potentially much bigger than Frontier’s 
  • Coverage: Despite the scale… there’s not nearly as much love for and coverage of this proposal! 

Let’s dig in deeper 👇

CARBON REMOVAL MEETS CONGRESS

Earlier this month, Rep Tonko (D – NY) and Rep Peters (D – CA) proposed legislation that would see the U.S. Government become the world’s biggest buyer of carbon dioxide removals (“CDR”) and drive investment in the companies at the forefront of carbon removal technology.

The Federal Carbon Dioxide Removal Leadership Act of 2022 would make the Department of Energy responsible for buying increasing amounts of CO2 removed and sequestered from the atmosphere over time. The goal? In Representative Peters’ words: 

…creating a sustainable, long-term market for direct air capture and other carbon removal processes.

Which tracks with the opening text of the bill itself (which is very short relatively speaking, and quite digestible):

A Bill … to require the Secretary of Energy to remove carbon dioxide directly from ambient air or seawater, and for other purposes.

As with Frontier’s approach, this of course also involves a lot of vetting of technologies and companies across a range of factors:

  • Cost
  • Supply – potential removal scale 
  • Durability – length and security of storage
  • Additionality – proving the CO2 wouldn’t have been removed and sequestered anyways)
  • Public engagement and co-benefits – ensuring that carbon removal is deployed responsibly, and iteratively making data transparent and public

Interestingly, the bill also includes a proposed (declining) cost schedule, illuminating exactly at which price points the government would be willing to transact and incentivizing (expected) efficiency gains over time as technologies mature:

These are pretty generous prices that work even for highly engineered (read as capital intensive) solutions, not just for nature-based ones. For reference, carbon removals from nature based solutions like soil carbon sequestration trade hands for <$25. Nearly all engineered CDR solutions should be able to make the math work at $550 a ton, and even at $150 a ton at scale.

The capital is also comparable to Frontier’s effort in that it’s focused on pre-purchases. There is a requirement that carbon removals be delivered within 3 years of the contract date, which disqualifies companies that are still super early in their development phase. If the purchase amounts and prices from the above table were maxxed out, it’d amount to north of $8B in spending through 2034. At those prices and that scale, if passed, this would be a significant amount of highly impactful capital for CDR companies exiting the lab stage and who can get their first operational sites up in the next ~ 5 years. 

It’s a great call to every entrepreneur and student – if you can create a good carbon removal technology, there will be money to bring your inventions to market. And it’s a great call to investors – with support from the private and public sectors to create the demand, there should be plenty of opportunity to invest strategically to create companies that have strong financial prospects. Lowercarbon Capital definitely sees this – just today they announced a fresh $350M for carbon removal companies.

The pre-purchase capital is also available only to suppliers who remove CO2 from the atmosphere or the ocean. This disqualifies carbon capture technologies that focus on point-of-source emissions, e.g. hooking modular technologies up to oil & gas refineries to capture some of the CO2 they emit into the atmosphere. There have been big funding rounds in that space recently too – Entropy raised ~$250M+ from Brookfield Renewable – but it’s distinct from the rest of the carbon removal market in a number of ways (fodder for a different newsletter). 

The bill also encourages innovation by requiring that a certain number of the carbon credits purchased be from “small projects” – this should enable new technologies to continue to develop through 2034, preventing the carbon removal space from consolidating into a few large players.

One final note is that the bill’s emissions removal goals are pegged to the CO2 footprint of the government’s own operations. That’s a nice touch because it contextualizes the impact of the effort in terms of the buyer’s (in this case, the government’s) profile.

BEHIND THE SCENES

It turns out that the bill has an interesting provenance that’s worth exploring too, especially as it illuminates important behind the scenes work happening in the CDR space. It all starts in Albany.

Yesterday, I hopped on the line with Chris Neidl, the co-founder of OpenAir Collective and ninth-generation Albanian (Albany, NY, not the country). OpenAir is a distributed group at the forefront of driving innovation in CDR and adoption of CDR technologies.

OpenAir actually wrote a state-level bill in New York for CDR procurement that came out earlier this year. That bill is now a multi-state initiative, comprising the CDR Leadership Act (CDRLA). Note how that’s the same name as the federal level legislation. In many ways, CDRLA mirrors what’s being proposed federally. The feds didn’t copy OpenAir’s efforts however; Rep. Tonko had been working on his bill coincidentally and concurrently with the work OpenAir was doing.

The district Tonko represents covers Albany, where the state-level legislation OpenAir members drafted was first advanced. Believe it or not, normally unassuming Albany is ‘solid soil’ for climate tech and tech in general. Still, firmly blue states often see a lot of opposition to CDR rather than less; there’s a contingent of environmentalists in particular who don’t trust CDR for environmental justice, equity and other reasons. But that hasn’t stopped Albany from becoming a hub for both state and federal level legislation. Here’s how Chris summed it up for us: 

OpenAir wrote a state-level bill in New York – it’s government procurement for CDR. Tonko had established himself as a champion of CDR before anyone else on the hill in either chamber. We didn’t know about it, but I’m from Albany, the area he represents. And a mutual connection told us to talk to one another.

When they got together, they immediately recognized their bills had a lot in common: 

It was mutual validation when we first connected. It’s like leveling up what Stripe is doing based on what public procurement is capable of…

In their conversations, OpenAir helped propose a few refinements to the federal bill, like explicitly excluding enhanced oil recovery from the list of allowed carbon removal methodologies. Now, they’re gearing up to lend the federal bill the grassroots level support it will need to become law.

LOOKING AHEAD

On Tuesday, in response to Stripe’s new Frontier fund, I offered a small counterargument to this ‘one-off’ demand aggregation model for CDR markets. I.e., does it take money away from carbon removal marketplaces that aim to operate without middlemen? The brokerage model won’t take carbon markets to commodity market scale. Wouldn’t it be better to take the training wheels off sooner rather than later?

I asked Chris the same question given the integral role he and OpenAir have played in shaping legislation that would effectively do what Stripe does in the public sector. Here’s what he said:

I think it’s OK for them to be separate. The appropriate goal for this decade is not to obsess about how many tons we’re pulling out of the air right now, but how to scale up these solutions… to catalyze transformation.

It’s a valuable perspective. And interestingly, one that still leaves room for lots of healthy tension. I know a number of people I highly respect who argue the opposite: we should spend money to remove as much carbon from the atmosphere right now, even if it can only be sequestered for 10 or 20 years and doesn’t flow money to engineered solutions. 

Why? Well, for one, that would help reverse climate change now, vs. 10 years down the road. This digression could read another 2,000 words. So I’ll leave it there for now. More pertinent to the bill itself perhaps… what chance does it have of passing?

We’ve heard a lot about climate legislation and investment federally over the past couple years. A lot of it hasn’t come to fruition, or still has a chance of passing but is caught in some liminal state contingent on the whims of Joe Manchin.

Chris was equal parts optimistic + realistic when I posed the same question to him:

There is a real chance of this being a bipartisan effort. If and when the Dems lose ground in the midterms, there’s enough people on the other side who might be able to get onboard with it…I don’t know how quickly it will happen, it might take a couple years, but we want to mobilize and make this a movement, which CDR hasn’t been until recently.

We like the sound of a CDR movement. If it happens, it’ll be thanks to orgs like OpenAir. What’s next for them? They’ve helped spearhead 5 pieces of CDR legislation at this point, both domestically and internationally. Chris describes their work and why it works as follows:

It’s a viral policy model: When you allow members to come in and contribute and spread, policy can move in ways it wouldn’t if there were a formal non-profit behind it.

Viewed altogether, we see a strong trend happening. We’ve been harping on it, but why stop now? Carbon removal is coming, full stop. Scientists say that we need it (see the recent IPCC report). And the industry is being created as we watch. Through a combination of private and public funding, with federal, state, and local jurisdictions all playing a part, the demand side is coming online. For me, the biggest question continues to be how quickly the supply side can scale. Same goes for supporting infrastructure and tech to enable better price discovery and more seamless transactions in a more ‘stand-alone’ carbon removal market.

Lastly, for more to come soon, XPrize will announce their milestone winners next week – it’ll be great to learn more about the climate tech companies that we’ll hear about from them. 

If you want to check out more about what’s up with OpenAir, I suggest joining their discord (here).

At Keep Cool, we’ll keep tabs on all the progress this legislation does ideally make, and we’re excited to have both Pete and Chris on the podcast in the future!