Does Davos deliver?
Once a year, many of the world’s top economics, policymakers, and financiers descend on Davos, a small pocket in the Swiss Alps. Without being there, I can imagine the mood was demure this year. World economies are struggling with a laundry list of issues, ranging from supply chain disruptions and shortages, inflation, and, for emerging markets, a strong dollar.
Against this backdrop, 2022 has also brought troubling evidence that climate change is already a crisis. For the better part of the past month, temperatures in India routinely exceeded what humans can endure, at least without air conditioning.
Climate change was undoubtedly a primary focus of conversation at Davos. However, saying the average person is unimpressed by the goings-on at Davos is an understatement. The pulse check on social media is that Davos is, at minimum, a waste of time and our attention. At worst, it’s a farce, a “self-own.” When you consider the optics of people flying jets to convene in a place that will probably be spared much of the worst effects of climate change, at least for a while, it’s hard not to agree.
Still, events like Davos aren’t all bad. At the minimum, they offer an opportunity for flashy, headline-grabbing announcements. These often take the form of capital commitments.
As an example? A previously formed consortium of CEOs and companies called the ‘First Movers Coalition’ released new pledges around procurement practices and capital commitments. Procurement pledges focused on shifting towards more provably ‘green’ materials and supply chains over the coming decade. For instance, both Ford and Volvo set a target of sourcing 10% of their aluminum from ‘green’ manufacturers by 2030.
In addition to the focus on procurement and manufacturing, Alphabet, Microsoft, and Salesforce committed $500 million in advanced market commitments for carbon dioxide removal (“CDR”). We’ll discuss more on carbon removal in the next section.
What’s the takeaway here? Announcements from the First Movers Coalition are undoubtedly helpful. The world needs pledges. The world needs capital commitments.
Still, these commitments are conveniently something for other people to fulfill in the future. Even if targets are met and capital is deployed (achievements that are far from guaranteed), part of the ‘meta-game’ miss in all of this is that forward-looking statements are a far cry from boots on the ground or anyone at Davos getting their hands dirty. What form might present-moment action take? Here’s one idea for immediate impact.
To sum, for all these reasons, and indubitably because of all the strong currents of bad news constantly inundating us, it’s hard to draw inspiration from Davos, regardless what comes out.
ALL ABOARD THE HYPE TRAIN
We’ve been beating the carbon removal drum all year. In April, carbon removal news was both overwhelming and exciting. It felt like the nascent industry went from 0 to ~100 mph overnight.
But the pace of announcements hasn’t slowed in May. Now it’s at the point where it feels like ‘the thing’ right now:
- Last week, the U.S. government announced $3.5B in funding to build four carbon removal’ hubs.’ In parallel, Congress is advancing a proposal to provide more capital for R&D in carbon removal.
- Earlier this month, Elon Musk took a break from trolling on Twitter to join Alphabet in committing $2B to carbon removal.
- As discussed above in the Davos section, several First Movers Coalition members committed $500M for carbon removal.
- Alongside the really big fish, a bevy of other equity funds and capital commitments for carbon removal announcements crop up seemingly by the day. For example, Swiss RE, BCG, and other entities formed the ‘NextGen CDR Facility,’ committing to purchase more than 1M carbon removals by 2025.
I’d be the last person to argue that investment in carbon removal is misguided. Last year, scientists recorded a new record high of 420 ppm of atmospheric CO2 at Mauna Loa, Hawaii.
Returning to a safer concentration of 300 ppm will require carbon removal at the 10 billion tonne scale by 2050. This year, the industry will produce less than one million tonnes of CO2 removals. That means carbon removal needs to scale 10,000x in less than 30 years!
Still, echoing some of my takes in the Davos section above, there’s always a risk when announcing specific commitments becomes en vogue. Announcing a capital commitment for carbon removal is the hottest thing in town.
So, again, the onus should shift to what commitments and investments will deliver. I’m concerned about scenarios where government funding or projects get mired in an administrative quagmire. Or that companies won’t honor capital commitments five years down the line, especially if attention shifts elsewhere.
Further, with so much attention on the demand-side of the market, translating those demand signals to supply is critically important. Scaling up supply is the paramount challenge here. The demand-side has proven its ability to scale rapidly. Building the hardware and maintaining natural ecosystems to remove carbon is much harder than making capital commitments.
In closing, the first wave of carbon removal announcements got me very excited. Watching the next wave makes me a bit wary. Regardless of how ‘fashionable’ it is, pledging capital for carbon removal can’t become a cop-out for companies, let alone countries, to kick the decarbonization can down the road. And there’s a lot of work to do to scale supply for what is a highly supply-constrained market.
MORE COOL STUFF ✌️
What I’m listening to 🎶: Kendrick Lamar’s new album – well worth the wait! He should be considered for a Nobel in literature for his lyricism and storytelling. A singer / songwriter winning wouldn’t be without precedent; Bob Dylan won in 2016.
What I’m signed up for ✔️: Greenpixie’s beta (coming very soon)! Greenpixie wants to help you understand your business’ digital carbon emissions. If your company uses the cloud a lot, there’s probably more emissions associated with it than you think. I’m excited to be one of the first people to test Greenpixie’s tools – you can sign up here too!
What else I’m up to🌴: Hanging out in LA this weekend! If you’re local and want to chat about climate tech over coffee, let me know!