Carbon capture meets DTC
By Nick Van Osdol
As we discussed in a recent newsletter, many carbon capture technologies depend on tax credits to scale. As long as industries that produce a lot of emissions aren’t subject to any penalties for said emissions, dangling a carrot is the main thing convincing them to make capital expenditures to install carbon capture devices that ‘scrub’ their emissions at the source.
Pressure from investors to decarbonize supply chains may intensify sufficiently to get some chinks in the chain to adopt carbon capture. But emissions are so ingrained into producing things like steel or concrete that without tax credits, there’s little impetus for change.
In a similar vein, many carbon removal companies, which remove greenhouse gas emissions that have already entered the atmosphere, rely on selling carbon credits in carbon markets to make money. Take direct air capture, for instance. Absent selling carbon credits, there’s no other path to profit for these expensive engineered solutions to carbon removal.
Sometimes, carbon removal practices can yield additional ROI. For instance, farmers who adopt regenerative agriculture practices that increase soil carbon levels may also see increased yields, healthier soil, and other benefits.
However, many carbon market registries penalize potential suppliers when this is the case – buyers and registries often think about the ‘financial additionality’ of projects. Whether or not a project would make economic sense without profiting from carbon credits is one criterion used to evaluate whether a project is ‘additional.’ As the thinking goes, if the project would have happened without any carbon market financing, it’s not necessarily additional (even if the emissions it removes are additional). Complicated and a bit strange, I know.
Why this long set-up? To cement that tax and carbon credits are ingrained in a significant chunk of business models in both carbon capture and carbon removal. Fortunately, the size of the carrot in both cases just grew in the U.S. As I wrote on Thursday:
The IRA enhances a tax credit for geological sequestration of carbon, raising the value of the credit for geological sequestration of carbon to $85 per ton from $50. The credit is even higher at $180 per ton for direct air capture, a carbon removal technology.
Not all companies depend on credits, however!
For instance? One company wants to get you scrubbing with their soap. Read on.
CleanO2 🤝 cleaning yourself
If you have a natural gas boiler in your dwelling (like I do), it’s probably one of the primary sources of emissions in your home or apartment building. The same goes for several commercial applications – larger natural-gas-fired boilers can be pretty emissions intensive.
And replacing or retrofitting them to improve efficiency and reduce their environmental impact is expensive. Not a project commercial clients willingly take on if their appliances work and have years of usable life.
That’s where CleanO2 comes in. They’ve been working at the forefront of carbon capture technology for commercial-scale natural gas appliances for decades. Their system captures point-of-source CO2 emissions as well as waste heat from appliances. The latter helps increase appliances’ efficiency and reduces gas usage (and emissions) as a result.
What’s the rub? Their systems also create a valuable output from the captured CO2, namely pearl ash (potassium carbonate). Pearl ash is an ingredient in various products, ranging from detergents (and soaps!) to fertilizer.
While CleanO2 hopes to sell pearl ash at commercial scale someday, that scale will require more installations in appliances worldwide, though their system is already scrubbing emissions in Canada, the U.S., and Japan. CleanO2 isn’t just waiting for clients to see the allure of carbon capture tax credits, however. They dangle another carrot for potential customers on the carbon capture side, offering to pay back the installation cost over time.
That’s where their consumer products come in. CleanO2 uses the pearl ash their systems collect to make consumer products, like soap. Then, they remit some of the revenue from these products to their commercial appliance customers.
I’ve seen carbon removal companies talk about this type of business model. E.g., companies working on solutions for ruminant methane emissions envision paying farms to use their product with their cows. This would work by remitting profits from methane emission reduction credits to them. Not that different from what CleanO2 is doing, in theory. CleanO2 is the first company I’ve seen implement this model, however.
Pique your interest? Listen to myself and CEO Jaeson Cardiff discuss more on CleanO2’s tech and business model in the latest episode of the Keep Cool Show:
DIVE DEEPER ON THE KEEP COOL SHOW
Beyond its unique business model, speaking with Jaeson also reminded me of something I wrote in regard to Rosy Soil, a consumer soil company that integrates biochar into their soil instead of peat to flip their soil from bad for the environment to good:
…DTC has a significant role to play. Chad [Rosy’s CEO] noted that he sees DTC products as a great way to scale climate tech and carbon sequestration solutions. Not because they necessarily drive the most throughput right away. But because they combine heightened market demand with heightened awareness.
I also called this the ‘trojan horse’ effect at the time. Consumer business models in climate tech don’t necessarily drive the same scale we’re accustomed to seeing investors and analysts lust after. E.g., they’re not driving gigatonnes of carbon sequestration any time soon.
What they do is catalyze conversation. They introduce way more people to concepts like carbon capture with CleanO2 or biochar with Rosy. The benefits of that are less measurable. But they likely include driving more talent to climate tech and other, broader shifts in consumer behavior. Hard to put a price on that!