How We Look at Carbon Removal
Climate technologies are all the rage these days, with investors pouring around ~16B into the space through mid-year 2021.
One of the most fascinating and fastest-growing verticals within this is carbon removal.
While the carbon removal market in 2021 is slated to hit $1B in market value, quality and transparency remain concerns. Undoubtedly, a growing market for voluntary carbon offsets is good news. However, having a multibillion dollar market by the end of this decade is not good enough – we need to keep in mind the overall goal of climate technologies: limit planetary warming to 2 degrees Celsius or below.
In anticipation of a massively growing carbon removal market, I’d like to propose looking at a few key factors as we survey more and more carbon removal companies, so we can scale the carbon offset markets with both quantity and quality.
CarbonPlan, a nonprofit dedicated to researching the state of carbon markets, highlighted a few key factors during its analysis of carbon removal projects: mechanism, volume potential, negativity, permanence, price, and additionality.
As investors, we should focus on two primary factors: scalability and permanence. Within the ecosystem of projects, we can assess technological and nature-based solutions by asking the questions: how scalable is this solution and how long will the carbon be stored for?
I would define scalability as having two main components: volume and resource efficiency.
Volume is important because we need to remove close to 40 billion tons of carbon annually to reach net zero. More practically, however, it also implies that carbon removal projects need to be able to scale up quickly. Climate change has a time limit, so scalable solutions also need to reach commercialization sooner rather than later. As we begin to see more projects, we should place a premium on solutions that can move quickly.
A fantastic example of projects delivering on-time promised volumes would be Charm Industrial, which has delivered the largest permanent carbon removal to date. This project delivered 5,000 tons, and in order for us to hit net-zero, we need thousands more projects like this.
Another aspect of scalability in the context of climate change is that of resource efficiency, or the minimizing of waste. Resource efficiency is exactly what it sounds like – making the most with the fewest inputs possible. Some examples of resource efficiency are powering climate solutions with renewable energy sources and closed loop systems.
According to the United Nations, improvements in resource and material efficiency can reduce total emissions up to 40% by 2050. Like many drivers of climate change, accounting for resource efficiency is a choice we can make when we look at business models - is this company using its inputs in the most efficient way possible? Additionally, we can even look at the regenerative aspects of a business and how it treats its products at end-of-life. Does this technology rely on unsustainable factors of production? Does this project capture carbon, but require extensive transportation emissions? All these factors and more should be considered when assessing a project.
Another key factor in carbon removal projects is permanence - how long can captured carbon be stored?
Although there is limited market premium now on permanence, we believe that over time, the price of carbon removal projects should reflect how long the carbon can stay in the ground.
Temporary carbon removal projects can appear to be pricier than advertised, because of the need to remove the carbon over and over. For example, a project that offers 50 year carbon removal at $20/ton actually costs around $208/ton for permanent removal according to CarbonPlan’s permanence calculator. Keeping this in mind, some hopeful examples of technologies that offer permanent carbon removal are: closed-loop processes such as using captured carbon in concrete, BECCS (bioenergy and carbon capture and storage), and various other processes such as those outlined in Y Combinator’s request for carbon capture startups.
Startups working at the forefront of these technologies include the aforementioned Charm Industrial, Heirloom Carbon, CarbonCure, Planetary Hydrogen, Climeworks, and many others.
Carbon removal is a space with potential to slow some of the damage we’ve done to the planet. While we welcome all approaches to carbon removal, we think it makes sense to apply a framework to assessing the ecosystem of carbon removal projects. Focusing on volume allows us to approach our end goal, and focusing on permanence allows us to make sure we don’t commit the same mistakes of the Industrial Revolution.
Finally, while this framework is a starting point, we know it is by no means exhaustive and complete. We believe tackling climate change requires a collaborative effort, which means continually modifying our approach and mostly importantly - learning from others. If you are working in the climate space and would like to talk, give a shout! Let’s work on this together.