Stripe, Alphabet and Others to Spend Nearly $1 Billion on Carbon Removal

Source: By Akshat Rathi, Bloomberg • Posted: Tuesday, April 12, 2022

A new fund aims to unlock billions of dollars needed to scale a technology scientists say will be crucial to tackle climate change.

Pods, operated by Carbfix, containing technology for storing carbon dioxide underground, in Hellisheidi, Iceland.

Pods, operated by Carbfix, containing technology for storing carbon dioxide underground, in Hellisheidi, Iceland. Photographer: Arnaldur Halldorsson/Bloomberg

Some of the world’s largest companies will spend $925 million buying offsets from startups that remove carbon dioxide from the air.

The Frontier fund, a public-benefit corporation owned by Stripe Inc., has also received funding from Alphabet Inc., Shopify Inc., Meta Platforms Inc. and McKinsey & Co. Inc. It will help fledgling carbon-removal companies scale up and reduce the cost of withdrawing each ton of CO₂ from the air, which would benefit all companies in the world looking to buy high-quality offsets.

Climate scientists are clear that every company in the world has to cut emissions first, whether that be through moving to renewable power or other carbon-free alternatives. But the process of reducing emissions has been delayed so much that it won’t be possible to meet global climate goals without removing some of the CO₂ already dumped in the air. Offset purchases made by large companies to deal with emissions it cannot cut, such as those from air travel, could create the business model that will support carbon removal.

While much of these tons removed could come from growing forests, there are limits on how much nature can help. Crucially, these forests face the risk of fires that can release the trapped carbon, rendering the offset promise dead. There are technology solutions, but they are expensive and we don’t yet fully understand their limits. These include startups that crush minerals which attract CO₂ like iron filings to a magnet and others that pickle wood to stop it from degrading and releasing the CO₂ it captured in its life as a tree.

“If we don’t hustle and figure out the real potential of these technologies, the world will be put in a challenging position,” said Nan Ransohoff, head of climate at Stripe. As much as 6 billion tons will have to be removed annually by 2050, according to the Intergovernmental Panel on Climate Change’s models. “We are relying on technologies that we don’t know can get to that scale,” she added.

That’s where Frontier can help. It’s based on a model that Stripe has fine-tuned over the past two years. Here’s how it will work: startups with technologies that pull CO₂ from the air can pitch to Frontier. The fund will evaluate those technologies with a pool of experts. They will take into consideration factors such as:

  • Permanence: how long will the carbon remain stored?
  • Footprint: how much land area per ton will the technology take?
  • Cost: can the technology reach less than $100 per ton at scale?
  • Capacity: can it capture at least 500 million tons each year at full scale?
  • Justice: how will it affect the local community where plants are located?

Once the experts are happy, Frontier will negotiate a price per ton captured and make a commitment to spend millions of dollars for the delivery of those tons as offsets. Some startups may charge as much as $2,000 per ton and others as little as $75 per ton. Frontier is aiming to use its purchasing power to first support as many good carbon-removal startups as possible and then look to maximize how many tons it could acquire from each of those startups. The funds will be spent by 2030, though Frontier welcomes other companies and governments joining and growing the sum it can spend.

Stripe and Shopify have each run a Frontier-like fund that has so far supported 14 and 22 startups with $7 million and $30 million, respectively, in purchase agreements. Those agreements have helped the startups to secure venture-capital funding, said Peter Reinhardt, chief executive officer of carbon-removal startup Charm Industrial, because they can show investors a guaranteed market for their product. As the startups mature, the hope is that these purchase commitments will enable them to raise billions of dollars for building large-scale plants through debt markets, which are cheaper pools of capital that make safer bets than venture funds do.

Frontier takes inspiration from a similar funding mechanism that supported the development of a pneumococcal vaccine in 2007. The target buyers for the vaccine were people in poor countries, where more than 700,000 died annually from pneumococcus bacteria but whose governments did not have the means to commit upfront money even if the vaccine would save lives and thus help their economy.

So the Bill and Melinda Gates Foundation and rich-country governments made an upfront purchase of $1.5 billion, which provided enough of a demand signal for the market to make the necessary investments. The result was immunization of 150 million children, with 700,000 lives saved over a decade since the program was launched.

A more recent example is the sums government spent on Covid-19 vaccines purchase commitments. When no other treatment was available, each dose was probably worth $1,000 in economic benefits, according to Susan Athey, professor of economics of technology at Stanford Graduate School of Business. Governments paid a much smaller sum per dose, but that was enough to get large pharma companies to spend billions of dollars needed to manufacture the vaccine.

This kind of technology development risk is typically taken by governments or philanthropies. So what are private companies doing supporting innovation at such early stages? “Governments move slow and they cannot always afford to make compromises with how they spend tax dollars on risky ideas,” said Stacy Kauk, head of sustainability at Shopify. “I think of this less as philanthropy and more like research and development,” said Peter Freed, director of energy strategy at Meta.

Both Meta and Google have committed to reach net zero, for which they will use nature-based offsets, but they would also like to support more robust carbon removal. Spending the sum upfront will help make future purchases cheap, said Kate Brandt, chief sustainability officer at Alphabet’s Google. The cost of carbon removal per ton needs to be between $40 and $140, said McKinsey’s Dickon Pinner, to help the world reach climate goals.

None of this is to take away from the major task of cutting emissions now. That’s where most of the money is going anyway. Global spend on clean technologies breached $750 billion in 2021, according to BloombergNEF, a clean energy research group. In that sense, spending $925 million over the this decade supporting carbon removal is not a huge amount. Scaling those technologies will need lots more money.