Climate change and venture capital [part 2]: The opportunity in carbon removal

Snippet from “A year in the life of CO2” by the NASA Goddard Space Flight Center.

In the previous section of this series we looked at the economic forcing mechanisms of Emissions Trading Systems (ETSs) and Certified Emissions Reductions (CERs) to support reductions in greenhouse gas (GHG) emissions across industries and geographies. In this section we investigate i) why, in fact, these mechanisms are unlikely to get us to reach key climate targets and ii) what other options may be available.

Bear with me! This is an extensive and involved topic that requires somewhat of an academic approach to get anywhere. Towards the end I will share my thinking on a constructive future outlook and how category-defining consumer brands may be created in this space.

The 2018 Exponential Climate Action Roadmap maps out what emissions reductions would look like across sectors in order for us to meet the Paris Agreement’s 1.5°C global warming target (cf. exhibit below): Successfully meeting the target would require halving global GHG emissions between 2020 and 2030. As of today, only 14% of global emissions are covered by explicit taxation or ETS schemes. Consequently, radical emissions reduction will require significant additional government initiative as well as unprecedented voluntary corporate and consumer action across the developed and developing world.

Realistic? The Global Climate Action Summit 2018’s Exponential Climate Action Roadmap to halve CO2e emissions by 2030.

There is no doubt as to how important hampering climate change may be for the continuation of our species. However, it is difficult to blame a realist mind for preparing itself for a scenario where emissions rates are not cut close to the Exponential Climate Action Roadmap’s halving levels over the presented timeframe. In fact, both the OECD and UN Environment Programme expect global CO2e emissions rates will rise, rather than decrease, over the next 10 years. The UN Environment Programme have made a careful analysis (presented in their 2018 Emissions Gap Report) of all countries’ nationally determined contributions (NDCs) to the Paris Agreement. The report looks into both unconditional NDCs (contributions committed to any scenario) as well as so-called conditional NDCs (additional contributions contingent on certain conditions, such as ambitious action from other countries or realization of financial and technical support). The UN report concludes that even in a scenario where all conditional and unconditional NDCs are met, global emissions will surpass 50 GtCO2e/year in 2030 — well above the 24 GtCO2e/year emissions level deemed necessary to meet the 1.5°C Paris Agreement target.

A grimmer outlook. Global CO2e emissions forecast as per the UN’s 2018 Emissions Gap report.

Not meeting warming targets will have massive negative consequences. First, the adverse economic effects will be significant: For example, (as noted in the first part of this series) the 2018 NCA4 report by the US Global Change Research Program estimates climate change-related economic losses in the US alone at $280bn/year by 2090 in a 1.8°C warming scenario. Second, the non-monetary human and environmental losses will be comprehensive: The IPCC 2018 Global Warming of 1.5°C special report collates the current scientific understanding of the global effects of a 1.5°C-and-beyond average global warming, mapping out such scenarios’ impact on human an non-human systems (cf. exhibit below).

Rising temperatures, rising consequences. An illustration of the impacts and risks of rising temperatures from the 2018 IPCC Global Warming of 1.5°C special report.

What then can be the approach, when part of the key stakeholders and agents either don’t intend to or don’t have the means to take sufficient action?

The overall objective is to limit the CO2e content in the atmosphere in order to limit its so-called radiative forcing effect on incoming sunlight (i.e. limit its contribution to the trapping of incoming energy in Earth’s atmosphere). If sufficiently limiting emissions is unfeasible, then recapturing CO2 already present in the atmosphere is an alternative. This path could potentially be undertaken by a partly different set of agents, making up for others’ lacking action on emissions reduction. In fact, the likely need for atmospherical carbon dioxide removal has been publicly and increasingly expressed by a range of individuals and organizations involved with climate change issues, including former IPCC chief Rajendra Pachauri, the UNFCCC executive secretary Christiana Figueres and the World Watch Institute, among several others.

Atmospheric carbon dioxide removal

Achieving lower concentration targets (450 ppm) depends significantly on the use of bio-energy with carbon capture and storage — OECD Environmental Outlook to 2050

Recapturing CO2 from the atmosphere (aka. “sinking CO2") is increasingly seen as another necessary piece of the puzzle, and there are a number of approaches available for those brave enough to head them.

1. Bio-energy with carbon capture and storage (BECCS) is a negative-emissions GHG mitigation technology by which, as the name suggests, bioenergy is combined with techniques for carbon capture and storage. Commonly this involves capturing the CO2 released in association with the extraction of energy from biomass, followed by some form of long-term sequestration of the captured carbon. There is a multitude of variants to this solution that each approach the capture and storage of carbon from different angles. The core principle, however, relies on utilising photosynthesis to capture CO2 into biomass and then ensuring the CO2 is not reintroduced to the atmosphere when the biomass’ chemical energy is extracted.
2. Re-/afforestation is another way of sinking CO2 by utilising photosynthesis. By restoring or expanding forests and peatlands, net sinks of CO2 are created. Initiatives of this type make out four of the 15 most important items on the Project Drawdown list of 100 solutions to reverse global warming.
3. Ocean-based CO2 sinks include ocean fertilisation and artificial ocean alkalinization (AOA). These are geo engineering-type methods to increase the oceans’ uptake of atmospheric CO2. Fertilization works by promoting the growth and bloom of photosynthetic algae or plankton at the ocean surface though the purposeful introduction of nutrients, such as iron, urea or phosphorus, in the upper ocean. AOA works by enhancing the naturally occurring oceanic CO2 uptake by alkalizing the oceans through anthropogenic addition of alkalytes. AOA has the potential to significantly contribute to atmospheric CO2 removal: Researchers estimate sufficient alkalisation of the oceans has the potential to reduce global mean surface temperature by as much as 1.5°C.
4. Direct air capture (DAC) is a collective term for techniques that make use of various man-made filters and chemical processes to directly capture atmospheric CO2 from ambient air. These are often more fringe ideas at the prototype stage that typically struggle with adverse unit economics. Examples include so-called carbon scrubbers where CO2 is bound through carbonation processes with chemicals like calcium oxide or sodium hydroxide. Some prominent attempts include growth-funded Climeworks and Gates-backed Carbon Engineering.

The opportunity

Climate change is moving to the forefront of consumers’ minds, demonstrated recently by the 40,000 strong Amsterdam climate protests or the school climate strikes. People care and want to participate in a solution. A sweeping consumer movement is to be expected.

The pro-climate movement is obviously nothing new, but the scale of participation is. We previously looked at some of the economic incentive mechanisms through which GHG emissions reduction is undertaken, including opportunities for consumers to directly impact net emissions on a global scale. However, in contrast to carbon offsetting or reduction of emissions by individual consumers, CO2 removal has the potential to materially reduce the problem even if not all key stakeholders take appropriate action.

If business models can be created where incentive structures for sinking CO2 are simplified and aligned to that of the interested consumer, it is reasonable to believe that a large market could develop. The opportunity for direct-to-consumer ventures is already coming together, with examples including:

• Skymining (afforestation & BECCS): True carbon sinking with an ROI. By acquiring and afforesting marginal land, Skymining create effective carbon sinks. Using a highly CO2-binding grass they efficiently sink carbon from the atmosphere and, in certain areas, convert the biomass to fossil-replacing biofuel. Consumers are offered to invest in their own unique “Skymine” and reap the benefits of i) land value appreciation, ii) income from CO2 removal certificate sales and iii) profit-sharing on biofuel sales. By offering their own Visa card, Skymining also allow consumers to automatically invest in carbon sinks as they consume — ensuring their carbon footprint is kept negative.

• Ecosia (re-/afforestation): A search engine that pours all profits into planting trees. With every 0.20 search euros made, Ecosia plants a tree. With over 7 million active users and €9m invested, 52 millions trees have been planted.
• Tentree (re-/afforestation): “Beyond sustainability.” Apparel with a mission to become the most environmentally progressive brand on the planet. With every item purchased 10 physical trees are planted, making each basket distinctly carbon negative. Across 20+ projects and 10+ countries, from Madagascar to Nepal to Canada, over 25 million trees have been planted to date. Through Tentree’s platform, the consumer can precisely track the development of “their” trees and how much CO2 they’ve sunk. The goal is to plant 1 billion trees by 2030.
• Nori (multiple methods): A distributed ledger-based marketplace for CO2 removal. A marketplace simplifying the creation, authentication and sale of carbon removal certificates. Nori is connecting re-/afforestation and other carbon-negative projects to a middlemen-free marketplace where consumers can directly sink CO2.

The jury is still out on what the successful commercial business models will look like in this space. However, from a high-level perspective it would be surprising if such vast global consumer movement would not offer opportunity for venture-backed contributions to successfully be made.

I’m looking forward to seeing more in this space and spending time with the brave founders that take it on.