I don’t get out of bed for less than 1Gt of CO2

That’s pretty much the pitch of most entrepreneurs in the carbon capture space (and quite a few investors). Hell, that’s how I was articulating my goal only a few months ago.

It is a rational statement. After all, scientific papers suggests we need to scale negative emissions to 5-15Gt of CO2e per year by 2050 if we want to keep a realistic chance to remain below 1.5d warming . In order to make a dent, we need technologies that can actually scale. Setting the bar at 1Gt means that any single successful initiative needs to account for 7–20% of the solution. This is a neat way to remove trivial projects and focus on what has technical and financial legs. Or so is the logic.

But let’s take a step back and try to see what the mythical 1Gt threshold actually looks like.

1Gt of carbon being captured at high altitude

Most models assume that carbon needs to be priced in some way for the negative emissions’ industry to take off. Prices have been rising on the EU ETS markets, the 45Q initiative in the US and the voluntary OTC markets. $100/t of CO2e is often thrown around as a long term price and early prices for credible permanent negative emissions can be a lot higher.

So taking 1Gt as a threshold for individual initiatives effectively means that the bar for a viable company is to be able to eventually reach 1Gt x $100/t = $100b of revenue.

Most companies in the space that will actually remove carbon (as opposed to software businesses facilitating various aspects of the value chain) are highly likely to end up looking like oil companies (in the case of CCS), mining companies (in the case of mineralization) or energy companies (in the case of BECCS). A rapid glance at publicly traded companies show that these companies seem to trade around 3x revenue. A 1Gt threshold effectively means that projects need to realistically be able to scale to $100b revenue x 3 = $300b market cap to be interesting!

As a comparison, there are, as of the 19th of December 2021, only 28 companies in the world that achieved that market cap. So effectively, the threshold for getting started requires to be able to build something bigger than the Disney company (#29 at $270b) or Exxon mobile (Largest US oil company at $256b). According to senior Xooglers, Google’s threshold for launching a new business is $5b in new revenue, a modest 5% of what CDR entrepreneurs are aiming for.

Speaking with buyers of premium negative emissions, the total negative emission industry is severely supply-constrained and once you removed the questionable REDD+ schemes, total global capacity seems to sit around 100Kt/y. Even if the exact number is wrong, its order of magnitude is most certainly correct considering that the newest and largest DACCS plant in the world has current capacity of only 4Kt/y.

I really wonder if having such a high threshold in a space with such a low technology readiness score is productive. For sure, it helps focus the mind and inspire people. But I wonder if it doesn’t dramatically distort how we view early-stage projects. I am by no means an expert, but I wonder if the Gt threshold, by being so fantastically large, doesn’t effectively force people into pathways where the leverage comes from hypothetical major exponential breakthroughs (for instance that limitless carbon-free electrical energy will effectively become free so you can use that as an adjustment variable) vs. linear pathways that rely on scaling well understood engineering processes (e.g. dry mineralization of mine tailings).

Considering how large the gap is, I wonder if we wouldn’t all be better off investing in projects that have a clear path to 100Kt with a realistic path to 1Mt rather than drop the G-bomb as a hygiene factor. Or even starting to look at cumulative Gt rather than at Gt per year. That would open up the door to more projects, albeit of a different shape: projects where the science and engineering are conceptually simple, but the scaling isn’t. Fewer Climeworks and more rigorous mineralization of mine tailings by large mining operations (Something I wrote about here). It would not solve the entire problem, but it would lead to a lot more “shots on goal”, would actually scale supply, facilitate the growth of the market and eventually, produce more knowledge that could then be turned into projects that do have a realistic chance to one day become $300b companies.

It won’t remove 1Gt of carbon, but could that pile of rock 10x the global supply of CDR?

Could such projects be funded by venture with its need for power-law returns? Unlikely. Venture doesn’t know how to make money from high-CAPEX companies with low operating leverage. Hence why most established VC firms interested in climate end up investing in software companies and rely on other companies actually doing the hard part of the work (So many investments in carbon marketplaces and so little in companies actually capturing carbon!).

As a result, dropping the 1Gt threshold might require to start relying on other types of investors with different expectation of scale and CAPEX. Whether these investors exist is a different topic although many balance sheet investors (Family offices and sovereign wealth funds) have experience investing in renewable energy projects with a similar profile — the main difference being that in these projects, the financing debt is underpinned by an off-taker contract signed by big utilities and that guarantees the EBITDA for the lifetime of the project, which isn’t the case (yet) in negative emissions’ markets.

I absolutely do NOT have a definitive answer or cookie-cutter conclusion to offer. It is also entirely possible that I misunderstood what the 1Gt threshold is about. But it does feel that by thinking about the negative emission space in the same way we’d think about software we are actually impeding progress rather than promoting it.

Scale-up CEO. Looking at climate-related companies. Ex-CEO @Skimlinks (Acq. in May 2020), Board member at VC-backed companies, investor. Aspiring pianist.