By By Amrith Ramkumar and Ed Ballard
Wall Street Journal, Jun. 8, 2022
Nascent technology to pull carbon from atmosphere is fastest-growing area in climate finance
In the past two months, businesses and investors have pledged roughly $2 billion to back emerging technologies that promise to remove carbon dioxide from the atmosphere, which is seen as crucial to limiting climate change.
The commitments to the nascent industry of carbon removal have boosted its financial backing by about 30 times. The promised cash is turning carbon removal into a hotbed of technical and financial innovation.
One company raised more than the entire industry in its history. Carbon removal is growing its funding at a faster rate than any other climate sector, a Wall Street Journal analysis of PitchBook data shows.
Sucking carbon out of the atmosphere and permanently storing it underground eliminates some of the greenhouse gases that have driven Earth’s temperature higher. That process has never been done on a large scale.
In the past few months, tech giants like Google andFacebook, consulting firms McKinsey and BCG, financial firms UBS and Swiss Re, plus the royal family of Liechtenstein, have promised to pay generously for carbon that is removed from the atmosphere and stored.
By committing in advance to pay companies that succeed, the backers are creating the same types of incentives used to fund research for vaccines for diseases like malaria and for big-dollar infrastructure projects like liquefied-natural-gas terminals.
The plans to boost carbon removal address the fact that efforts to reduce carbon emissions have fallen short of what is necessary to prevent dangerous changes to Earth’s climate. The current scramble for fossil fuels caused by Russia’s invasion of Ukraine has made clear that a transition to renewable energy is a long way away.
Carbon-removal technologies suck carbon out of the open air in order to lock it away for centuries. There are a jumble of names for efforts to reduce carbon in the atmosphere. Direct-air capture, a common description of the strategy, is one type of carbon removal. Carbon capture, which grabs carbon from smokestacks and other denser sources of greenhouse gases, is related but seen as a different process. Carbon removal is more technologically demanding because the carbon dioxide is more diffuse in the atmosphere.
Companies are willing to pay for carbon removal to meet the goal of becoming carbon neutral. Many companies try to get there by buying carbon credits, which are usually generated by renewable energy and forest preservation. Many companies have decided that directly removing carbon is more effective.
In April, Google parent Alphabet Inc. , Facebook operator Meta Platforms Inc., McKinsey & Co., payments processor Stripe Inc. and Canadian e-commerce firm Shopify Inc. committed nearly $1 billion to pay for carbon removal through 2030 in a joint venture called Frontier. A similar group of UBS Group AG , Boston Consulting Group and others expects to spend hundreds of millions of dollars. Microsoft Corp. and Salesforce Inc. made separate pledges totaling $300 million.
Businesses have committed roughly $1.5 billion in recent weeks. Before that, they had pledged some $50 million.
The long-term commitments are being bolstered by investments in existing carbon-removal companies. Climeworks AG, a Swiss company whose Iceland facility is one of the world’s only operational projects, privately raised $650 million. That’s more than the entire industry raised in its history.
Other upstarts recently raised tens of millions from investors including Bill Gates’s Breakthrough Energy Ventures and an innovation competition bankrolled by Elon Musk.
The money is fueling a race among startups to develop new removal methods. Some, like Climeworks, build machines that bring air into contact with chemicals that absorb and transform the carbon dioxide so it can be stored underground. Others envision accelerating natural processes that lock up carbon in rocks or oceans.
Many environmentalists and business leaders question the wisdom of betting on unproven technology that will consume energy, land and money to fight climate change. Reducing emissions should be the main focus, they argue.
“There’s this deep-rooted fear that the foot will come off the gas pedal on emissions reductions if carbon removal is successful,” said Rachel Kyte, dean of the Fletcher School of Law and Diplomacy at Tufts University and a climate adviser to the United Nations secretary-general.
Speculative technology is common in Silicon Valley, but the pace and structure of investments in removal set it apart. Demand for carbon removal outweighs supply by so much that the sector’s capacity is sold out years into the future. That has forced the companies to commit to paying for removals that haven’t happened yet using technologies that haven’t been invented yet.
These commitments are being made at far higher prices than the carbon credits typically bought by companies. But industry executives say it will be hard to raise enough cash without a consistent price or tax on carbon.
“It’s a leap of faith that people will come around to the math,” said Peter Reinhardt, chief executive of San Francisco removal firm Charm Industrial. Mr. Reinhardt sold his last company, customer-data platform Segment, to Twilio Inc. for $3.2 billion.
Charm heats up agricultural plant waste like corn stalks to turn it into carbon-rich liquid that can be injected into wells underground. That “bio-oil” can be stored for about $600 a ton, a price the company hopes to cut by improving its technology.
Charm says it put more than 5,000 tons of carbon dioxide underground last year for customers including Stripe and Microsoft. It has raised about $25 million from investors including Salesforce CEO Marc Benioff and Lowercarbon Capital.
Lowercarbon was launched by venture capitalists Chris and Crystal Sacca and recently raised a $350 million fund to invest in carbon-removal startups.
Industry executives hope for a future where people pay for carbon removal like they pay for trash collection and drinking water. To make that point, Jan Wurzbacher, co-CEO of Climeworks, threw 10-pound trash bags on stage during a talk a few years ago in London.
The involvement of the fossil fuel industry has raised additional concerns among skeptics. Occidental Petroleum Corp. , which has one of the most ambitious carbon-removal plans, says it will spend up to $1 billion on a direct-air-capture facility with Canadian startup Carbon Engineering Ltd. The facility would bury some of the carbon underground and use some to produce oil. Airbus SE agreed to purchase carbon credits linked to the project, and United Airlines Holdings Inc. is among its investors.
The carbon-removal industry is tiny, with less than $5 million in revenue last year. That figure will need to reach about $1 trillion by midcentury, scientists say.
“We need to keep adding zeros to this until we get carbon removal at the scale that we need it to be,” said Nan Ransohoff, Stripe’s head of climate.
Customers signing up now say how much they want to spend on removal over a given period. Prospective suppliers then apply for some of that money by detailing their technology and pricing. They get paid when they remove the carbon from the atmosphere, though they can get some of the money in advance.
Stripe previously agreed to pay between about $75 and $2,000 a ton for $16 million in removals. Earlier this year, it was joined by several other firms in a nearly $1 billion commitment that became Frontier.
A similar group of customers, NextGen, was launched in May with UBS, BCG, reinsurance company Swiss Re AG , Japanese shipping giant Mitsui O.S.K. Lines Ltd. and a financial firm owned by Liechtenstein’s royal family signing up. They plan to fund at least one million tons of removal by 2025 at an average of $200 a ton for the carbon credits.
Charm currently sells credits for $600 a ton and Climeworks also typically charges companies several hundred dollars. That is roughly 100 times the cost for many credits linked to voluntary forest offsets and many times what companies have to pay to mitigate their emissions in the mandatory carbon markets that operate in California and Europe.
Governments are also taking initial steps to boost the industry. The U.S. federal infrastructure bill passed last year included up to $3.5 billion available to develop four regional hubs for removing carbon from the atmosphere. The European Union is expected to propose carbon-removal regulations and accounting standards by the end of the year.
Ms. Ransohoff called the industry’s progress “fragile” and said businesses could back off in a downturn. “I hope not, but that is certainly a real possibility that we need to consider,” she said.
Originally posted in the Wall Street Journal.