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Practical Magic

What you should know about carbon removal purchase agreements

The industry needs to share lessons, so companies are publishing playbooks about how they are selecting and valuing projects that have verifiable permanence.

The Orca plant in Iceland

Climeworks co-founders Jan Wurzbacher Christoph Gebald stand near the Orca facility in Iceland. Image courtesy of Climeworks

This article originally was published in our free Climate Tech Weekly newsletter,  delivered Wednesday mornings.

10 billion tons. That’s the amount of carbon dioxide the United Nations figures we need to remove from the atmosphere annually by 2050 to meet the goals of the Paris Agreement. 4,000 metric tons. That’s the capacity of the world’s largest direct air capture facility in Iceland, brought online in early September by Swiss venture Climeworks. Clearly, that’s quite a gap between supply and demand.

$10 million. That’s the value of the 10-year-long offtake contract — call it a carbon removal purchase agreement — that reinsurance giant Swiss Re signed in August to support the Orca plant. Mischa Repmann, senior environmental management specialist with Swiss Re, likened the arrangement to the power purchase agreements that many corporations have used to procure renewable energy to achieve various clean energy pledges. Climeworks uses renewable geothermal energy and waste heat to run its process.

The idea is to help "send the strongest signal as a buyer" and help bring down the cost curve for other businesses seeking to buy high-quality carbon removal credits — each ton of CO2 captured by Climeworks is turned into stone and sequestered "permanently" underground by its partner Carbfix. "We have chosen to engage directly with front runners in avoidance and removal," Repmann told me. There will be more deals of this nature, although he wouldn’t say when and who.

Swiss Re is paying plenty for the privilege of being an early adopter; although it doesn’t disclose what it’s paying per metric ton of removal, it acknowledges that Climeworks’ approach currently costs "several hundred dollars per metric ton." The company started levying an internal carbon price of $100 per metric ton in January, an amount that will gradually increase to $200 per metric by 2030. Those funds are used to pay for "high-quality carbon removal projects," according to a company press release.

It will obviously take many, many, many more offtake arrangements by Swiss Re and other corporations to stimulate the market. But they are beginning to trickle forth. Payments company Stripe, which has also prioritized investments in early-stage carbon removal startups, announced a partnership with nonprofit Activate to support its fellows pioneering early-stage carbon removal technologies. Specifically, it will grant $500,000 procurement contracts for approaches that promise to sequester CO2 for 1,000 years. Since 2015, the program has supported more than 100 fellows.

"In order for CDR technologies to scale, we need to get a critical mass of startups to the starting line," said Ryan Orbuch, procurement lead for Stripe Climate, in a statement. "Activate is already providing a deep well of support for science entrepreneurs, and we see our partnership as a powerful multiplier of that support for fellows developing promising CDR technology."     

Proponents such as Repmann, Orbuch and their counterparts at companies such as Microsoft and Shopify probably spend as much time helping evangelize this idea with other corporate buyers as they do managing their own programs internally. 

"We are at the starting line," said Climeworks co-founder Christoph Gebald last week during a summit intended to spur interest in direct air capture technologies. "We have to be at gigatonnes in 2050, and we should be at megatonnes by 2030 in order not to miss the party."

Plenty of organizations are on the invite list. The summit, convened by Climeworks, assembled some companies that have figured in deals with the three tech companies, including Carbon Engineering, Charm Industrial and Heirloom. Also on the agenda were executives from next-generation startups AirCapture, CarbonCapture, Carbyon, Global Thermostat, Mission Zero Technologies and Soletair Power

"To solve this problem will require an industry that is of the size of the existing oil and gas industry," noted Adrian Corless, CEO of CarbonCapture, during one panel discussion. CarbonCapture, co-founded by entrepreneur Bill Gross, is working on a strategy to sequester captured CO2 or to use it for industrial processes. Corless, previously CEO of Carbon Engineering, said "real money" is getting into the sector. "Capital is easier to find. People have gotten past the idea that a regulated business is not investable." 

Julio Friedmann, senior research scholar for the Center on Global Energy Policy at Columbia University, described the agreement between Climeworks and Swiss Re as "the opposite of greenwashing." By investing now to help inspire longer-term, durable approaches to carbon removal, corporate buyers can help provide a bankable revenue stream that should inspire the construction of more capacity, he said.

What’s more, it’s in the interest of companies such as Climeworks and other carbon capture and storage providers to share the stage to help evangelize the market, Friedmann said. The reality is that the industry needs "30 companies the size of Royal Dutch Shell" in order to reach the scale necessary to remove the 10 gigatonnes needed to meet the Paris Agreement goals by 2050. "We have to cultivate partnership as we cultivate technology development," he said.

The industry recognizes the need to share lessons, which is one reason you’ve seen companies including Microsoft, Shopify and Swiss Re all publish playbooks about how they are selecting and valuing projects that have verifiable permanence. "Learning from others is critical, so that we don’t all make the same mistakes," said Stacy Kauk, director of the sustainability fund at Shopify.

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