April 15, 2019 - From the April, 2019 issue

VX 2019: Commercializing Carbon-to-Value Innovations

Reducing greenhouse gas emissions has become a principal effort globally of tech, public policy, and enterprise. One important climate mitigation measure is attracting attention again from policymakers and investors alike: removing existing carbon from the atmosphere. At VerdeXchange 2019, impact investors and climate scientists examined the challenge of commercializing innovative “carbon-to-value” technologies and their potential to transform industries, policy regimes, and climate action paradigms. Christine Harada (pictured), President of i(x) investments and former U.S. Sustainability Officer, led the panel a discussion which included: Bob Savage, Assistant Deputy Minister of the Alberta Climate Change Office in Canada; Marcius Extavour, executive director of the Carbon XPRIZE; and Jim McDermott co-founder and managing director of Rusheen Capital Management.


Christine Harada

"The idea of carbon-to-value is: How can we take carbon from the atmosphere, or from industrial and energy-producing processes, and repurpose it into a value-added product? How can we reimagine or rethink carbon, and turn it from a waste product into a product with intrinsic value?" Jim McDermott, Rusheen Capital Management

Christine Harada: We often talk about reducing carbon emissions through things like electric vehicles, renewable energy, and decarbonizing the grid. Today, we’re talking about new methods of removing carbon that’s already in the atmosphere.

Innovators around the world are finding ways to capture CO2 directly from the air and convert it into useful products, from building materials to fuel to everyday consumer products. Recently, oil and gas companies including Chevron and Occidental joined Bill Gates and other notable climate change investors in investing in carbon capture technologies. These companies have the potential to change our future.

Jim, you’ve long been a serial entrepreneur and investor in the climate change business through renewables, biofuels, and more. Share your definition of “carbon-to-value,” and where you see opportunities for smart investors to deploy capital.

Jim McDermott: Carbon-to-value is an emerging concept.

Atmospheric carbon is a waste product that is largely not valued. From an economic perspective, it’s an externality. The idea of carbon-to-value is: How can we take carbon from the atmosphere, or from industrial and energy-producing processes, and repurpose it into a value-added product? How can we reimagine or rethink carbon, and turn it from a waste product into a product with intrinsic value?

A basic example is capturing the CO2 that comes from a coal or natural gas facility, cleaning it up, and using it in soda pop. As another example, UCLA researchers are working on embedding CO2 directly into cement and concrete. They’re taking a waste product largely characterized as low-value and upgrading it into things that do have economic value. The idea is to upgrade the CO2 higher and higher into the value-added stack, and in the process, add a degree of permanence.

Christine Harada: Marcius, tell us about the Carbon XPRIZE and the market-readiness of the products there. 

Marcius Extavour: The impetus of the emerging carbon-to-value field is to create an economic incentive to reduce our global CO2 footprint.

Globally, humans produce about 40 gigatons of CO2 per year—more than almost anything else. We don’t consume enough material to use up all that CO2. An economic incentive to actively reduce existing post-combustion emissions could accelerate our process, and also add fuel to other policy and moral considerations for reducing CO2 emissions.

We know that we can do this from a scientific perspective; the chemistry has been known for quite a while. The question is whether it can be done in a way that is both technologically and economically feasible. Essentially: Can you build a business around it? Can it be done in a way that both reduces CO2 emissions overall and also generates revenue, or is even profitable?

That’s a big question, and the state of play varies in different areas of technology. For example, there’s a big materials industry that could be fed by CO2. Some researchers are working on embedding CO2 into carbonates, like cement, concrete, fixed stone, and other building materials. Others are working on pure calcium carbonates for industrial use—minerals like magnesium carbonates, which you might use to make wallboard, for example.

Another bin is fuel and industrial chemicals. Things like methanol, acetone, and formic acid could be manufactured out of CO2 . Some people are working on exotic materials like carbon fiber and carbon nanotubes, which are getting attention because they have a high carbon concentration.

Another bucket of materials and technology are things like proteins and amino acids. This is coming up in fake meats and substitute proteins. Would you consider eating an amino acid or a protein made out of CO2? A company called Kiverdi is working on a synthetic protein made from CO2 in an effort to knock out a portion of the palm oil market.

There is a huge range of technologies at different readiness levels, but they all face the same challenges. For one, it generally takes a lot of energy to upgrade CO2 into something else. Where does that energy come from, and what is its CO2 footprint? If the process actually produces net CO2, that of course defeats the purpose.

Another consideration is how to get CO2-based materials into the existing material market. That question breaks down on a case-by-case basis.

There are a lot of promising technologies in this field. Many companies are profitable, and many more are getting there. All of them are at the stage of figuring out how to commercialize in their different verticals and product categories.

Christine Harada: Bob, tell us about your work as Assistant Deputy Minister of the Alberta Climate Office, and how governments might encourage such investments. 

Bob Savage: Let me begin with a nickel tour of the challenges that Alberta faces.

We account for about 10 percent of the country’s population and close to 40 percent of its greenhouse gas emissions. We sit on the world’s third largest oil reserves, and about a 300-year supply of coal. Not surprisingly, we have a natural resource-based economy, and a lot of our energy systems have grown up around hydrocarbon; our economy is heavily dependent on it.

Notwithstanding that, Alberta was an early actor on climate change with our first Climate Change Strategy in the late 1990s. We brought forward enabling legislation in 2002 and mandatory greenhouse gas reporting in 2003. In 2007, we established carbon pricing and an emissions trading system focused on our industrial sectors.

About 55 percent of Alberta’s emissions come from about 113 industrial facilities. This is different from many other economies, where the source of greenhouse gases is on the consumption side. This creates unique public policy questions for Alberta. It’s why you see different environmental policy in Alberta than in Québec or British Columbia, where 76 percent of emissions come from tailpipes and homes—how you transport goods and how you live—rather than from industry.

Unlike other jurisdictions in Canada—80 percent of Canada’s grid is essentially green—Alberta’s grid is largely dominated by coal and natural gas. We have committed to phasing out coal by 2030, which will require investing about $10 billion CAD in our electricity grid.

A hallmark of Alberta’s climate change policy is recycling revenue back into technology and innovation and sending the right policy signals to incent and encourage behavioral and technological change. The policy framework we’ve put in place recognizes that we need to attract capital.

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Of course, no government wants to kill its economy, and our economy is dependent on the energy resources and systems we have in place. Our philosophy on climate action is that we need to be the best we can be with the energy systems we have today, at the same time as we invest in the next energy economy of tomorrow. It’s not an either/or; it’s both. That’s how we’ll achieve a smooth transition in our economy.

In addition to phasing out coal, our new climate change plan caps oil sands emissions at 100 megatons. Technology is going to be the pathway for oil and gas business in Alberta keep emissions under that cap as we figure out the next energy economy.

In 2016, we broadened our carbon pricing system beyond those 113 industrial facilities. We now have what I would call a hybrid system: both an industrial carbon price (currently $30 CAD per ton), and a tax at the gas pump and for home heating. Right now, carbon pricing covers about 90 percent of our economy. We’ve created two not-for-profit entities—Emissions Reductions Alberta (ERA) and Energy Efficiency Alberta—through which we recycle carbon levy dollars back into the economy.

ERA is an entity we use to pursue technology and innovation. Over the last few years, we’ve committed about half a billion dollars to about 145 projects. If we’re going to regulate large emitters, then from a political perspective, we have to be concerned about the long-term viability and competitiveness of our industry and economy as we transition.

Carbon pricing works toward the deployable end of the technology spectrum; emissions trading might encourage some risk capital. But ERA has the unique responsibility of working across the innovation chain. If we keep to the deployment end of the technology spectrum, we’re not going to bend that curve down for Alberta. It’s really important that we have some risk capital in the system. That’s where we’re trying to play, and we’ve sent a huge number of policy signals.

Importantly, we changed the way we regulate our large industries. In the past, it worked like this: Large emitters had to reduce their emissions by a percentage, and if they couldn’t, then they owed us something—an offset, credit, or payment into our technology fund. Recently, we’ve moved to a top-quartile benchmarking system across sectors. In our new system, if your performance is above the benchmark—if you are a top-quartile performer—you generate credits in our system, which you can then bank, trade, or use for expansion and growth. If you’re below the top-quartile performance, you owe us a compliance payment or an offset trade.

This system creates competition among our industrial sectors, and incents them to go after better technology and innovation. We’re trying to incent a race to the top, and we’re hoping that these policy pieces work well.

Christine Harada: California has been active in this area, but there is a lot we could be learning from the work you’ve done in Alberta, especially in regard to the industrial base.

Jim, you were an early voice leading the charge on renewables way back when. As you look back over the investments you’ve made, are there other areas that you feel should have gotten more attention early on?

Jim McDermott: We think of the carbon supply chain in three basic buckets: capture, convert, commercialize. I wish that there had been a lot more activity in the capture end of things. There are only four or five companies globally in this market.

As Marcius pointed out, carbon is the largest output produced by humans worldwide. Yet there are only four or five companies in the world focused on getting it back out of the atmosphere. When you look at the enormity of the problem, and all the engineering talent that exists in the world, and realize we’ve only got five shots on goal—that’s concerning.

Luckily, we’re seeing in real time that this space is accelerating dramatically. There’s exciting stuff going on now, but we would have benefitted if the U.S. government had seen carbon capture as an area fit for early-stage R&D a decade earlier. We need an aggressive push to drive down the cost per acquired ton, and that area has not been well researched or financed.

Christine Harada: Marcius, you’re in the business of leapfrogging technologies and disrupting the space. Tell us about some of the emerging technologies and capabilities you’ve come across in your work at XPRIZE. And if you were to do a second XPRIZE in the space, what would it be?

Marcius Extavour: XPRIZE is a not-for-profit organization based in Culver City. We run incentive prize competitions to encourage breakthrough innovation in areas that seem a bit stuck or where incentives don’t exist for the innovation community to jump on it. I run the Carbon XPRIZE, an open competition for $20 million in which companies have to demonstrate a working technology that takes emissions from a point source and convert it into another material.

Now, we are starting to scope another competition: a Carbon Removal Prize. That 40 gigatons of carbon floating around dissolved in our oceans and in our atmosphere—can we directly remove it? We hope to give a platform to people working on these technologies to demonstrate and dramatically accelerate them.

Innovation in the industrial sector is very hard. It’s not something you can do with four friends in a garage and then ship the product online. There are unique challenges to building a piece of equipment that might cost $50 billion and be constructed over several years, and then needs to be regulated.

Bob and the Alberta Climate Office have been the driving force behind the Alberta Carbon Conversion Technology Center in Calgary. It’s an industrial lab where small and medium-sized companies with industrial pilots can demonstrate their equipment so that they can get partnerships and investments to take it to scale. Testing centers like this one are building blocks we can use, perhaps in conjunction with incentive prizes like ours, to help accelerate industrial innovation. We hope to have our new prize in place within two years. 

Christine Harada: Having worked in both the public and private sectors, it’s striking to me how differently people in those two sectors think. When I was in government, for example, we thought long and hard about authorities and what we were authorized to do.

Bob, what would you like investors and others in the private sector to know about how the Alberta government thinks about the carbon-to-value space?

Bob Savage: I think it’s fair to say that governments tend to be a bit risk-averse, and we’re not very good at picking winners. We can play with the private sector—which is good at assessing and taking risks—through complementary policies to support their innovation and investment. We need to work hand-in-glove with the private sector, and understand where we can be beneficial and supportive to people who are putting their capital on the line.

Governments do have access to different types of capital that can sometimes be more patient and strategic. Governments also have the ability to pursue broader strategic or societal goals with their investments. For example, in Alberta, we are reinvesting in our grid as we phase out coal and move to renewables. At the same time, we are trying to get indigenous and remote communities that are not connected to the grid off of diesel. In our recent auctions for renewables, we attached a policy goal that required 25 percent indigenous ownership. This created an opportunity for northern indigenous communities, many of which were bypassed by the earlier energy economies or forced economies, to take ownership in utility-scale renewable projects. We can achieve broader societal goals and objectives as we invest in emissions reductions.

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© 2019 The Planning Report | David Abel, Publisher, ABL, Inc.