An alliance of some of the world’s largest technology and consulting firms has pledged to purchase nearly $1 billion worth of permanent carbon removal between 2022 and 2030.
The project aims to establish guaranteed demand for emerging carbon removal technologies, which capture carbon dioxide from the atmosphere and store it underground.
The funds will be allocated by Frontier, a non-profit company owned by Stripe and funded by Stripe, Alphabet, Shopify, Meta and McKinsey. Other funders will include companies that use Stripe Climate – a service that allows companies to automatically direct a fraction of their revenue towards the development of carbon capture technologies.
Why is this important: The commitment of $925 million is a massive and unprecedented investment. For context, Stripe made headlines in 2019 when it pledged to buy $1 million worth of carbon offset credits per year, and the company and its partners have since allocated more than $15 million. dollars to carbon removal.
Frontier’s new commitment exceeds these previous investments by a factor of 61.
The challenge: A startup in any emerging industry may have a great idea for a new product or technology, but without a clear demand on the horizon, it’s risky for them to develop those ideas.
The main problem is that emerging technologies – whether solar panels, vaccines or carbon removal – are expensive. They must evolve to become cheaper. It takes money.
The solution: Frontier wants to solve this problem by creating demand overnight for carbon removal startups. With the promise of total funding of $925 million, eligible companies in the nascent carbon removal industry can confidently invest in their businesses knowing that buyers will come forward in the future to buy carbon. extracted carbon.
Advance market commitments: Frontier’s strategy is called an Advance Market Commitment (AMC). It is basically a binding agreement between a group of companies or nations to purchase a certain product at a certain price or within a certain price range. AMCs are typically used to correct market failures based on incentives in the private sector.
For example, in 2007, five countries and the Bill & Melinda Gates Foundation launched a $1.5 billion AMC to encourage the development of vaccines against pneumococcal disease, which is the world’s leading cause of pneumonia-related death.
The objective was to increase vaccination coverage in the poorest countries where companies had little incentive to invest. The biggest problem was not that biotech companies couldn’t develop effective vaccines, but rather that it didn’t make economic sense for them to expand the supply. Low-income countries simply did not have the purchasing power.
By injecting committed capital into the market, the CMA has helped to fill the void. According to a 2020 report, “best estimates suggest that the introduction of [the pneumococcal vaccine] saved 700,000 lives at a very advantageous cost.
AMC and carbon removal: The 2007 pneumococcal vaccination initiative inspired Frontier’s AMC. Of course, vaccines and carbon removal are different markets. But Frontier notes that “they face similar challenges: uncertainty about long-term demand and unproven technologies. AMCs have the power to send a strong and immediate signal of demand without picking winning technologies in the first place. »
Not preselecting winners is the key to the strategy. After all, carbon removal is a young industry and there are many methods of extracting carbon from the atmosphere and oceans. Some companies capture carbon through lines of kelp that eventually sink to the ocean floor; some convert carbon dioxide into concrete alternatives; and others use geothermal energy and waste heat to capture and concentrate carbon, to name a few methods.
One of these methods may be more effective than another. But by pumping money into the ecosystem and allowing a wide range of businesses to grow, new methods could emerge and existing methods could become more efficient over time.
This is one of the reasons Frontier funds both early-stage and late-stage carbon capture companies. For eligible start-ups, Frontier will provide funds up-front. But for more established companies, Frontier plans to offer “offtake agreements” – contracts under which Frontier will buy X amount of carbon removed Yes price, when and if that carbon is delivered.
Frontier sees its $925 million commitment as a first step in getting the fledgling carbon removal industry off the ground.
“While carbon removal has made significant progress over the past few years, it is still not on track to achieve the required scale at all,” Frontier wrote on its website. “By 2021, less than 10,000 tonnes of carbon dioxide had been permanently removed from the atmosphere by new technologies, which is 1 million times less than the annual scale needed.
“Carbon elimination needs bold help. An AMC can give industry the confidence to start building, and to do it with urgency.”
We would love to hear from you! If you have a comment about this article or have a tip for a future Freethink story, please email us at [email protected].