1. Misconception: CDR businesses are not viable today. Many of the returns-based venture investors I speak with cannot make the investment case for CDR companies today. But just because companies do not fit the venture capital investment profile doesn’t mean they can’t be viable businesses. In fact, many niche opportunities for CDR companies to generate revenues exist today. Direct Air Capture companies, for example, with their modular, easy-to-site nature, can provide a compelling value proposition in many of the liquid CO2 markets that currently can pay upwards of $100/t for delivered CO2. While today’s end-use CO2 demand of ~100 million tons per year pales in comparison to the 35 billion tons per year of CO2 emissions, these existing end-use markets can provide important opportunities to de-risk technology and stay solvent until carbon regulations and pricing mechanisms improve.
2. Misconception: The ability/need for CDR businesses to compete in multiple markets at once hinders CDR development. Many CDR companies cannot survive by selling a single, carbon-removing product alone. Instead, these companies have to sell additional co-products that are generated during their CDR production/manufacturing process. This inability to produce a focused offering can scare off many investors, but selling multiple products has a number of upsides, including offering a wider range of early customers and long-run revenue opportunities. Take Phoenix Energy, a biochar company in California that recently signed a deal to build a biomass gasification power plant near Lake Tahoe. Phoenix Energy plans to generate three revenue streams from this project by selling electricity, heat, and biochar. These additional revenue streams open up new markets for Phoenix energy, and offset the additional complexity in the sales and project development process.
Source: Phoenix Energy
3. Misconception: Bio-CCS and afforestation are the only viable CDR approaches that are economically scalable. The latest IPCC report on climate change notes that our society will likely need net negative emissions by the end of the century to avoid a 2 degree C warming. The report, however, relies overwhelmingly on bio-CCS and afforestation to achieve negative emissions in its scenarios that avoid this dangerous warming. It is likely, however, that a much larger range of companies have the potential to do CDR at scale. Timber, agriculture, energy, materials manufacturers, and natural resources companies all have the potential to incorporate CDR into their operations, and could provide a much more diversified portfolio of carbon negative solutions than is currently being proposed by the IPCC.
4. Misconception: CDR businesses will follow similar commercialization pathways as clean energy businesses have followed. CDR businesses can look very similar to clean energy businesses — especially bio-CCS companies. But companies across many other industries besides energy have CDR potential. These companies pursuing non-energy CDR approaches frequently require significantly different business models than clean energy businesses. As a result, policies and regulations supporting CDR businesses will have to reflect the wide range of industries in which these companies compete, and clean energy investors seeking to expand into the CDR field will have to familiarize themselves with a new set of industries and business models. That said, CDR businesses can learn many general lessons from how successful clean energy businesses have commercialized… only CDR should not be conflated entirely with clean energy when it comes to commercializing new approaches.
5. Misconception: CDR businesses need lots of (prohibitively expensive) capital to develop. In the short-term, a little funding will go a long way. While it is commonly feared that CDR will be prohibitively expensive at scale, CDR companies and researchers only require modest budgets to answer a handful of questions critical to the viability of CDR businesses. In many ways, the CDR field today is similar to the solar energy field in the 1970s. Solar panels in the 1970s likely were prohibitively expensive , but relatively small R&D budgets helped bring down the cost of solar substantially, enabling solar energy to become a viable portion of the energy portfolio.