Climate Finance | April 3, 2019

How negative can carbontech entrepreneurs go?

David Bank
ImpactAlpha Editor

David Bank

ImpactAlpha, April 3 — The goal of carbon-neutrality is passé, if as yet unrealized. With climate change hard upon us, startups are aiming to scale techniques to suck billions, or hundreds of billions, of tons of carbon out of the atmosphere.

If carbon-negative technology is nascent, so are the markets and business models. But as cost curves decline and climate urgency rises, investors can glimpse the contours of what could be a very big market for capturing carbon and turning it into useful products. 

“We are cheaper than fossil-fuel approaches with today’s costs and we are going lower,” Opus12’s Nicholas Flanders said at last week’s gathering of carbontech entrepreneurs at Impact.Tech in San Francisco.

Opus12, based in Berkeley, Calif., has raised $20 million in grants and investments to commercialize what it calls “industrial photosynthesis.” The process of water electrolysis can turn carbon (plus water and electricity) produce ethylene, methanol and synthetic gas, which in turn can make diesel, jet fuel, gasoline and plastics. The cost of such electrolysis has fallen ten-fold in the past few years and is still dropping. Each suitcase-sized reactor can convert as much carbon dioxide as 37,000 trees, Flanders says.

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The nonprofit Carbon180 in Oakland, Calif., is recruiting 20 carbon waste-to-value startups for its first Carbontech Labs accelerator this summer (the application is here). Carbon180 estimates the total market for products that can be supplied by carbontech to be more than $1 trillion in the U.S. and nearly $6 trillion worldwide. 

A 2019 report from the National Academy of Sciences concludes that to meet climate goals, negative-emissions technologies will need to remove 10 gigatons of carbon a year by 2050 and 20 gigatons by the end of the century.

Five companies have reached the finals of the NRG Cosia Carbon XPRIZE, which is dangling $20 million in prizes for technologies to convert carbon dioxide emissions from power plants and factories into everyday products like building materials and alternative fuels.

There’s a catch. The biggest buyer of industrial carbon dioxide is the oil industry itself, which pumps the gas into the ground to force more oil to the surface. Carbontech startups must weigh the consequences of supplying an industry that generates much of the very carbon they are seeking to reduce. And the electricity needed for water electrolysis carries its own carbon footprint.

The economics of carbon capture are starting to come into focus. The cost of capturing carbon from the smokestack of a power plant or factory can be as low as $30 per ton. Direct air capture techniques (one such company is Zurich-based Climeworks) can deliver a ton of carbon for between $100 to $400. Those costs are in range with emerging policy incentives, such as the new U.S. “45Q” production tax credit of between $35 and $50 a ton, and California’s low-carbon fuel standard credits that are currently worth about $180 a ton.

Could a tax credit turbocharge carbon-tech?

“The thesis is that society will pay for climate action because we value it”  said Gustaf Alstromer of Y Combinator, the startup incubator, which last year issued a call for carbon-removal startups.

But James Hardiman, a partner at the venture capital firm Data Collective says a carbon-removal startup pitch that leads with climate change is a red herring.  “It has to be better, faster or cheaper, or help a company deal with regulatory challenges,” he said at the Impact.Tech gathering. 

Heeding that advices, carbontech startups are touting co-benefits. Carbo Culture, based in Los Altos, Calif., turns organic materials, such as walnut and almond shells, into charcoal-like biochar, which improves soil by holding onto water and nutrients. Each ton of biochar sequesters three tons of carbon, says Carbo Culture’s Christopher Carstens. Novonutrients, based in Sunnyvale, is using biotech to turn untreated industrial emissions of CO2 into protein, initially as fish feed for aquaculture operations.

Ocean-Based Climate Solutions is testing “the Oxygenator” that uses wave energy to bring nutrient-rich seawater up from the depths to promote the growth of phytoplankton and then send organic carbon even deeper into the ocean, where the company says it can remain for decades.