Impact Investing | April 12, 2022

Stripe leads a $925 million ‘advance market commitment’ for carbon removal

Amy Cortese
ImpactAlpha Editor

Amy Cortese

ImpactAlpha, April 13If you buy it, they will come.

That was how Stanford University’s Alicia Seiger summed up a new initiative by Stripe and other tech companies to spend close to $1 billion on permanent carbon removal by 2030. The collaboration, called Frontier, is intended to speed up the commercialization and declining cost curves for carbon removal solutions, which the latest Intergovernmental Panel on Climate Change warned will be necessary to keep warming in check.

Advanced market commitments, or AMCs, as Frontier calls the commitments, are “a way to guarantee a market for a product, even before it exists.” Impact investors might know them by a different name: catalytic capital.

“With Frontier, we want to send a loud demand signal to entrepreneurs, researchers, and investors that there is a market for permanent carbon removal: build and we will buy,” said Stripe’s Nan Ransohoff.

Makers and offtakers

Advance purchase commitments, also called offtake agreements, have been used by companies to create markets for critical but early stage offerings. Hertz pre-purchased 100,000 Tesla Model 3s. Breakthrough Energy Catalyst is making early commitments to sustainable aviation fuel, green steel and other key climate tech. Brazil’s Natura is using its purchasing power to jumpstart a market for sustainable forest-based products in the Amazon.

Frontier is scaling the practice by pooling funds from companies including Alphabet, Shopify, Meta and McKinsey, streamlining the process and making bigger advance buys. Permanent carbon removal solutions will be vetted via an RFP process. 

Removal boom

Carbon removal tech will be necessary to keep warming in check, according to the latest report from the Intergovernmental Panel on Climate Change.

Unlike forests, oceans, soil and other natural carbon sinks, carbon removal tech is expensive. Stripe has paid up to $775 per metric ton of CO2 removed by the Swiss company Climeworks, which last week raised a fresh $650 million.

Six gigatons of carbon will need to be removed each year by 2050, roughly the equivalent of the U.S.’s annual emissions. Fewer than 10,000 tons of carbon have been permanently removed to date.