Pod Insights a16z Podcast The Economics of Carbon Removal with Nan Ransohoff About this episode What happens when there’s demand for a solution that doesn’t quite exist yet?
Today, we bring on Nan Ransohoff to talk about this exact problem as it relates to carbon removal, and how Frontier — the initiative out of Stripe that she is leading – is using a nearly $1B advance market commitment to try to jumpstart this market.
If you don’t know what that means, don’t worry – we’ve got you covered.
Throughout the episode, we discuss the multivariate carbon equation and why emission reductions are not enough, the difference between offsets and permanent removal, who’s paying for tons today, what solutions already exist and how Frontier is vetting them, moving down the cost curve, where policy fits in, and ultimately what success might look like in this nascent industry.
This is part 1 of our 3-part series on carbon removal. Look out next week for part 2 and part 3, where we dive into a growing marketplace for carbon and showcase several carbon removal solutions.
Transcript 11,382 words · 3 speakers
Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.
0:00 Steph Smith? This field is so early, we don't want to pick a horse yet.
0:06 Steph Smith? What happens when there's demand for a solution that doesn't quite exist yet? Today, we bring in Nan Ransohoff to talk about this exact problem as it relates to carbon removal and how Frontier, the initiative that she's leading out of Stripe, is using a nearly $1 billion advanced market commitment fund to try to jumpstart this market. Now, if you don't know what any of that means, don't worry, we have you covered. Throughout this episode, we discuss the multivariate carbon equation and why carbon removal is becoming an increasingly important part of that. We also discuss the difference between offsets and permanent removal, what solutions exist today and how Frontier is vetting them, how we might move down the cost curve, who's paying for these tons today, where policy fits in, and ultimately, what success might look like in this very nascent industry.
0:50 Steph Smith? This is also just part one of our three-part series on carbon removal. In part two, we dive into a growing marketplace for carbon, and in part three, we showcase several carbon removal solutions with the founders that are building them. Enjoy!
1:04 Speaker 01 The content here is for informational purposes only, should not be taken as legal, business, tax, or investment advice, or be used to evaluate any investment or security, and is not directed at any investors or potential investors in any A16Z fund. For more details, please see A16Z.com/disclosures.
1:32 Steph Smith? All right, today we have a very exciting guest and topic. We have Nan Rantahoff from Stripe, who's also running their Frontier program. And if you're wondering what Frontier is, we're going to get into that. But it covers a topic that a lot of people are becoming increasingly interested in, and that is carbon removal. And before we jump into carbon removal specifically, I think it'll be important for us to understand what we're going to call the carbon equation, right? So what goes in, what goes out? How those balance one another and how collectively we address the carbon problem that we're facing as a world. So with that said, Nan, I'd love to jump into this idea of the carbon equation.
2:15 Steph Smith? But before we do that, I think it'll be important to understand how much carbon dioxide is in the atmosphere today and how that is different from what we've seen in the past. So what are we seeing in terms of those parts per million or just how much carbon is in the atmosphere?
2:32 Speaker 02 Today, there are roughly 416 parts per million of CO2 as of 2021. For context, back in 1900, this was around 290 parts per million. So that is 43% increase in the amount of CO2 in the atmosphere in the last 120 years. This is the highest level that we've seen in at least three to five-ish million years. It's pretty substantial and the vast majority of this is driven by humans pumping fossil fuels from the ground into the atmosphere.
3:03 Steph Smith? Yeah, so this has been very closely charted for a very long time. And the other important aspect of this is that it doesn't seem to be reversing, correct? How are we seeing that number go up every single year as we aren't collectively changing our actions?
3:21 Speaker 02 The source of these emissions is effectively from humans using energy. And humans have been using more and more energy as we've grown in population and as the quality of living has increased. That has traditionally been associated with more fossil fuel usage to drive cars, to power air conditioning, to build things, to get around. These all require energy. And the primary sources of energy to date have been dead plants and dead animals that we have found underground and brought those to the surface and used it to create energy for humans. The crux of decarbonization and the work that we have to do is figure out how can we still enable economic growth for humans and other living things without?
4:06 Speaker 02 Harmful climate and environmental impacts. And there has been a lot of increasing evidence that this really is possible to do. But that is the work of decarbonization, increasing growth without harming the climate.
4:20 Steph Smith? I love that you mentioned that because for a while, as people were trying to address the climate issue, the response typically was, okay, we need to pare back our emissions, which I think is part of this overall equation that we're talking about. But I think maybe that narrative has shifted to it's going to be really hard for us to effectively pare back emissions with so many global players, so many people acting in their own interests. And so what are the other inputs to that equation? And you wrote a really good article called "A Mental Model for Combating Climate Change", which really broke down that multivariate equation. And I think one of the reasons that this topic in particular sometimes overwhelms people is because I hear about all of these things that are contributing to the equation and
5:02 Steph Smith? how we might reverse it, whether it be renewable energy, or individuals carrying back their consumption, or the grid, or now we're talking about carbon removal. But how do you go about thinking about that? How would you break that down to help people maybe understand, as you say in your article, the forest from the trees?
5:19 Speaker 02 It is complicated. And I think the thing that is true about climate is it's our entire global infrastructure. So you have to grapple with the whole thing. But to your point, I think it's hard to digest the details if you don't have a framework to hang those details on. So the way that I think about it is roughly, the world emits about 50 billion tons of CO2 equivalents every single year. And in order to stay within reasonable warming targets, we need to get that number to net zero by 2050. And the reason that we say net is because there are some parts of the equation that are going to be really hard to decarbonize. So if we're emitting 5 billion tons by 2050, we also need to be taking out 5 billion tons
6:02 Speaker 02 as well, so that the plus 5 minus 5 equals 0. And there are two main things that we can do to do this. The first is we can stop emitting in the first place. This is the priority and should be roughly 90% of our collective efforts. The other thing that we can do is take CO2 that we've already put into the atmosphere, already put into the ocean. Take it out and store it permanently. Both of these things, you can further break down into supply and demand. There are the things that, on the emissions reduction side, that consume energy. And then there's where does that energy come from? So we can talk about that in detail, but these are things like making sure that all of our appliances and vehicles can digest renewable energy.
6:46 Speaker 02 And that functionally means making them electric. So we need to make those appliances electric. We need to then power those appliances with renewable sources of energy. So switching from things like natural gas and oil to solar and wind and nuclear. And then we need to attach those two things by updating our grid infrastructure. We're going to have a lot more demand and we're going to have supply that is intermittent. The sun is not always shining. The wind is not always blowing. So we have to figure out how to attach those two things in a way that works for this new world. And then that's going to mean a big rewrite. There's plenty of other things like food is another source of energy. And how do we decarbonize heavy industry? How do we make our stuff like steel and cement? Those are big components of it, too.
7:30 Speaker 02 On the carbon removal side, we can also think about this as supply and demand. Supply are the companies that are removing CO2 from the air or the ocean. And demand is the customers that are buying that CO2, that are essentially paying those companies to take CO2 out of the atmosphere and ocean. And we can get into the problems of why this has been so tricky, but functionally at a very high level, we want to get from 50 gigatons of emissions to net zero by 2050. We need to reduce emissions. We need to remove a bunch of CO2 from the atmosphere and we need to do all of that very quickly.
8:03 Steph Smith? Yeah, and so there are two parts of it. Like you're saying, there is the reduction in emissions, but then there is also this need for carbon removal. And something you mentioned in the article is that actually already today, we have too much CO2 in the atmosphere. So even if we do get to that net zero, this removal part of the equation is really important. Something that people may be familiar with are carbon offsets. Is that the same thing as carbon removal as we're going to talk about it in this conversation? Or can you highlight what maybe some of those differences might be?
8:35 Speaker 02 Offsets have become a very loaded term. And when people use that word, I think they often mean different things. So offsets can be used to refer to both the emissions reduction side of the equation. Or the carbon removal side of equation, or the sort of counterfactual side of the equation of, I'm paying for something such that I want to be sure that it doesn't happen in the future, this sort of counterfactual piece. The problem with offsets is that the range of quality is very broad, and we have trained ourselves to think that we can solve climate change at $2 a ton or $10 a ton. And if that were true, we would have done it by now. We aren't going to do that at this point in time. And so what we're really focused on,
9:20 Speaker 02 I suppose you could say is like a very specific subset of offsets as canonically defined. But we are really focused on permanently removing carbon dioxide from the atmosphere and the ocean and storing it for at least 1,000 years. So that is how we have scoped our area of focus. And this is really intended to be, again, a complement to the emissions reduction side of the equation, which, again, has to be 90% of that. But in order to remove CO2 already in the atmosphere and in order to help offset some of the really hard to decarbonize sectors like cement and steel, which we may be able to fully decarbonize that. But as a hedge, we want to make sure that carbon dioxide removal
10:04 Speaker 02 is another built out tool in our toolkit.
10:06 Steph Smith? I like the term "tool" in your toolkit because, as we've talked about so far, there are so many contributing factors to this equation, and this is just one of them. But Frontier, in particular, has given this definition of specifically removing carbon from the atmosphere for at least 1,000 years. And I think that's clarifying, right? Because I know certain offsets have gotten some flack because the math's not adding up, or maybe there's not enough trees in the world to add up to the offsets that people are, in theory, delivering. But I think what you've outlined so far is a really clear framework or definition for what specifically Frontier is looking to do. And so let's jump into that. I know it's a broad question, but what is Frontier?
10:44 Speaker 02 Frontier is an advanced market commitment to buy an initial $925 million worth of carbon removal over the next nine years. And the need for Frontier is really grounded in what you just said. Roughly, the IPCC says that we're going to need about 6 billion tons of CDR by 2050. And we have some of the solutions that we need to get there today. But it's very unlikely that planting trees and soil carbon sequestration by themselves are going to scale to that 6 billion per year number, right? 6 billion tons is about what the entire United States emits every single year. It's just a very large number. And we need to develop a portfolio and we basically don't have that yet.
11:29 Speaker 02 The reason that we don't have that is because historically, first of all, we didn't really realize we are going to need as much CDR as we now do. And this became very clear in the 2018 IPCC report that in addition to emissions reduction, we're also going to need to do a huge amount of carbon removal. The solutions that exist today on the supply side are basically non-existent and the solutions that do exist are very expensive. And that is in large part because there haven't been customers for carbon removal. Unlike with energy, humans derive value from energy, right? We can use it to do stuff, to build stuff, to make stuff. With carbon removal, when you're pulling CO2 out of the air and storing it somewhere permanently, you're like intrinsically not using it.
12:12 Speaker 02 And so there hasn't been a natural market for CDR. And as a result, if you're an entrepreneur, why would you want to start a company if nobody is going to buy the product that you're selling? If you were an investor, why would you want to invest in a company if that company isn't going to have a revenue stream? And so what we are trying to really solve via Frontier is this chicken and egg problem of how can we create a compelling enough market to pull entrepreneurs into this space? And to pull investors into this space? Such that we can start to build this really exciting portfolio of solutions that we're going to try a bunch of stuff, some of it's going to work, some of it's not, but that collectively has a chance of getting us
12:54 Speaker 02 to that 5 to 6 billion tons per year number by 2050. That's the idea.
13:00 Steph Smith? And it's a fascinating concept to pursue it specifically as an advanced market commitment fund. So we want to dive into that for sure, but I have to ask you, you brought up this really important question around supply and demand. So we have these companies that are now working towards these carbon removal technologies. And in the past, they haven't had a customer. Now there is somewhat of a customer through Frontier and there are several companies, I think, that are contributing to this fund, including Stripe, I think Meta, McKinsey. Why are these companies choosing to invest? What do they get? Because I assume they don't get any equity within these companies and they're not getting a monetary return. And let me know if I'm wrong about that, but what is the incentive at play for the supply side to show up?
13:45 Speaker 02 You highlight a really important distinction, which is, think of the $925 million in Frontier as customer funds, right? We are the customer for carbon removal companies. We are not making an equity investment in them. We are putting money in and we are getting tons out. And Frontier was co-founded with Stripe, but also Alphabet and Shopify, Meta and McKinsey. And all of these companies have their own net zero programs. Governments and companies are lining around net zero. And the fundamental principles of net zero are, one, measure your emissions, two, reduce them as much as you possibly can, and three, deal with the rest. And the deal with the rest is a little squishy right now. Everyone's trying to figure out like, what does that even mean? What do we do with this? And the problem is, as we've talked about, there's really no
14:29 Speaker 02 supply. So the motivation for a company is really to make sure, in part, that both we as companies, but also the world, has the set of solutions that we need to meet our collective net zero targets. So these are an important part of our corporate programs. They're an important part of government net zero programs. And without early buyers who are willing to buy at inefficient prices and are willing to buy at a premium right now, we aren't going to have the solutions that we need in five, 10, 20 years to meet those goals. So it's in part in line with our existing corporate programs and it's in part a little philanthropic in nature in that we are overpaying for these tons so that there's cheaper tons available later to a larger set of
15:13 Speaker 02 the market that also has net zero commitments.
15:16 Steph Smith? And is the hope that not only we will reduce the cost of this carbon removal, but that there is some sort of policy in place? Because something that I'm curious about is you have half of Fang in this initial cohort, who is willing to kind of front load this investment. But there aren't that many companies that have the funding or really the margins to deploy into this net zero approach. And so what I'm wondering is whether that will actually be mandated or regulated into the market? Or if the hope is that you see many other smaller companies step up and do it through that philanthropic lens? Do you have any thoughts on how this market actually evolves past this initial investment?
16:00 Speaker 02 I view the voluntary market. So we would think about Frontier as voluntary, right? These are companies volunteering and saying, hey, we want to help drive this ourselves. I think of the voluntary market as a great way to get us to first base. But to your point, it's not going to get us all of the way there. If we contextualize this in what the market is going to need to be by 2050, right? If we're talking about five billion tons per year at $100 a ton, or even let's say, best case, we can get this down to $10 a ton. That is $50 billion to $500 billion per year. Frontier is $1 billion over nine years. So there's a huge gap between where we are now and where we need to get to.
16:41 Speaker 02 At the same time, Frontier is both a big step and a small step, depending on the lens that you look at it. Because prior to this, $30 million cumulative had been spent buying permanent CDR. So compared to that, $1 billion is a massive step. But compared to $50 to $500 billion per year, we still have a long way to go. And to your point, it's very hard to imagine voluntary markets getting us really anywhere close to that. And that's global GDP is like $100 trillion. It's just that we're talking very large numbers at this point. And so Policy is really going to have to play an important role here, and that could be in the form of direct government procurement. It could also be in the form of the government creating a compliance market,
17:26 Speaker 02 effectively by pricing the negative externality of a ton of CO2 and then pushing that on to private companies and emitters. I think there are like a number of different mechanisms for doing that, but you are very right to call out that voluntary markets and altruism alone are not going to get us to the volume that we need. And that's almost systematically true with something as big as climate.
17:48 Steph Smith? Yeah, I'm very much a fan of philanthropy and the idea that people would contribute to the market just out of empathy or the goodness of their heart. But we've seen that historically not always be a driver, especially to the size of a problem like climate change. Since we're on the topic of government and policy, the Inflation Reduction Act has recently gone through government. And I just wanted to ask you about this in particular as this relates to carbon removal or the carbon equation. Does this fundamentally impact the things that Frontier is working on or carbon removal solutions in particular? And if so, how is that changing this market?
18:24 Speaker 02 So the IRA is a largely fantastic piece of legislation, and it, for the most part, focuses on the emissions reduction side of the equation. And that's great. I think that is and should be the focus right now. So there's tons of good stuff to unpack there. On the carbon removal side, the most important thing was changing some of the numbers around 45Q, which is a tax credit that goes to carbon removal. And effectively, what the IRA did was increase the price of the tax credit associated with permanent carbon removal, specifically direct air capture, and lower the threshold for companies that are eligible for that. They also added something like direct pay. So they basically sweetened the 45Q pot for carbon removal companies. That is great, the challenge and one of the things that we are focused on in the
19:09 Speaker 02 next coming years. So the way that 45Q is written right now, and not to get too wonky into tax credits, but it's basically written in a way that is only accessible by a really small subset of companies. So it's written for companies doing more traditional direct air capture. But if you are doing kelp sinking, or enhanced rock weathering, or bio oil injection, you can't get access to 45Q. Or even if you're doing injection and mineralizing it underground versus just injecting a CO2 stream, those kinds of solutions are not eligible for 45Q. So a big area of focus for carbon removal policy for us is how do we make sure that, one, we get the right macro policies in place to support a healthy ecosystem that will grow
19:51 Speaker 02 over time. And two, how do we make sure that those pieces of legislation and that these benefits are accessible to a really broad set of carbon removal companies? This field is so early, we don't want to pick a horse yet. We just outline the criteria of what it is we want to see. What does great carbon removal look like? It's permanent, it has a path to low cost, it considers environmental justice and other safety implications. But we want to make sure that we're not saying, oh, it has to be DAC, or it has to be enhanced rock weathering, or it has to be kelp sinking. How do we invite lots of solutions to the table, and then double down on the ones that are working as they scale up? Right now, policy accidentally picks a horse, not because it ever intended to, but because we rode it
20:34 Speaker 02 before a lot of these other potential pathways even existed. So we need to figure out how to thread the needle there.
20:40 Steph Smith? That's fascinating, because I did not realize that policy in particular highlighted one solution, which sounds like it's direct air capture. Is that just because, you said it seems to be somewhat of a timing thing, but it is also because the measurement or the verification exists for that particular technology and not the others? Or is it strictly just like a first horse to the race?
20:59 Speaker 02 I don't know the full genesis of 45Q, but I imagine it's a compilation of a number of different things.
21:07 Steph Smith? I'm glad you brought up these different solutions, because it is fascinating to Consider that we're so early to the market that we truly aren't sure what types of solutions will be the winning horses in this race. Hopefully, there will be several. But it sounds like, right now, it isn't clear and there isn't one candidate that we can count on to scale up to the need that you mentioned before. So, something that would be helpful is to understand the suite of solutions that we're seeing out there, and I know you alluded to them already, but maybe also if you could speak to where some of the gaps are. Are certain ones really low cost but not scalable? Are other ones running into certain challenges that are really important for us to unlock? Could you just speak to maybe the market that we at least have today?
21:51 Speaker 02 We could spend four hours on this topic. So, I think that on the supply side, as you mentioned, we need a portfolio of solutions. And I'll run through some of the ones that we're seeing right now, and as you said, highlight some of the gaps. So, a lot of people are probably familiar with direct air capture. Climeworks is very photogenic. You've probably seen pictures of their, they look like giant fans, they sexi out into these boxes, they find the 412 parts per million of CO2, they condense that, and then they mix it with water to make fizzy water and inject it underground into basalt rock in Iceland where it will mineralize. That's an example of a direct air capture company. We also have Charm Industrial, which is taking waste biomass like corn stover, and they're pyrolyzing it, which basically just means heating it up and turning it into
22:35 Speaker 02 oil and then injecting that underground where it will then stay for thousands of years. We have companies like Running Tide that are kelp sinking. So, they essentially have 100-foot strings of rope. They seed that rope with kelp spores. They drop it into the ocean, it grows over six to nine months, and when it becomes mature, it sinks to the bottom of the ocean because kelp is negatively buoyant and it will stay there forever. There's another company called Undo that is essentially, so rocks are a way that nature Captures CO2 naturally, it just does it really slowly. So there's a number of companies that are trying to figure out, how do we speed that up? Undo crushes up rock, the salt or olive bean, spreads that over land. It absorbs CO2 and then eventually makes its way into the ocean as bicarbonate.
23:19 Speaker 02 And these are just to give you a flavor of the kinds of different approaches that we are seeing. There are lots of gaps and recently Frontier issued our fall RFP and we highlighted some of these gaps. I think one area that we are particularly excited about is synthetic biology. So nature does carbon removal for free, right? Plants do it with photosynthesis, rocks do it. And the nice thing about nature as well is that it self replicates. Machines don't self replicate for free, nature does. The challenge with nature is that many solutions aren't permanent. And many solutions take up really valuable arable land that we are likely going to need to use for other things.
24:00 Speaker 02 So a company like Running Tide is interesting because it combines or attempts to combine the best of what nature does and mitigate some of the downsides. It is storing carbon on the proverbial desert floor of the ocean and is making it permanent by getting it below the thermocline. And so there are a lot of different possible solutions in this space I think that we haven't yet seen. In our last round of purchases, we gave a little bit of R and D money to a company called Living Carbon that has a core business that's focused on trees, but they're also interested in how they can engineer recalcitrant biopolymers. So they're basically trying to figure out if they can get algae to create sporopollenin, which is a rather inert form of biomass.
24:45 Speaker 02 And if they can do that at scale, that potentially unlocks a promising quote unquote nature based solution that's permanent and doesn't take up a lot of arable land. So we could talk about this for hours, but that's at least the flavor of the kind of thing that we're excited to see more of.
25:00 Steph Smith? Thank you for going through those. And for people listening, we will be going into several of these solutions in a little more depth with some of these founders. How on earth does Frontier vet these solutions? Because it sounds like they're very early and there's such a broad range of solutions. It's not like someone can walk in and say, hey, we have this many customers and this ARR and this churn and all of these metrics that people who invest in SaaS, as an example, are very familiar with and can parse very easily, or at least compare to other companies. How does Frontier go about selecting these companies? And what are you paying attention to here? Because it sounds like some of these companies may even be pre-solution, right? They have an idea for a solution. They're not actually taking the carbon out yet.
25:45 Steph Smith? So can you speak a little more to how you actually orient this fund and decide where the money goes?
25:51 Speaker 02 It is a great question. It's a challenge and we are reiterating on this. So a little bit of context here. Frontier was an outgrowth of what initially started as a small Stripe commitment for a million dollars of carbon removal back in 2019. So we did a round for ourselves. We then launched Stripe Climate, which makes it easy for any business to put their money into carbon removal, which we then collate together and use it to buy even more carbon removal down the cost curve. So we've done two rounds of purchases with our money and via Stripe Climate. And then we had this most recent round. So we've done this four times. We've evaluated four cohorts of companies. And our general process here is, one, to get really crisp on the criteria of what it is we're looking for.
26:34 Speaker 02 And we have kind of three buckets of things that we look for. The first is, does it meet our criteria? Or do we think that it has the chance of meeting our criteria, right? That we've laid out, this is 1,000 years of permanence. Does it have a path to being less than $100 a ton? Does it have a path to being more than half a gig a ton per year at scale? And does it make use of storage that's not using a lot of arable land? That's the bucket one. The second is, do we think that the team has the ability to execute on the proposal? And three, how does this fit into our larger portfolio? We want to build at Frontier a risk-adjusted portfolio of solutions that we think collectively has the best chance of getting to scale. In order to evaluate that, we have written a pretty lengthy application for projects
27:19 Speaker 02 and we rely on a set of internal experts and external experts to help us evaluate those. The tricky thing in evaluating these companies is for one company, you need a biochemist and the other, another one, you need a geologist and for somebody else, you need a lot of different kinds of expertise. So we have an in-house team of science experts, but we also have a pretty extensive roster of wonderful scientific and technical and commercial experts and governance experts that help us evaluate these applications. For every application that we get, we give it to at least a couple of these reviewers. We then take it back, synthesize all of it and make calls. But I think to your point, we're learning a lot every single round that we do this and
28:01 Speaker 02 we are continuing to edit our process to best reflect those. The one other thing I'll call out is we have two separate tracks with Frontier to get at the stage question that you raised. So for really early-stage companies that are just getting started, we have a pre-purchase track and these are $500,000 checks that we give to the company before they've given us the tons. So it's like an advance purchase, so to speak. And if they don't deliver, we don't have any recourse and that's okay because they are relatively small numbers, but we are willing to take a fair amount of risk at this stage because of the volume and because we think that there is some nugget of something really interesting that we want the company to really dig into and explore. For later-stage companies, we are offering offtake agreements and this is
28:46 Speaker 02 effectively an agreement for a larger amount that a company could take to a bank and use it to help them get financing. And for these companies, we are looking for more mature solution development, right? This isn't their first tons. They've had some success actually delivering tons in the past and we don't pay them until they deliver us the tons. So it's de-risked for us from that perspective, but it's helpful for the company because banks care a lot about if anybody's going to buy the thing that they're financing. So there's two tracks and we have a more thorough diligence process, as you can imagine, for offtakes or just actually in the process of doing that for the first time. We kicked that off actually a couple of weeks ago, along with this round of purchases. So stay tuned there, but we'll try to tailor the diligence process to the stage of the company.
29:29 Steph Smith? I'm glad you covered that because it does clarify almost like different stages that are emerging in this carbon market. On the latter example, where you are paying for a certain number of tons to be removed, how are you determining that price? It sounds like it's being determined by the efficacy or the price that the company can achieve, right, through their solutions. But I want to understand a little bit more about that market because I know we're early stages, but if we imagine some efficient market of the future, who is setting those price points? And are you with these companies saying, hey, we'll pay for this amount of tons at this price, but we hope that you can get it to this before we're willing to put more money in? Or can you just speak a little bit more to how you see this price market evolving?
30:14 Steph Smith? And if it can become an efficient market in the future?
30:17 Speaker 02 If you imagine a bunch of cost curves for different kinds of carbon removal solutions, they have different intercepts, starting intercepts, and they have different slopes. So some of them are really expensive at the beginning, but they drop really quickly. Some of them are pretty cheap at the beginning, but they have slightly gentler curves because there aren't maybe as many economies of scale or the learning curves aren't as steep. So they're all over the map. And I would say that we are closer to the left side of the chart than the right. We're just getting started. So you are right to call out that, especially in these early days, the price setting for the off-takes, it's not an, it's like more judgment based than that. And we are effectively going to work with a company to really dig in and understand their costs today,
31:00 Speaker 02 understand what their costs look like in the future. What are the key assumptions driving those? And trying to figure out how would an off-take from us accelerate them down that cost curve? And so it's like we're backwards evaluating and forward evaluating on the prices. We're very far. I get worried when people start to talk about carbon removal as a commodity. You can't commoditize something that barely exists. Like, we can't be treating these all as having the same price because they don't today. But that doesn't mean just because they're expensive today, they couldn't be cheap in the future. And so what we're trying to balance, and it is a hard balance, and we will get it right, I hope, most of the time, and get it wrong sometimes, is how do we help support the solutions that we think have the best possible chance of?
31:45 Speaker 02 Achieving our criteria in the future rather than evaluating them on exactly where they are today.
31:50 Steph Smith? Can you speak a little bit more to that specific price point? So it sounds like it ranges, but what is that range that we're seeing today? And then you mentioned that maybe best case in the future, we'll hit $10 a ton. How far away are we from that?
32:05 Speaker 02 Today, we have purchased via our strike climate portfolio and frontier up to $2,000 a ton and as cheap as $75 a ton. I would say our weighted average is probably somewhere in the maybe three to $700 a ton range. In the future, everybody says $100 a ton. I think it's a little thinker in the air. Directionally, we know we want it to be a lot cheaper. I don't know whether it's going to be $200 or $50, but roughly in that direction. At the volumes that we're talking at 5 billion tons per year, getting it from $100 to $50 or $100 to $90 makes a big difference. So we want to push it down as much as we can without compromising on quality. And I don't think we know yet exactly where it's going to land.
32:50 Speaker 02 And that's okay. We just know that it needs to be a whole lot cheaper than it is today.
32:54 Steph Smith? Yeah, and we've seen technology go down exponentially in price and efficiency. So we'll hope that this applies the same way here. But you mentioned the idea of carbon removal eventually becoming a commodity and we're not there yet. But one aspect of a commodity is having, as we talked about before, an efficient market. But as part of that efficient market, you have very clear measurement, very clear reporting. In this case, very clear verification that people are doing what they're saying they're doing, they're taking the carbon out at the level that they're reporting on. So can you speak a little bit more to how you're going about that process? How are you working with these companies to ensure that they're reporting the right metrics, that they're verifying them?
33:37 Steph Smith? And then, as we talked about before, I'm sure it's so different across every company because some of them are working with kelp, some of them are working with direct air capture, some of them are working with getting the carbon dioxide into rocks. Like, how do you actually verify all of these processes effectively?
33:52 Speaker 02 You have highlighted a very large existing challenge for carbon removal. It's hard for the reasons that you mentioned, right? One, there's so much diversity in the kinds of carbon removal solutions. How you do MRV for Bio oil sequestration is very different than kelp sinking, and that's very different than direct air capture. There's just a lot of heterogeneity in process. The second reason it's hard is because a lot of these companies are basically just getting started. They are bench scale or just post bench scale and trying to prove out the core technology. And the third reason, I suppose, is that unlike other parts of climate where we are transitioning existing infrastructure or in an existing industry, carbon removal is a new industry.
34:36 Speaker 02 And so a lot of the surrounding ecosystem infrastructure isn't yet set up. And Charm, for example, delivered their first tons for us last year, and we FaceTimed with the injection well to validate. It was just, this obviously doesn't scale. And that's okay at really small scales. This is a couple hundred tons. But just to give you a sense of how early we are, they've since come out with a really well-developed protocol for their own MRV. But just want to give you a sense of like where we're starting from. There's a long way to go. What we are actually working on right now in conjunction with Carbon Plan is prototyping MRV for our existing portfolio, for a few sample companies in our portfolio, to take this kind of gnarly abstract concept and make it more concrete.
35:21 Speaker 02 And I think one of the big themes is that it will be really beneficial for the proverbial us to move away from thinking about carbon removal as a binary thing of yes, it happened or no, it didn't, and moving towards more of a probabilistic way of thinking about uncertainties. So there are going to be a lot of uncertainties, especially with open systems like kelp sinking. There are less uncertainties with closed systems like direct air capture. But how can we develop robust measurement and verification without stifling innovation and meet the field where it is, rather than pretend that it was this sort of like perfectly measurable world? Like, the world is complicated and... That is just the reality of the situation. So let's figure out what we can do most effectively
36:06 Speaker 02 within the constraints of the world that we live in. And thinking in terms of probabilities, I think is going to be for us a really big concept.
36:13 Steph Smith? I keep coming back to the comparisons with maybe more traditional technology companies and software. Vaporware is a very common term. It sounds like there's going to be some sort of parallel with carbon removal. And what we see in many industries is pie in the sky ideas and then hopefully meeting those ideas with execution. And hopefully Frontier will help in that process. As you design Frontier, how are you actually defining success? Because it sounds like we're so early, you can't really define it on we're going to take out this many tons of carbon dioxide. Is it that you have three solutions at the end of the decade that bring out a certain number of tons or a certain price point, or that the market has this many companies in it that are trying to produce solutions? How are you thinking about what success might look like?
36:59 Speaker 02 It's a great question, and you've highlighted why it's tricky. Where we are with carbon removal, we're not optimizing for the number of tons right now. We are optimizing for really trying to get carbon removal on its best possible trajectory by 2030. So we think about where we want to be by 2030 is essentially breaking that down. A couple of the things that we want to be true. One, we want demand to no longer be a growth bottleneck for great carbon removal companies. And that is going to mean a very large number. We can debate the exact specific care, so to speak, but we want that to be true. We want there to be a diverse portfolio of great companies that are pursuing the most promising pathways and scaling really quickly. I'll give an early leading indicator for this past RFP.
37:44 Speaker 02 We had a 120 pre-applications and we saw half of that just six months ago in our spring cycle. So I think we're starting to see this field inflect. This whole thing might actually work, but we want to shake the tree for the best possible solutions and try them out. By 2030, we basically want to know which carbon removal pathways will and won't work and what collective scale so that we can double down on the ones that we think have a shot of really getting to those huge numbers. And so that we know how high we need to turn the dial up on other climate solutions. As we talked about at the beginning, carbon removal is one tool in a larger toolbox. And once we get more information on
38:27 Speaker 02 How successful do we think that this field might actually be? We can balance that with other tools in the climate toolbox. I think this is a really important decade to shake the tree, trial these promising solutions, weed out the ones that don't work, and really double down and scale up on the ones that do. I'll also say that to your comment on vaporware, there will be some maybe fraudulent activity in the space or bad intentions. But I actually think for the most part, all of the founders that are getting into this space are out on a limb trying something that they want to work and scale because they care about the climate. And my hope is that when we discover that solutions won't work, which we absolutely will, we don't skewer the people who started them.
39:11 Speaker 02 It's just this is what early innovation looks like. People are going to try things. Some of them are going to work, some of them aren't. Some of the things that we try and frontier won't work. And that is not because there weren't good ideas grounded in a good hypothesis. It's because we have to test those hypotheses in reality. And I think that bringing this sort of innovation first and compassionate mindset to the field is going to benefit everybody.
39:34 Steph Smith? I definitely agree. And I think something I'm excited about are also maybe the dovetails of some of this technology. If we think back to the space industry or the first space race, the goal there was to get someone on the moon. But the amount of technology that was then applied to other industries, I mean, Silicon Valley was born out of that. And I think that naturally, as we invest money into carbon removal, some of those solutions can likely be applied elsewhere. I mean, there's no certainty around that, but we've just seen that throughout history, that when you invest a lot of money and a lot of smart brains into solving a problem, that they come out with all types of things. And I think I heard on a podcast, listeners can let me know if I'm wrong, but the technology behind direct air capture may have actually come from another industry.
40:18 Steph Smith? So we constantly see this throughout history, and I'm excited to see where that might apply as well. I wanted to come back to this idea of cost and the cost curve. And I know it's impossible to tell how cheap things will get and how quickly. But have we seen early signs of technologies that you're working with or companies that you're working with go down that cost curve in promising ways?
40:40 Speaker 02 We have, and it's early. So I think this is a difference in hard tech, right? It takes time to build your first deployment, figure out what's working, what's not, and then translate those learnings into second, third, fourth, plus deployment. So these are very early indicators, but Charm has made some good progress in optimizing their pyrolyzer and the transportation of biomass. Climeworks is getting down the cost curve through their orca, and then Mammoth is going to be next. But these are things that you have to do in the real world and then incorporate the learnings. What in the lab is not the same as what in the real world. And you should talk to Peter about this in your interview and some of the learnings that they've gotten. What do learning curves look like in practice?
41:21 Speaker 02 I think we talk about them in the abstract a lot, but this is, I think, could be a really interesting thing for you to bring up with the founders that you talk with. What are you actually seeing on the field? How has that changed your next version of the thing? And how does that impact your costs?
41:35 Steph Smith? Yeah, I think you're right that a lot of the time we talk about things in these abstract terms. But I think naturally, as we do see more companies working on this, there will be best practices. And naturally, we want to see competition in this industry where we don't have just one direct air capture company or one kelp sequestration company. We want to have many in this industry so that we do see competition, we do see new ideas, and we see these companies learning from one another. I want to hear from you to see if there are particular areas where you wish there was more attention or you wish there were more founders pouncing on certain ideas. Because it sounds like there are certain, as we talked about before, horses in this race that are getting a lot of attention, maybe a lot of funding as well. But are there areas that you see a lot of promise that maybe aren't getting the intention
42:20 Steph Smith? or interest that you think that they should?
42:22 Speaker 02 To give you a flavor of the kinds of things, within the supply side of carbon removal, things like the synthetic biology solutions that we talked about earlier, we would love to see more rigorous measurement reporting and verification for ocean alkalinity enhancement. There's an opportunity to do a lot more, we think, in geochemical CDR. There's a number of things on the supply side that we would love to see. At the ecosystem level, there are a lot of gaps on the demand side as it pertains to getting more money into this field. And I'd love to see more corporates and more governments really focus on how does permanent CDR fit into their strategy today for net zero. As you said, a billion dollars is a good step in the right direction, but it
43:06 Speaker 02 is nowhere near enough. And we are going to need more corporate buyers to lead the charge on getting money into the pot while we in parallel figure out how to accelerate the policy piece of the puzzle. So there's a lot of work to be done there on the demand side. And then from a general ecosystem perspective, I think there's a lot of infrastructure that we're going to need around making sure that we even have an infrastructure of MRV to scale, right? When you think about measurement, reporting, verification for something like kelp syncing, right? If somebody's doing kelp syncing in the Atlantic versus the Pacific, for example, we'll likely need different verifiers to go out and look at those companies. What are the protocols that we accept? How do we get all that information in one place?
43:49 Speaker 02 There are a lot of sort of system level questions on the MRV side that we're going to need answered. And so this is all sort of part and parcel of building an ecosystem. As a buyer, it would be great if we could just sit back and only focus on buying stuff. But if you do that, you'll get bottlenecked, right? We need MRV in order to scale up as a buyer. And so we have to pay attention to that. If we don't have the policy in place to take us past this initial billion dollars, this billion dollars won't have done much, right? Like, we need somebody to pass the baton to. So we have to pay attention to the policy side. So this is a long-winded way of saying there are gaps across the supply side, the demand side, and this sort of ecosystem side. And we're going to need different
44:31 Speaker 02 types of talent and resources focused on each of those different components.
44:37 Steph Smith? Yeah, it sounds like you're going to need a lot of talent to help verify these solutions. It sounds like maybe there are entire companies that can slot in here once the market is large enough to actually be the verifier or to actually create the right process for that. It sounds like for now Frontier is closing that gap. But naturally, with such a big problem to solve, the gap for solutions, whether again, it's individuals that want to lend their talent, companies that want to plug some of these gaps, is immense. I want to ask you a little bit more about the international aspect of this all. So obviously, climate is a problem that we solve collectively. If someone emits across the world, that eventually impacts us and same vice versa.
45:19 Steph Smith? As we think about these carbon removal solutions, perhaps this is a strange question, but how do you think about the international relations aspect of this? If one country is focused on removing a bunch of carbon, does then another country who maybe has less altruistic endeavors or plans just think, oh, now I can emit more? Or even if you remove the country aspect of this, if you bring that down to a company level or an individual level, is there a sense of, okay, now that we're removing carbon from the atmosphere, I now have more room, I have more runway to actually be a bad actor? Are you thinking about those things? Or is that a topic that's come up within the community?
46:00 Speaker 02 People often refer to that as the moral hazard problem.
46:02 Steph Smith? Okay.
46:03 Speaker 02 And that can exist at the company level, or the country level, or the individual level. The benefit of the world moving to a net zero frame is that the sort of fundamentals of this are first focus on emissions reduction and get that as far as you possibly can, and then deal with the rest. But the sort of spirit of it is we have to do both. It is a yes and. And this is consistent with the science that came out of the latest IPCC report, right? In order to make the math work, we're going to have to do both. And so my hope is that while I do understand, and I'm certainly empathetic to the moral hazard risk, we have to figure out how to walk and chew gum at the same time. We have to do both, and that is just the reality that we are in. If we had done a better job with emissions reduction,
46:48 Speaker 02 Fifty years ago, we could be in a different situation, but like, we're not. So let's just do the best we can with the information that we have and make sure that our efforts to remove CO2 are not negatively impacting emissions reduction efforts.
47:06 Steph Smith? Yeah, I think you're right that maybe it's natural to imagine this more pessimistic take on the world and how people sometimes are bad actors, but in general, people are good. And I think it's very exciting, as we've talked about throughout this conversation, that people are focused on these solutions and we hope to see a lot more of it. I want to close out with a question about you because throughout this conversation and even our conversations prior to this, you're clearly very passionate about this subject. You now are working full time on these solutions and leading frontier. But I want to ask why, because some of your previous career endeavors were not focused around climate or carbon removal. So how did you get into this space and why in particular are you so passionate and excited about this particular endeavor?
47:49 Speaker 02 My first foray into climate was back in 2012 at Opower. And I was a management consultant for a couple of years after undergrad. I learned a huge amount. It was great for many reasons, but I personally realized about myself that I am not problem agnostic. I care a lot about what I now call my 2:00 AM test. Will I be excited to be working on this at 2:00 in the morning? And I thought climate would pass that bar, so I gave it a shot. I was at Opower and kind of validated that hypothesis and met a number of truly wonderful people, many of whom are still in the climate space. I worked at Nest. I went to Uber to focus on Uber pool. The sort of hypothesis was to get more people and fewer cars.
48:28 Speaker 02 And I honed in on carbon removal in large part from reading, I was reading the 2018 IPC report in 2019. And as we've discussed, one of the big takeaways there is in addition to emissions reduction, we now also have to do a lot of carbon removal. And I sort of went down the supply rabbit hole and said, maybe I'll work at one of these companies, but I'm not a scientist or an engineer by training. And I thought to myself, well, maybe I'll go work on the policy piece, but I'm also not a policymaker. So the question I became obsessed with and framed for myself was how do you build a market for carbon removal in the absence of policy? And at the time Stripe had just published a blog post about
49:08 Speaker 02 how the sort of theory of change behind this initial million dollars. And I read that and was like, okay, that's not a lot of money, but this is the right way to think about it. And had a couple of conversations with the team and we were jamming on a bunch of different ideas. And they basically said, if we turn this into a real team, would you be interested in leading it? So that is what brought me to Stripe, the carbon removal piece. I think I've learned that I approached this, I guess, job search, if that's what you'd call it, in more of a top down way of looking at the climate solution holistically, trying to figure out where is there a gap that I'm positioned to solve and where's the best place to do it from. So that's what led me to Stripe.
49:43 Steph Smith? Awesome. And I'm glad that you mentioned this idea of being not industry agnostic, as in you wanted to specifically address an issue within this space. Just because you mentioned it and this idea of designing a solution in a specific way, we spoke to it earlier about Frontier specifically being an advanced market commitment fund. Could you just quickly speak to why it's structured that way and why you and the team at Stripe and Frontier believe that is the way that we can build this market versus perhaps, I'm sure people can dream up infinite other ways that you could address this problem, why specifically that route?
50:19 Speaker 02 So this is a concept that we borrowed from vaccine development and it was invented by some economists at the University of Chicago back in the early 2000s. And the idea here, let's pretend you want, say, a malaria vaccine for the developing world. Big pharma companies may not be excited to make the investment to build that vaccine because they are wondering, is there going to be a customer on the other end that will buy this at a price that will justify my costs? So the idea with this initial AMC for vaccines was for a bunch of governments and philanthropies to pool their money together and say, hey, pharma companies, if you can build a vaccine to this spec, there is, in the case of the PBC vaccine,
51:03 Speaker 02 $1.5 billion for you at the end of it in revenue. And it worked. This accelerated the development of this specific vaccine and by doing so saved what is estimated to be almost a million lives from doing that. But the sort of interesting thing about a advanced market commitment is that you can send a really loud demand signal before you've picked a solution. You can send a technology agnostic demand signal to say, this is the spirit of what we want. Again, it's our criteria. We want permanence. We want path to low cost, et cetera, et cetera. But we don't care if it's direct air capture. We don't care if it's enhanced weathering or kelp sinking. We want a diverse set of solutions and you can send that signal now.
51:46 Speaker 02 The other interesting part about NAMC is you can get a lot of benefits without actually transferring the cash now. Like the signal in itself is really powerful. And so I think there's actually a really interesting arbitrage there of like you get many of the benefits before the money actually changes hands. The commitment itself is really impactful. So we picked a billion dollars effectively because it was the smallest big number that we could reasonably go after. But as we've talked about, a billion dollars is not the entirety of a market for carbon removal. It's a step down the cost curve, but unlike vaccines, there's still a long way to go.
52:23 Steph Smith? Yeah, but it's a stepping stone because if you were to just say, hey, this is a multi-trillion dollar market in the future, but you get nothing today until you create the solution of the future, then that's not very compelling. So I think you're right that sending the signal out there into the world is an important step towards the future that we hope to get to in many years. But you have to provide a short-term incentive. You can't just say, hey, eventually you might get something. So it sounds like this particular advanced market fund worked in the pharmaceutical industry in the past, but it's being applied now to a new industry. Were there ways that you had to adjust the approach? And if so, what did you need to incorporate there?
53:00 Speaker 02 Yes, there were, as you said, a number of different ways that we had to take the core concept of an AMC, but apply it to work for the specific dynamics of carbon removal. One of the ways is that, as we just talked about with carbon removal, a billion dollars is not the entire market. For the case of the PVC vaccine, 1.5 billion dollars was enough for the pharma companies to justify their investment in this space and the development of the vaccine. That is one sort of big difference, and it was a bit of an experiment, but like, we couldn't go raise a trillion dollars. That wasn't an option for us. So that was one of the ways that this differs. Another is that, in the case of big pharma, these are large companies with other businesses, and they have big balance sheets. So the financing piece isn't as important for them, whereas in the case of carbon removal, these
53:45 Speaker 02 are upstarts. They don't have another big business that they can use to get financing or as collateral. And so we specifically leaned into the offtake portion of this as a way to help mitigate that challenge. The offtake piece is really important for small companies, especially in this industry, but for small companies that don't have other things to fall back on, they need to be able to take that to a bank in order to get financing, whereas that's not as important for pharma companies. Another piece is that with vaccines, we've scaled vaccines before, right? We know how to do it. With carbon removal, we don't even know which solutions we are definitely going to be scaling. And so as a result,
54:28 Speaker 02 we have to help these companies get down the cost curve, build the Tesla Roadster, and then keep getting down the cost curve, whereas with vaccines, those intermediary steps aren't as significant. And then I think the final piece is, we've really tried to lean into criteria that lay out a technology agnostic solution here. Because we are so early, there's a lot of technological distance, so to speak, and Figuring out which solutions are actually going to scale. So those are some of the key differences in how we designed it. And about last fall, sent a cold email to Susan Affey and Chris Snyder and Rachel Glennister, who ended up with some of the key economists who designed the initial PVC vaccine, who have partnered with us really closely to help us fit the concept for carbon
55:13 Speaker 02 removal specifically. We ended up last fall, meeting for a couple of hours every week to talk through all these different details because it really isn't a copy paste. And I think there's a huge amount of value in the concept of an AMC, but it has to be carefully fit to the industry. And we tried our best to do that.
55:30 Steph Smith? Just going to ask you if you think that this concept could be refit into other industries and why it hadn't before, because it sounds like the AMC is uniquely suited to pharma, as you said, because a lot of these companies have these large balance sheets to make some of these bets. But now that you have almost refit it to a new industry, do you think that new model could be applied or should be applied in other domains?
55:56 Speaker 02 I think there's huge potential for AMCs to make a big difference in other areas and specifically within climate. At a very high level, think about, you know, there's a market price for something and the price of something today, over time, it comes down and the kind of area under the curve is almost what we could call the green premium. I think AMCs can be very accelerative in areas where either there isn't a market price or accelerating the technology down that cost curve. So basically, whether that's sustainable aviation fuel or hydrogen or green steel, I think that there are a lot of different areas within climate that this concept could be applied to. I don't think it's the only market mechanism that we can use.
56:41 Speaker 02 And the IRA has a huge amount of really important subsidy and other interesting market mechanisms that are going to help accelerate technologies down that cost curve. But AMC is, I think, are a really compelling option when.
56:55 Speaker 02 You have a place that you want to be, but you have hesitant suppliers because they're not sure that anybody is actually going to buy something and therefore they don't do anything at all.
57:04 Steph Smith? Yeah, I think this is probably a terrible analogy, but it reminds me of if you've ever seen this video where there's one person dancing on a hill and it takes so much energy, so much inertia to get the second person dancing. But then the third person sees that second person dancing and inertia is like such a fundamental
57:21 Speaker 02 It is.
57:22 Steph Smith? part of our world. And I think it's fascinating to hear how you're using some of these new mechanics, you're almost designing them to bring enough people into this industry or at least get that inertia going. So I think if I've learned anything from this conversation, it is that there's so much opportunity within this space. As we've talked about, not just with the new market dynamics, but new companies, new needs for talent. And so it's fascinating and something that we hope that people take away from this podcast, regardless of the episode, is that there is so much opportunity in the future and that there is particularly in this space, a lot of room for people to get involved. So Nan, thank you so much for the work that you're doing at Frontier for the time that you spent with us today. And we will, of course, share a lot of the resources
58:07 Steph Smith? that you mentioned, your article. On the Frontier website, there's a suite of your portfolio where people can go and view some of these solutions. And if there's anything you wanted to end off on, I'll give you the mic. But again, thank you so much for your time today.
58:20 Speaker 02 I think you perfectly summarized the conversation. So thank you so much for having me, Steph. It was a treat.
58:25 Steph Smith? Awesome. Thank you. Thanks for listening to the A16Z Podcast. If you liked this episode, don't forget to subscribe, leave a review or tell a friend. We also recently launched on YouTube at youtube.com/A16Z underscore video, where you'll find exclusive video content. We'll see you next time.
Previous Ryan Petersen on Rearchitecting the Supply Chain Next Building a Marketplace for Carbon Page updated October 26, 2026 · transcript and summary are machine-generated
