Money may not grow on trees, but it can appear out of thin air.
From Stripe to United Airlines, companies are buying carbon offsets from direct air capture (DAC) facilities.
DAC is still in its infancy, but is expected to play a big role in reaching net-zero by 2050.
By not dealing with historical emissions, businesses risk backlash from customers, investors, and regulators.
Fighting climate change effectively means slashing emissions both at the source and in the atmosphere. Reducing the amount of current and legacy emissions is vital if we want to reach net-zero.
Capturing carbon dioxide (CO2) from the air helps offset current emissions and repair the damage of past pollution.
Direct air capture (DAC) is a promising solution that goes on the offensive in the fight against emissions. The burgeoning technology is being embraced by major firms to reduce their carbon footprint — both past and present.
Is your business using carbon offsets to tackle its legacy emissions?
More companies investing in direct air capture
Reaching net-zero is not the end-goal in the fight against climate change. Even if we hit net-zero tomorrow, the greenhouse gasses (GHG) that have already been released remain a serious problem.
Consequently, more companies are offsetting their historical emissions. For example, Google announced in 2020 that it had offset all its emissions from before the company became net-zero in 2007.
This is where DAC comes in. DAC removes CO2 from the atmosphere, and sequesters (generating carbon credits) or repurposes it.
For example, captured carbon can be used to create climate-neutral feedstocks for beverages, chemicals, cement, and synthetic aviation fuel.
DAC is still in its infancy, but it plays an important role in the International Energy Agency’s (IEA) Net-Zero Emissions by 2050 Scenario. The IEA sees DAC removing 980 megatonnes (almost three percent of annual emissions in 2020) of CO2 annually by 2050.
The U.S. has allocated $3.5 billion to create four DAC hubs, each capable of removing one million tonnes of CO2. Two hubs will be located in economically distressed areas with high levels of fossil fuel production.
Across the border, Canada’s 2022 budget includes CAD $2.6 billion over five years in tax credits for carbon capture, including DAC.
The DAC industry is set to grow rapidly. Occidental Petroleum, together with Canadian DAC startup Carbon Engineering , is planning a $1 billion facility in Texas. Slated to open in 2024, this facility would eventually remove up to one million tonnes of CO2 annually.
For comparison, DAC currently removes fewer than 10,000 tonnes of CO2 annually.
“The commercial market, the voluntary market for carbon removal, is growing really, really significantly” – Max Schotten
Occidental Petroleum CEO Vicki Hollub says she anticipates a rise in DAC demand after the Securities and Exchange Commission (SEC) proposed mandatory emissions disclosures for U.S. companies.
As Hollub explains, “for those [companies] that didn’t have [net zero] aspirations already — they’re going to have to develop it here pretty quickly.”
Overall, Occidental Petroleum is planning 70 DAC facilities by 2035, rising to 135 if government DAC incentives are created.
Other early movers in the DAC field include United Airlines, which is directly investing in DAC. Microsoft, SwissRe, Shopify, and Stripe have also pre-purchased DAC credits.
Shopify, Meta, Alphabet, Stripe, and McKinsey & Company have created the Frontier fund, an initiative which plans to spend $925 million on carbon removal through 2030.
The IEA estimates that the current removal cost per tonne of CO2 with DAC is between $125-335. Robust carbon pricing is therefore vital for DAC’s long-term success. There are also hybrid efforts underway where large companies effectively provide the capital investment to build DAC facilities.
For example, Microsoft is paying DAC start-up Climeworks $600 per tonne of CO2. Climeworks’ latest funding round raised $650 million — a clear sign of investor interest in direct air capture.
Stripe is also working with a DAC startup — Heirloom — and paying $2,000 per tonne, with the understanding that costs will rapidly decrease as operations scale.
“The commercial market, the voluntary market for carbon removal, is growing really, really significantly,” says Max Schotten, head of commercialization at Heirloom.
Offsets are vital (and expensive)
DAC offers a way to offset current and past GHG output. That said, companies with a history of high-emissions have to walk a fine line.
On one hand, claims about embracing sustainability ring hollow if a business with high historical emissions doesn’t address them. On the other hand, many carbon sequestration options are imprecise, or use creative accounting when calculating their impact.
DAC clearly demonstrates the amount of CO2 it removes. This reduces the risk of greenwashing — using misleading green language to appear sustainable.
While interest in DAC is growing, the technology needs to rapidly scale and the cost of carbon offsets needs to come down. Carbon prices also need to increase in many regions for DAC to make financial sense.
With the onset of mandatory emissions disclosures, companies increasingly risk legal sanction if their carbon offsets and reporting are inadequate.
As things stand, only firms like Microsoft have the kind of capital reserves to go it alone. Most businesses face daunting capital hurdles when it comes to DAC, and clean technology projects in general.
Depending on how CO2 is captured, 20 to over 50 percent of the levelized cost of DAC comes from capital expenses.
Being a first-mover in the energy space comes with financial risks and questions about whether the technology will actually deliver. These risks deter investment in emerging technologies like DAC.
Companies are protective of their capital reserves, which slows down and stalls many pioneering projects. Reducing risk is therefore vital for accelerating the rate of cleantech adoption.
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