Climate Gets a Demo Day, But Needs a Warp Speed Sequel

Earlier today, Stripe held an event — Stripe Climate Demo Day — to showcase young companies that are working on the very hard problem of how to cost-effectively remove CO2 from the atmosphere. At the bottom of this post, I’m including a quick summary of the start-ups that pitched today. But, first, a few observations:

Go, Stripe!

Stripe — yes, the payments company — is doing great work on climate. They’re putting their own money into start-ups that are working to remove CO2 from the atmosphere, and they’re making it easy for Stripe’s customers to join them. Even more importantly, they’re drawing attention to the importance of supporting efforts to bring down the cost of carbon removal.

The Cost is High…

The start-ups featured today are using a variety of approaches to removing carbon from the atmosphere: everything from crushing rocks to sinking kelp. Despite the diversity of approaches, there is a common thread. Each approach currently costs way too much: from $200 per ton at the low end, to $2,000 at the high end. This doesn’t compare favorably to the cost of reforestation, which is in range of $50 per ton of carbon removed from the atmosphere.

… But Not That High

However, we only have so much land, and so we can only plant so many trees. If we’re going to effectively combat climate change, we will likely need to supplement nature-based solutions with cost-effective, technology-based solutions. This is where Stripe comes in. They’re serving as an early customer for technology-based solutions in the hopes that costs will come down, as learning accumulates and scale increases.

Even the most costly of the technologies demo’d today has line of sight to costs in the range of $200 per ton. Let’s presume these companies need to get to $50 per ton. This will mean reducing their cost structures by a further 75%.

Interestingly, this is almost exactly the same scale of cost reduction that we saw in solar over the last decade. So it doesn’t seem crazy to think that we could get from here to there. The question is — how long will it take?

Time is the Enemy

The cost curve is a classic chicken-and-egg problem. Costs would come down if customers would place huge orders. But customers typically don’t want to place huge orders until costs come down. How does this typically play out in practice?

Slowly. Companies inch down the cost curve with small orders from pioneering customers, and then they get a few more orders, and the cost comes down a bit more, and so on.

In the case of climate, time is the enemy. If we wait for these companies to gradually work their way down the cost curve, these technologies may mature too late to make a difference in the fight against climate change. Stripe is playing an important role in shining a spotlight on carbon removal technologies. But the money that Stripe is spending (about $8 million in this current round) isn’t nearly enough to fund the rapid scaling up of these companies.

Investment dollars could theoretically be the bridge, but it’s going to be hard for investors to get comfortable spending huge amounts of money scaling up technologies before it’s clear whether these technologies will work at scale. When have we seen this type of situation before? Just now, during the pandemic.

Operation Warp Speed, Part 2

What if the pharma companies had waited to scale up manufacturing of vaccines, as they typically do, until after all regulatory approvals were granted? We would have lost months. The government stepped in with Operation Warp Speed, essentially guaranteeing revenue to pharma companies that scaled up manufacturing as soon as there was initial evidence of efficacy. Yes, we spent some money on vaccines that didn’t work. But, more importantly, we got a whole bunch of vaccines that did work, manufactured at scale faster than anyone could have anticipated.

When it comes to climate change, we need a similar approach that 1) solves for speed 2) by bringing together public and private actors, 3) to guarantee revenue for carbon removal technologies that show promise, 4) while recognizing that the price we’ll pay for speed is a bit of waste, in the form of spending on tech that ultimately doesn’t end up working.

In the meantime, many thanks to Stripe for identifying a point of leverage in the climate fight. And good luck to all the companies that were featured today!

Carbon Removal Companies from Stripe Demo Day: A Quick Summary