Carbon Reduction — Corporate Leadership

We’re living in unprecedented times, and the behavioral and technological changes due to shelter in place will likely cause permanent changes across sectors, from education, work, to manufacturing. I’m also optimistic that the covid-19 experiences will also make us care more about things that matter, from family, health, to the planet earth. While covid-19 has caused significant dislocation, as the Economist cartoon aptly depicts, covid-19 is the pre-game. The real game facing us is climate change, and the game that we must win.

Globally, CO2 emissions are about 33 Giga tons (Gt) per year. A roughly third of these emissions are from electricity and heat; transportation, agriculture, and manufacturing, each approximately equal, in total accounting for another ~40%. Because of the current economic slowdown, e.g. less travel, reduced manufacturing has resulted in almost 8% drop in carbon emissions compared to prior year. A benefit of this reduction that we’ve all witnessed in clean air quality from New Delhi to Los Angeles. While its’ a significant drop in carbon emissions, largest since World War 2, it’s estimated to have a reasonable chance to have a temperature rise of less than 2 degree C by 2100, we’ll need to have an equivalent drop in carbon emissions every year for this decade. Put another way, the equivalent effect of slowdown in economic activity due to covid-19 every year, for 10 years!

To achieve this, we need decarbonization technologies across the board. I’ve written about renewable energy, hydrogen, and electric vehicles in the past. Over the past few years, several leading companies have taken steps to minimize their carbon footprint. A slew of announcements over the past few months by multiple global organizations to proactively make carbon a key part of their company’s strategy is exemplary.

Last year Stripe announced its commitment to negative carbon emissions, investing at least $1 million per year. Last week, the company announced its purchase of 4 carbon capture and sequestration (CCS) projects. It’s a commitment across a portfolio of carbon capture technologies from direct air capture (Climeworks), enhanced weathering (Project Vesta), mineral form (CarbonCure), to reinjection into rock formations (Charm Industrial). There are 3 things that jump out from this announcement:

1. The portfolio based approach — as the CCS technology is still in a nascent phase. In fact, Stripe is the first commercial customer of 3 out of 4 of these technologies
2. The cost of mitigation from $75 to $774 per ton. To put this in perspective, at an average cost it will cost ~$12.7 trillion globally. If the experience from the solar industry is an indicator with 100x drop in costs, CCS cost trajectory still has ways to go after these initial deployments — a significant opportunity.
3. Focus on permanent removal of carbon, instead of carbon offsets or nature based removals — which are cheaper and also temporary.

In another example, leaders of well recognized companies, with a combined worth of $11.5 trillion, sent their request to the US Congress to rebuild the economy from covid-19 by having resilient climate solutions, with a net-zero emissions economy by 2050 or sooner.

Additionally, we’re seeing commitments in the Oil and Gas industry as well. Shell committed to be net-zero by 2050 or before. And more recently, Total announced a commitment to be net-zero by 2050 across Scope 1 (direct emissions), Scope 2 (indirect emissions from e.g. electricity generation), and Scope 3 (indirect emissions from variety of activities — e.g. supply chain, travel).

Microsoft, earlier this year, also announced an ambitious plan for carbon mitigation with a pledge to be carbon negative by 2030, and by 2050 to offset all the carbon that the company emitted since 1975 (its founding), either directly or by electrical consumption. In addition, the company also set up a $1 billion climate innovation fund to accelerate development and deployment of carbon capture, reduction, and removal technologies. With a current total emissions (across Scope 1, 2, and 3) of 16 million tons per year, at a realistic carbon price of $50 per ton, it’s an investment of $0.8B per year. It’s also worth noting the usage of internal carbon tax of $15 per ton, which affects the BU P&L. In addition to driving accountability, it provides a clear line of sight to fund projects towards the company’s pledge to be carbon negative.

These are a few snippets, but a few things that are different vs. cleantech 1.0 era in 2000s. Leadership of large companies, with investments in carbon mitigating technologies driven by financial returns and re-risking. We should expect a plethora of innovations — technological, business model; as these companies invest and become early customers across a portfolio of carbon mitigating technologies — from EVs, renewables, energy efficiency, CCS, and sustainable ag. It’s the right thing to do — to do good and do well. It should be a boost to the ecosystem of entrepreneurs, VCs, policy makers; and a call to action for others to follow. As the Nat Geo article points out, the window of opportunity is narrow to limit global temperature rise to be within 2 degree C. Let’s go!