Catalyst with Shayle Kann - Advance market commitments to decarbonize heavy industry

Episode Date: December 15, 2022

A coalition of companies organized by the U.S. government is promising to purchase low-carbon versions of commodities from “hard to abate” heavy industries. This sort of policy is called an advanced market commitment, which the U.S. has used in the past to accelerate the development of new technologies. With guaranteed revenue from the government, manufacturers are able to take risks to create products that they might not have otherwise. In the leadup to COP26 last year, John Kerry, U.S. special presidential envoy for climate, announced the First Movers Coalition (FMC) in collaboration with the World Economic Forum. It now involves 65 companies—including Delta, Maersk, and Rio Tinto—that will buy or supply a percentage of low-carbon products by 2030. India, Norway and eight other countries have signed on, too. The coalition has also committed to purchase carbon removal, adding to the wave of similar pledges like the $1 billion Frontier Fund. So how will the FMC work? In this episode, Shayle talks to FMC’s brainchild, Varun Sivaram. Varun is managing director and senior advisor for clean energy and innovation in Kerry's office. They cover topics like: Why advanced market commitments are not silver bullets The FMC’s ability to make companies keep their commitments  How the FMC is developing standards for low-carbon products How much progress coalition members have made toward their targets  How the Inflation Reduction Act and the FMC support each other The FMC’s ability to endure changes of administration When we can stop calling these sectors “hard to abate”  Recommended Resources: Bloomberg: Companies Commit to Buying Super-Green Cement in Corporate Climate Club Columbia University: To Bring Emissions-Slashing Technologies to Market, the United States Needs Targeted Demand-Pull Innovation Policies Harvard University: Using Advance Market Commitments for Public Purpose Technology Development Catalyst: Growing the carbon dioxide removal market Catalyst is a co-production of Post Script Media and Canary Media. Catalyst is supported by Scale Microgrid Solutions, your comprehensive source for all distributed energy financing. Distributed generation can be complex. Scale makes financing it easy. Visit scalecapitalsolutions.com to learn more. Catalyst is supported by CohnReznick Capital, a trusted source for renewable energy investment banking servicing the US sustainability sector. Visit cohnreznickcapital.com to learn more.

Do you want to just say a couple sentences and we'll see if you break up at all? Sure. The rain in Spain lies, falls mainly in the plane? What's the word I'm missing? Falls. The rain in Spain falls mainly in the plane? Yep. Sounds wrong.

But you sound great to me, so I think we're good to go. From the studios of PostScript Media and Canary Media. I'm Shail Khan and this is Catalyst. I'm ready to take that final leap, cross the valley of death and invest in scaling up production because I'm promised a market at the other side, the pot of gold at the end of the rainbow. There's always this chicken or egg problem. You want to create demand for new, low, or zero carbon technologies, but in some sectors, those technologies basically don't exist yet. So how do you solve that? Enter advanced market commitments. When utilities need

flexible capacity they can count on, they turn to Energy Hub. Energy Hub works with more than 170 utilities, coordinating over 2.5 million devices to manage 3.4 gigawatts of flexibility, built for the moments when utilities can't afford uncertainty. Energy Hub builds and operates virtual power plants that utilities actually stake their grid planning on, coordinating EVs, batteries, thermostats, and more through a single platform built for utility scale. Predictive, verifiable, and designed to perform when it counts. Learn more at energyhub.com. Trillions of dollars are flowing into clean and critical infrastructure, but those investments aren't driven by technology alone. They're shaped by markets, by policy, by capital, and by the

institutions that connect them. I'm Alfred Johnson, CEO of Crux, and host of a brand new podcast, Critical Capital. Each episode, I talk with people deploying capital, shaping policy and building the clean economy. Tune in as we unpack how progress is actually made. Listen to Critical Capital on Spotify, Apple, or wherever you get your podcasts. I'm Shail Khan. I'm a partner to venture capital firm, energy impact partners. Welcome. Some people call them hard-to-abate sectors.

I prefer to call them opportunities for big moats, but whatever you call them, here are the seven horsemen of the industrial climate apocalypse, so to speak. Steel, aluminum, cement, chemicals, aviation, shipping, and trucking. Add them up, and they represent about a third. of global greenhouse gas emissions,

and they're the sectors where the existing, fully commercialized, mature, and ready to deploy technology will take us the shortest distance toward net zero. So how do you solve for that? Well, it takes a village, obviously, and residents of that village certainly includes supportive policy

and innovative technology. We obviously have a role to play there as well, but the mayor of the village is the demand side. You want to be sure that if you build it, it being a lower zero carbon alternative to the thing causing trouble from a greenhouse gas emissions perspective in these sectors.

If you build it, they will come. Enter the idea of advanced market commitments. Some of you may have heard of one of these, which was born out of Stripe's early work in carbon removal and is now called the Frontier Fund, annoyingly the same name as my fund at EIP, which came first. But there's also another broader advanced market commitment

in the works that I think maybe actually hasn't gotten the attention in climate tech circles that it warrants. And that's the First Movers Coalition, or the FMC, which is an initiative born out of the office of John Kerry, the U.S. Special Presidential Climate Envoy, former Secretary of State, former senator, known windsurfer, you know who John Kerry is. Anyway, I think the FMC is super interesting. And it also happens to be the brainchild of a friend of mine. Varroon Sivaram, who is the managing director and senior advisor for clean energy and innovation in Secretary Kerry's office, has been a big part of bringing. the First Movers Coalition into the world.

And I wanted to bring them on to talk about what it is, how it works, but more importantly, how you can use these advanced market commitments as a way to accelerate the path into the market for these fundamentally new technologies that we're going to need sooner rather than later in order to get to the challenge of later, which is reaching net zero. Here's Verroon. Varroon, welcome to Catalyst. Thanks so much, Shail, for having me. I don't know if you remember this, but I believe that the first podcast I ever did,

which was in, it was like circa 2000, I don't know, 15, something like that, you were the guest on the very first one. You may or may not recall doing that and or what we talked about, but do you remember that first ever podcast? I remember doing the pod. I didn't realize it was the first one. It was, it was Parovskite Solar, right? It was either you, we did a really, early one with Jesse Jenkins too, and I can remember which one was the first. We've had Jesse back since then a few times. And this is the first time that we've had you back. So whether you were first or second, it's long overdue. And a lot has happened since 2015 or whenever we chatted before. The main thing, as is pertinent to this conversation being that you took on a new role in the

Biden administration soon after Biden's inauguration. And you've been working with Secretary John Kerry, who has a title that I'm going to tell you to tell me what his title is. and what it means and what you've been working on with them. Yeah, absolutely. Well, I was honored to join actually on day one of the Biden administration. And I work for Secretary John Kerry, who is the U.S. Special Presidential Envoy for Climate. And actually, that big long title importantly turns on one word, presidential. This is the first time we've ever had a special presidential envoy for climate.

We've previously had special envoys for climate. But now Secretary Kerry reports directly to President Biden and is empowered to lead the United States' international climate diplomacy. And I'm his managing director and senior advisor for clean energy and technology innovation. And so I lead as teams that focus on helping countries around the world transition to clean energy and adopt emerging technologies, which is something that I think you and I talked about the last time we were on the pod. So maybe help me orient, for folks who are not like embedded in the Washington ecosystem, right, there are these special envoys, in this case a special presidential envoy. And there's,

There's some remit, which you just described the brief version of, and we'll get into a lot more detail on, how does that job interact with, like, the State Department, which is doing all of our international diplomacy, or the DOE, which is focused on energy? Like, what's the, where do you sit and how do you know what you're able to and supposed to do if you are you and John Kerry trying to make this happen? Totally. I mean, look, it's such an important role precisely because so many different U.S. agencies touch on climate. Right. Our Department of Energy is developing the technologies of the future. Our Department of State, as you mentioned, has diplomats all over the world that conduct U.S. foreign policy. So it's been critical to have this new role, Secretary Kerry, the first U.S. principle to actually sit on the White House National Security Council, who is solely dedicated to climate, it's been critical

to have him to play kind of this coordinating function. So when we go, for example, to the cop, COP 26 in Glasgow last year, COP 27 this year in Egypt, Secretary Kerry leads the entire U.S. delegation, which in both cases has involved several cabinet secretaries. And we now speak with one voice, right? We're able to coordinate all of the different things that the U.S. government is doing both at home, the IRA, for example, and abroad, our development finance corporation, investments in emerging economies. We coordinate all of that with one voice, one negotiating position, and a bunch of really cool announcements that just came out in Egypt. Yes, we'll talk about some of those. But so is it appropriate to just in

in layperson's terms, think of the role of the special presidential envoy on climate as sort of the voice of the U.S. government abroad specifically as it pertains to climate change? Yep, absolutely. I think that's a, that's an accurate summary. Cool. All right, well, there's a lot that you guys have been working on and gotten done during that time, but I think we want to spend most of our time today on this one initiative, which I know is near and dear to your heart in particular, which is called the First Movers Coalition. But before we get into what the First Movers Coalition specifically is and does, let's talk about the premise behind it, which is it's a, you know, you didn't invent this idea. It's a form of an advanced market commitment.

You talk a little bit about like what advanced market commitments are and why, I know even before you joined the administration, you were sort of hung up on like, can we leverage this tool to do something on climate? Yeah. Well, look, as you said, I definitely didn't invent the advanced market commitment. And I was mostly, I was inspired by how successful it's been outside of our own field of clean energy technologies. For example, in the global health space, advanced market commitments, which are basically promises to purchase a certain product that meets a set of specifications, even if those products don't exist today on the market. Those advanced market commitments have

enabled us to get the new McCaukel vaccine a couple decades ago. Most recently, advanced market commitments brought COVID vaccines onto the market. It was a U.S. government saying, I promised to buy X doses of this as yet uninvented technology if you bring it to market and it passes a certain performance threshold, right? It reduces the incidence of COVID by X percent. And these things have been going on for even longer. NASA has been doing this for like 70 years, right? In the 1960s, NASA provided the early market for integrated circuits in the Apollo mission. And that's why we have Silicon Valley. Most recently, NASA provided these milestone payments for SpaceX.

So any company that could actually meet these performance thresholds and eventually be a private manned spaceflight would get payments from NASA every time they met the performance specification. So that was kind of a form of advanced market commitment or milestone payment. So it stands to reason that in our field, clean technologies, And look, Shail, you look at dozens of these every week. We need a lot of them to come to market. And most of them that we need have not made it to market. Some of them have, as we know, but most of not. So it stands to reason that we should be able to cross-apply this tool from other sectors to clean technologies. And it's just never been done in a big way. And that was kind of the inspiration for me behind creating the First Movers Coalition. And we'll get into the mechanics of it, but what it strikes me that's interesting about the idea of the advanced market commitment is that it sort of creates a forcing function on both sides, on the supply and demand side. So it comes from the demand side making these forward commitments and saying, if you meet these criteria, I will buy. If they build it, we will come strategy for them. So it's a forcing function then, which we should talk about how this actually works to do it. if the thing does indeed arrive and meets the specs.

But it also sets out a fairly clear set of criteria on the other side, the supply side, the companies that are building the technologies that will meet those criteria to say, okay, well, you know what you need to hit. You kind of know the timeline under which you need to hit it. And if you can do all those things, then there's demand waiting for you on the other side. So the mechanism provides an interesting push on both sides of the supply demand equation. I think. A hundred percent. Now, I do want to like just caveat what you just said, because you might be led to think, aha, an advanced market commitment solves all of my problems, right? It creates the early

market commitment, the demand, and then therefore the suppliers have all the incentive they need to bring a new technology to market. And so this can be my silver bullet. It's not a silver bullet. In all of the other examples from the other sectors, the technologies actually needed to be in development for the advanced market commitment to work, right? MRNA vaccines have been in development for decades before we made an advanced market commitment, and then they actually came to the market. But if you have your full ecosystem of support, you have government funding and private funding for research and development and demonstration, you have a thriving venture capital ecosystem, Shale is making lots of investments, and you have a set of advanced market commitments,

you kind of close the loop. You say, aha, technologies are being developed, and now we have that final push, that market, that beachhead market now exists for these technologies. to come to scale, and the innovators, the suppliers who are producing them, say, I'm ready to take that final leap, cross the valley of death, and invest in scaling up production because I'm promised a market at the other side, the pot of gold at the end of the rainbow. So as with most things, I think, the devil is, of course, going to be in the details, right, on whether this actually has an impact and where and how and how fast. So let's mostly spend our time talking about the details.

First of all, at the high level, what is the First Movers Coalition? Like, fundamentally, is it, what is it? Is it an organization? Is it an initiative? Who is it led by? Who governs it? Like, what is it? Yeah.

I'll try out my elevator pitch. The First Movers Coalition is President Joe Biden's flagship public-private partnership to scale clean technologies. It's a partnership between the United States. It's a partnership between the U.S. government and the World Economic Forum. And it assembles a coalition that today is 66 companies, some of the biggest companies in the world, each of which is making a purchase commitment, an advanced market commitment, to buy a technology in one of these hard-to-abate sectors in 2030. And that set of commitments amounts to about $12 billion of purchasing power, purchasing commitments in 2030.

So that's, in essence, what the First Movers Coalition is. And since we launched it, we've actually brought on additional government partners. So it's no longer just the United States and the World Economic Forum. Even though we created it, now we have nine government partners, India and the Kingdom and Germany, etc., and Sweden. So in effect, it's a consortium of governments and companies, and the companies are the ones making the commitments to buy these emerging technologies. Now, this is maybe an important distinction to make, because they're the ones. one other version of an advanced market commitment in this space, I think, that's sort of active today, is the Frontier Fund, which was born out of Stripes, carbon removal efforts. That's a version

of an advanced market commitment, too. In that case, it's a fund. It's a dedicated pool of capital that will make the purchases directly on behalf of the parties who've been a part of it. First Movers Coalition is a little different, right? It's not a pool of capital. So the buyers are saying, I will buy X tons of this thing, but they're not putting money into a bank account or committing capital into a bank account for some third party to do the procurement, right? So close. First, let me just say the Frontier folks are fantastic. It's a great initiative they've developed. So we launched the First Movers Coalition in November 2021, and then a few months later, Frontier came to market focusing just on carbon dioxide removal. We focused on some other

hard to abate sectors. After Frontier came to market, we then said, look, this model is wonderful. And so we added the carbon dioxide removal sector as well. And several companies that have not joined Frontier were then able to join the First Movers Coalition. So together, we have large coverage over the corporate world. And the way we structured the carbon dioxide removal commitment, at least for our three champions, Alphabet, Microsoft, and Salesforce, is almost exactly as how Frontier has done it. It's a dollar commitment. But you're right, Shail, for all of our other sectors, for steel or trucking, the commitment is, like Ford Motor Company says in 2030, I will buy 10% of my steel using near-zero carbon steel. So it's a percentage of their supply chain is the commitment they have made to purchase in 2030.

So that's a qualitative difference from how Frontier is doing it, which is a dollar value. Right. It's much more similar to, I mean, anybody who's been around. the renewables world in the U.S. for the past decade will know that, you know, at least I'll editorialize for a second, but in my view, the two things that drove the adoption of wind and solar that we've seen to date are basically the federal tax credits and then state-level renewable portfolio standards. And those state-level RPSs were structured much more like what you're describing here in the First Movers Coalition, which is, in this case, it was mandated by the state

upon utilities, but effectively the same thing, saying that by year X, each utility will have Y percent of their electricity generation mix come from renewables. And that was a huge, huge driver in the early days of renewables. It's what got us to where we are today. So I think as long as there are teeth, or as long as those commitments are real, this can be easily just as as the dollar commitment. Totally. And I just want to make the point that, like, There's a beautiful analogy here. Just as you said for renewables, it was the supply push incentives like the ITC for solar, the PTC for wind, and the RPS at the state level that created demand, early markets. There's now this beautiful interplay between the U.S. Inflation Reduction Act, which provides supply incentives and the First Movers Coalition, which provides that demand. Because there isn't elsewhere a demand commitment or demand requirement for someone to buy X percent clean state.

or X percent clean aviation fuels. By the way, truly clean aviation fuels, not just SAFs. And the hope, therefore, is this interplay makes the IRA work. You can imagine, like, the IRA might make, and I can walk through the numbers, the IRA makes clean steel almost as or as competitive as dirty steel, right? But if you're a demander, you still have no incentive to go buy the clean versus the dirty stuff because the clean stuff is untested, the dirty stuff is like fairly conventional. and you have a bankable track record.

And so this First Movers Coalition creates that early demand that will therefore induce suppliers to take advantage of the IRA incentives, build the supply because they're sure they'll actually get an off-take. All right, so let's dig into the details a little bit on how this actually works. So let's start with name the, I'm sure you could do this by now by heart, name the seven sectors that First Movers Coalition is active in at the moment. And then we'll pick a couple that we want to go deep into. Sure.

So the eight sectors are steel, aluminum, cement, chemicals, which is the last one we haven't yet launched, shipping, trucking, aviation, and carbon dioxide removal. These hard-to-abate sectors represent about a third of global emissions today. And they're the ones, you know, as all of the listeners know, this is where the energy transition has not started. And so on current course and speed, this will be a majority of humanities emissions by mid-century. And it's also where the technology needs are concentrated in these heavy industry and long-distance transportation sectors. So that's why we pick these sectors for the FMC. Right, which is sort of a key point. You can amass significant buying power with a relatively small number of relatively large commitments from big buyers, basically.

Well, I do want to make the point that, like, remember, each of these commitments, like Ford Motor is saying 10% of my supply chain, not 100%, but 10% of my supply chain is going to be, near zero carbon steel by 2030. Now, that doesn't sound like a lot. It's, you know, 90% of their supply chain is not this, but this technology is not anywhere in the market. And so for a technology that's yet to scale, this beachhead looks quite enormous for an up-and-coming innovator. 10% of Ford supply chain is actually quite a large number. But if we, if you try and make it a larger percentage of a supply chain from these enormous buyers early on in 2030, you'll fail because the technology simply cannot scale that quickly to meet extraordinary demand. To what extent is the recruiting process? I know I want to

get into some individual sectors, but I'm too interested in this question. To what extent is a recruiting process around companies sort of accelerated by a like keeping up with the Jones's sort of effect? Like you're like Ford said they're going to do it. So now you go to BMW and say, well, Ford's doing it. So like, why aren't you? It is, I mean, getting that initial seed of companies was so critical, right? There's no way we could have gotten to 66 without the first 24, without the first 12, because peer pressure is a large part of the recruiting process. Look, when we recruit, there's a few different things we can bring to bear. The first is we make an appeal to companies' competitive advantage. We say, look, in the future, a decade, two decades from now, you're going to live in a world

where policies are net zero aligned. You're going to be forced to buy clean steel. If you're a first mover and you secure those supplies of clean steel early on, you exercise those muscles about how to offtake these new materials. Well, you'll be ahead of the game and you'll have cornered the market and everybody else will pay a lot more for clean steel. So that's one argument we make. Another argument we make is, you know, this is kind of the highest leverage thing

you can possibly do compared to all your other commitments. Third is what you said, Shale, keep up with the Joneses, keep up with the Ford's and GMs, right? And that's proven to be effective. And then fourth is, look, I want to be unabashed about this. We will celebrate you. President Biden got up and said, you know, this is my flagship initiative at top 26. You know, the White House has put out fact sheets every time we've had an expansion.

So this is an opportunity to be celebrated as a climate leader. And I think that's meaningful for a lot of companies. Virtual power plants are becoming a reliable way for utilities to manage capacity. But enrolling devices is just the start. What really matters is confidence, knowing those resources will perform when dispatched, and being able to prove it, from the control room to the living room. Energy Hub's platform handles the full picture, from near-real-time forecasting, locational dispatch, and the kind of rigorous verification that holds up when regulators,

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It's shaped by markets, by policy, by capital, and by the institutions that connect them. I'm Alfred Johnson, CEO of Crux, the capital platform for the clean economy. Join me for my brand new show, Critical Capital, Capital, as I talk with people deploying capital, shaping policy, and building projects. Together, we unpack how risk is priced, how incentives are structured, and how progress is actually made. Listen to Critical Capital on Spotify, Apple, or wherever you get your podcasts. All right, let's pick a sector or two and talk through the details. again, I think, you know, the devil is in them as to what the impact is going to be.

So you've mentioned a couple times the steel one. So maybe let's spend some time there. So start with who's committed to the steel commitments, who's made steel commitments. And then how have you gone about defining what the actual commitment is? Like, what defines clean steel, how much needs to be purchased? Like, what are the, what is the nuance that needed to get baked in here for this to be a real kind of a commitment? Yeah. Well, so I'm glad you started with steel. Steel is so important. It's, you know, 8% of global carbon emissions and rising. Like, you look at India, India's largest source of emissions growth. It's not coal power. It's steel, iron and steel. So critical for us to decarbonize primary steel, the production of new steel. So we have 18 companies that have committed to the steel commitment.

They include major automakers. I think I mentioned Ford, Volvo, Skania. They include utilities like NG. They include renewable energy producers who use big wind turbines that use steel, for example, in Venergy or Orsted or Renew Power. So it's a wide range of folks who use steel and are making this purchasing commitment, actually, therefore, for a range of different types of steel. And you asked a critical question, which is what goes into making the standard by which we call steel near zero carbon steel? We're walking this balance, right?

We have to pick something that is feasible in 2030 for companies to meet 10% of their supply chain from. But we want to make sure that every single commitment is technology forcing, that we're bringing new technologies in the market. The commitment can't be weak enough that you can use an existing technology and get away with it, right? We want to bring to market these new technologies. So each of these commitments was timebound. It's in 2030 is when you make the purchase. It is innovation forcing, but technology neutral. We're not going to tell you how you do it.

You can make your steel no matter which route you choose, like trawless is or green hydrogen. But ultimately, you have to meet this very low threshold. In this particular case for primary steel with no scrap input, it's 0.4 tons of carbon dioxide per ton of steel. And that actually, that that standard setting process is so important because now we've gone around the world. The G7, the IEA have all adopted this standard for what counts as near zero carbon steel. And now we're doing the standard setting process for all the other sectors.

So every time we set a standard, it is the most ambitious standard for that material ever set, right? Our cement standard, we just launched it in Egypt, is the most ambitious cement standard. And now we have to do the hard work of helping our government partners to also accept, and our industry associations that we work with, to also accept that this is the standard for what counts as near zero carbon materials or fuels, etc. But without setting that standard carefully and without getting alignment from everybody, you're not going to be technology forcing, right? You can imagine a standard for low carbon cement or low carbon steel that basically just requires you to swap out dirty energy for renewable electrical. right? That's something we already know how to do. For sure. Or in the case of cement, like, it's, this is easier than with steel, to be honest, but with cement, there's lots you can do that can have an incremental effect on embedded emissions.

You can, you know, blend in more supplementary, cementitious materials into a concrete blend. And, you know, like, and that gets you a little bit of the way there, but not all the way there. Just to nerd out on what you just said, the cement commitment, we spent like nine months developing the cement commitment so that you couldn't just get away with SCM substrateg. institution. You probably, again, I don't want to specify a technology pathway, but the standard is so rigorous, stringent, that you probably have to use CCUS in order to meet our clean cement standard. Unless you've got a technology that doesn't require CCUS and doesn't produce any emissions. I think you know we're investors in Sublime. There are a couple of them. But anyway, the point

being, I want to come back to Steele for a second. So I do appreciate and want to acknowledge the importance of the technology forcing function component. It draws an important distinction from, you know, a lot of what we've seen absent, you know, a sort of standard setting body like the First Movers Coalition is companies voluntarily make their own net zero commitments and then they make a bunch of announcements of things that they're doing on the path toward the net zero commitments.

And those two things don't always really line up, right? A lot of times you'll have like a bullet point list of things that a company says that they're doing and they're all pretty incremental things. and it's not really clear how you go from the list of bullet points of things they're doing today to the true net zero commitment off in the future. And I think the way that I think about these like 2030 technology forcing function commitments from FMC is that they bridge that gap.

It's like a longer time horizon than the things the company needs to be committing to doing today. But it's the clear things that need to happen in order for us to get from a 2030 10% low carbon steel to 2050, 100% low carbon steel. Look, first of all, I really appreciate what you're saying there. It's dead on. I do want to say the North Star for the First Movers Coalition is not actually, how can a company get to its own net zero emissions, right? If a company like Ford Motor achieves 10% near-zero carbon steel by 2030,

sure, it is now easier for Ford to get to 100% near zero carbon steel. by 2050. But like the impact they're going to have is well beyond their own supply chain. Because they acted early in 2030, Ford is going to make clean steel cheaper for literally every country on earth. They're materially going to move us down the cost curve. And so this has like extra company impact. And that's why this is so important. I think, you know, many companies may follow many different paths to eventually get to net zero. And I agree with you. Most of the things that companies say today make no sense. Like, they have no actual path to get to net zero.

I think our companies are going to have an easier time getting to net zero. But the impact they're having in 2030 is way more. And it's important to say that because, like, making an FMC commitment is a really expensive way to reduce a small amount of emissions, right? Like, well, the IRA really helps with that because now there's no cost premium anymore. But before the IRA, there was a big green premium to buy clean steel versus dirty steel. And so if you're going to decarbonize 10% of your supply chain by using a new novel technology, that's a really expensive non-low-hanging fruit way to get yourself toward net zero, right?

So I just want to make the point that what companies are doing here, the biggest impact is what it will mean for the world. For steel plants all over the world, they'll be cheaper and we can build them sooner. Putting on my skeptics hat for a second, I think the obvious question is what is the what are the teeth here? Like what's to stop one of these companies from making this commitment, getting all the accolades that they get today, and then 2030 rolls around, and they say, ah, you know, the technologies weren't there,

they weren't ready for us, or it didn't meet our specs or whatever. We just didn't hit it. Sorry. It's a very, very valid question. So let me say a couple things. First, I do want to make the point that our companies are already acting. Now, Steele is kind of an easier case, We'll start there. There are harder cases like aviation where it's really tough to act right now. But let's take steel. We already have companies that are moving forward and purchasing small and sometimes large quantities of clean steel.

The first clean steel facility exists in Sweden now. Secretary Kerry inaugurated the first ever fossil-free steel truck that Volvo made. Skania is going to meet their commitment well ahead of schedule. So we already have companies that are on track to meet some of their commitments. Again, some other sectors like aviation. are a lot tougher. The second thing I'll say is, look, in doing this, I have spoken with all of our 66 companies. This is just qualitative, but I genuinely believe there's like a cultural shift underway. I talked to a big cement company, Lafarge Holsom. And that CEO, Jan Yenish, has spent enough time with Secretary Kerry, where he now says, I'm committed to changing my procurement organization. I know it's going to cost me a lot more money, but I don't want to let Secretary Kerry down.

Now, at the end of the day, wear the real teeth. It's a reputational risk. If you make a commitment and you don't actually meet your commitment and you could have, you know, down the road, you're right, you may have gotten the accolades up front. But down the road, we expect this organization, the FMC, to continue to be high profile for the, you know, through the decade. And so we'll celebrate the companies that definitely make their commitment. But I don't think it will be tenable for companies not to make them. I think you got to the other risk, which is a lot more of a political risk than anything else, right? Like, Secretary Kerry is not going to be the U.S. presidential, special presidential envoy on climate for until 2030.

I'm guessing. You could tell me if I'm wrong about that. Joe Biden certainly won't be our president that whole time. Who knows what happens in the political sphere in the U.S. And so the FMC has to kind of last through whatever permutations of international politics and climate politics occur over the next eight years for it to continue to have a loud voice and play hopefully an increasing role there. So how do you think about like the longevity of the and the staying power of the organization?

Look, I think you're absolutely right. You know, governments change over time. There are a few different ways, though, that I think we've built some durability. The first is, you know, CEOs. going out and putting their name on the line. I was particularly inspired just last week. Mads Nipper, the CEO of Orsted, went out and said, we do this not because it's easy, but because it's hard.

And we want to be one of those companies that affixes this brand to our name because we're going to achieve this. It's really hard. It's hard to walk back from that, right? Similarly, another way we've created durability is, sure, the U.S. government historically, you and I know, has changed hands. but now we have nine government partners, right? And so we have a lot of governments, many of whom actually contribute to the financial

underpinnings of this organization, to the secretariat, and sit on our governing board that will keep us very honest. Look, Sweden and India both have taken this leadership role on heavy industry decarbonization. I think it's one of the coolest things to happen in the past few years. They're both on our governing board. And I think Sweden and India are going to hold our feet to the fire no matter what happens in the United States. And finally, I would be remiss if I didn't say.

say we had a pretty good election just now. But wasn't perfect, but I feel good about our chances now, 24 and going forward. So this decade, I think, we've kind of unleashed something that I hope will be durable. So let's talk about aviation. We've talked about steel a little bit. I think aviation's the other interesting one. You've mentioned it a few times, and you alluded to sort of another core thing in aviation world, which is that if I could describe the dynamic in aviation decarbonization right now,

you can tell me if this is how you experience it as well. Airlines are voluntarily making a lot of commitments, actually. There's like a clear under supply of sustainable aviation fuel broadly categorized relative to the demand. What's available on the market today to be purchased, the actual purchase orders that are taking place are bio-based sustainable aviation fuel, which is generally from an LCA basis better than traditional jet fuel, but carries with it a bunch of challenges ranging from ultimately feedstock supply as we scale it up to the LCA not being zero carbon, to risks around

dedicated crops and land use issues and things like that. And so, you know, this is one of those cases where there's sort of an incremental but near-term set of technologies that are fuels in this case that are available. And where you do see, I think, like you're starting to see meaningful purchase orders take place. And then there's the question of what happens in the long term. And how do you scale up whatever the fuel is that's going to fuel planes to something that can achieve net zero in the next few decades? And there you have bigger open questions. Do we electrify aviation? Do we fuel planes on hydrogen? Or do we use electrofuels or whatever it's going to be? So as you're committing to this, 2030 is a really interesting amount of time, I think, in aviation world, because in some ways,

it's sort of like, it's like just far enough away that you could really focus on that next generation of things, but it's probably kind of tight if you're talking about real big volumes. So how did you think about that? And like what does the First Movers Coalition commitment look like in the context of aviation? Look, I personally think the aviation nut is the toughest one to crack. And I think we're so lucky that we've got some really incredible companies.

You know, there's United who goes out there and says, we're going to meet our sustainability commitments with no offsets. Big deal. We got Delta who's already signed an off-take agreement for half of their FMC-compliant clean fuels. By the way, the FMC standard, the First Movers Coalition standard, is more stringent than the first generation of bio-based SAFs, right? Sustainable aviation fuels. That first generation will get you, as you mentioned, Shale, a life cycle reduction of greenhouse gas emissions of, let's say, 50%. Our standard is 85% reduction, or, more. It doesn't mean all biobase fuels are out. You could have next generation, fairly advanced ones, alcohol-ded-jet, fissure tropes, processes that in many cases have some benefits that the first generation doesn't. Today's generation is based on waste oils, fats, and greases. As you mentioned,

Shale, they compete with food crops. They don't have great greenhouse gas reduction. Oh, and by the way, they don't scale. There's no way we're going to get to, you know, double-digit percentages of these fuels in our displacing our jet fuel mix. The next generation of biofuels has a better shot at it, but still not infinitely scalable. Electrophules, as you mentioned, have a better shot at being much more scalable. And so they clearly meet our FMC standard. You capture carbon dioxide and combine it with green hydrogen. Or, by the way, we're technology agnostic.

So there are other pathways. Lanz a jet will use its microbe on the exhaust from a, from a steel facility, produce ethanol and then convert it into clean fuel. And that's another really low life cycle reduction or high lifecycle reduction fuel. But this is a tough nut to crack. That's why the aviation commitment is a lower percentage of the supply chain than any other commitment. It's 5%.

So United, Delta, Apple, Salesforce, they've all said 5% of our jet fuel demand will be replaced with clean fuels that reduce emissions by 85% or more. I think we've got a couple other things going for us. We have folks across the value chain. So United Airlines or Delta buys the fuel directly, and Apple is their end user of business class travel. And so there are ways to kind of smear the green premium across the value chain. But I also think it's going to take some creativity for us to help these companies.

First, in many cases, these companies are like, we don't know where to get this clean fuel that will replace our jet fuel demand. Like, who makes it? And so we have been, you know, recently we had a dinner in Egypt where we introduced, Lanzatech or Meg Gentles, highly innovative fuels, HIF, to many of our purchasing companies. That's one function we'll play. I also think that in the aviation sector, we may see companies banding together through the First Movers Coalition and running reverse auctions for this next generation of fuel.

The last thing I'll say on this is the way our ethos is kind of backwards from everybody else's ethos. Everybody else's ethos in aviation has been, what's the best we can do right now? Like, how do we move the ball forward incrementally? And they've ended up with first generation SAFs, which you're probably not going to get is where we want to go. We've started with, in 2050, if you were to decarbonize aviation, what would it look like? It's going to look like a large majority,

predominance of these electrofuels or very advanced biofuels. So let's work backwards. We only need a small quantity of those to hit the market this decade, but let's only focus on those things that are capable of getting us to near zero and not focus at all on the things that are incremental. And fortunately, some things like efficiency improvements are going to be super important, and other people are working on them. And we strongly support them. But we're focused on the heart of emissions and aviation. I didn't know this about Delta. You said Delta has already made a – they've already committed a purchase order to meet half of their FMC compliant.

So that's 2.5% of their 2030 supply. That's right. And that's – I think that's all I can say about it. But that is in our press release from Egypt. So it was a wonderful announcement to make. But they won't tell us what they're buying or from whom? I think you could ask them. All right, I might have to do that. That's pretty exciting. Super, super exciting.

2.5% is not nothing. Yeah. All right, so what comes next? So you said, you know, you've launched seven of the eight. I said seven, but that was because you haven't launched chemicals yet. So when's chemicals coming, first of all? What does that look like? Because chemicals is, everything else is...

more of a, I think every other category you've described is more of a monolithic sector than chemicals is. Chemicals is not one sector, right? It's like, you know, a few relatively big things like ethylene and propylene and methanol, and then it's like a million smaller specialty chemicals. So I'm curious how you think about that. And then after you've launched all eight, what comes after that? Yeah, great question. Look, I will readily admit that the wickedness of this chemicals problem is the reason we have spent so long trying to figure out how to launch it. It'll happen in 2023. At least we've gone ahead and committed it. That's a nice forcing function for us to do it. You've committed that 100% of your new FMC coalition groups will be chemicals in the year 2023. Yeah, exactly. 100% of our new

sector commitments will be launched in 2023. So I will say you mentioned many of the chemicals categories. I'd add fertilizer, by the way. So that's, you know, there's a range of things. And so maybe what we do is we launch these in tranches. There may be a fertilizer commitment. And there may be some of these other categories that you mentioned to get there. So that's kind of what's next in terms of the sector commitments. I should take this moment, by the way, to mention, again, this is not just me and my team doing this in the U.S. State Department. World Economic Forum, as a whole team, stood up to do this, and our knowledge partner BCG has been invaluable, because they've basically helped us to create these technical standards.

And we work with a lot of other groups, technical trade associations, nonprofits, universities, the IEA to come up with these standards. We've got to do a lot of that technical work for all the different chemicals sub-sectors. And then what's next? In addition to launching sectors, we have got to get real projects into the ground. One of the partnerships I'm most excited about is we're partnering with Breakthrough Energy. they're our primary implementation partner. As you know, Breakthrough Energy has a aptly named Catalyst program.

Great for this podcast. I just want to say this podcast is named Catalyst before Breakthrough, and also our fund at the AP was named Frontier before Stripe. It's just there aren't that many interesting words, is what I've concluded. Exactly. So the plagiarizing Breakthrough Energy folks have, as you know, they're investing in demonstration projects in clean aviation fuels, clean hydrogen, etc. And so many of these are things that we will be buying, like clean aviation fuels.

So through our partnership, our companies are ideally going to provide the offtake that enables breakthrough energy to build even more of these facilities. And we're going to do this across all of our sectors with different partners to make sure that, especially as we take advantage of the IRA, you know, Jigger Shah at LPA, who I know Jigger was on this podcast recently and is a good friend, Jigger's committed to invest in projects that have First Mover Coalition companies as off-takers. Because, you know, that de-risks his loan guarantee. And so you can imagine a clean steel project in the United States, for example.

I'm not breaking news here. It could be any of our sectors. With one of our companies that have promised to buy the off-take from that facility actually gets funded. In all of our different sectors now, cement, steel, maybe not aviation fuels, entirely. In almost all of our sectors, it is now as inexpensive to build the clean alternative as it is the dirty one, thanks to the IRA. That, however, is not true elsewhere. And so I think it's really important that we start to build some of this infrastructure in emerging economies. We mentioned India up front, where iron and steel is the fastest growing emission sector. It would be

really great to get some clean steel plants in India. We have some Indian companies that are buyers. And so we're delighted to partner with something called the climate investment. funds, the SIFs, which have recently launched a industry fund, thanks to a infusion of capital from the United Kingdom and some other countries, they are going to be investing in these sorts of projects with our companies as off-takers. So again, we're going to go around the world, find ways to support people who are building the next generation of technology infrastructure, and provide demand through our companies. Our only goal going forward is to get real projects, real steel, no pun intended, in the ground.

Yeah, I think this dynamic around the commitments that come from companies in the U.S. because the IRA and Europe because of various policy mechanisms, but also just like in the global north versus the global south, where most of the growth in manufacturing is occurring, a lot of the demand growth is occurring,

and this is inherently this like global effort that you're undertaking. So like what else needs to happen for this to play out concurrently, in the global north and the global south? Totally. And this is a big fault line. You know, in the last two years of traveling to countries, you know, I led a delegation to South Africa.

And what the South Africans want to do is they want competitive clean industry. So they want to invest in their green hydrogen exports or green steel exports. Here comes the United States IRA. And basically the only thing we heard from countries in Egypt was, hey, you guys are now the most competitive producer of these clean products in the world. what about us? We even heard from some emerging economies who asked, could you carve out some of the IRA funding for clean hydrogen projects in this developing country rather than only in the United States? And so I think it's super important that we'd be receptive to the request of

these countries. Obviously, we're all locked in this great global competition. But developing countries, it's important for us to help decarbonize developing countries in these hard-to-obeyed sectors that will dominate emissions growth. So we have the development finance corporation. It's a U.S. organization. It invests in development around the world. And we have a partnership with them to invest specifically in projects that will have FMC companies as their off-takers. So American investment capital, our loans, for example, will go toward these hard-to-abate sector projects in India or Indonesia or South Africa. I think that's a very important thing that we should continue to do. do you think that at some point we're going to want to stop calling these sectors hard to abate sectors

because it's going to be like too easy and out in the same way sort of that like at some point we stopped wanting to call clean energy alternative energy it like puts them off in these category of like well you know we all know that heavy duty transportation is hard so it's a hard to abate sector so you know maybe we don't take it as seriously like i i don't think we're there yet but i've been thinking that i agree that that's the correct it's like the act way to describe them, but at some point I think we're going to want to stop calling them that. I am totally with you. And I think, again, if we were all like nerds about it, we would like one by one start to move the sectors out of that category. We'd say, ah, trucking. Like, I think

we can electrify this now and move it out of hard to abate. But from a, from a PR and communications perspective, you're absolutely right. Like, like, especially with the IRA now and with a lot of the technologies shale that you're investing in. By the way, thanks to to you and Madison, we got to meet Sublime and have them meet our FMC off-takers. Thanks to that, there are real ways to abate these hard-to-abate sectors, or at least not impossible to abate. So I'm with you. I think maybe we need a rebrand to, I don't know, need to abate or something. It also, not to continue on my soapbox on this, but it also makes, it implies the opposite for other sectors. And I'm not sure that the right way to describe, for example,

the power sector, which you would think of as being, quote, unquote, the easier sector to abate. Like, it's not easy. Just because it's maybe easier or more straightforward than aviation does not make it easy. I'm totally, totally with you. But look, I will say there is plenty of attention. In fact, the preponderance of our attention goes toward the not easy to abate, but the easier to abate sectors. So there's something to be said for, hey, it's really time for. us to, if not entirely shift our focus, to equalize our focus to the stuff that totally gets

neglected. And that's true in diplomacy. It's true in government policy. I'm delighted the IRA focuses on industry as well as the power sector. And it's true in corporate commitments. You know, I really want to help companies not just, you know, do renewable PPAs, but start to make these hard commitments under the First Movers Coalition. All right, man. I've been wanting to do this one because ever since you guys announced the First Movers Coalition. I've been tracking it and I've been very excited to see all the announcements coming out. So thank you so much for walking me through it. Hey, I'm so grateful for the chance and keep up all the good work. Really appreciate it. Barun Sivaram is, okay, this is a mouthful,

the managing director and senior advisor for clean energy and innovation for U.S. Special Presidential Envoy for Climate, John Kerry. Well, what did you think? What do you think of advanced market commitments. If you're wonky enough to already know what they are prior to this episode, then you probably have opinions. You can send them to us by recording yourself on a voice memo or your sound recorder app on your phone and emailing it to Catalyst at PostScriptadio.com. You can also just email us there if you don't want us to hear your melodic voice. That's Catalyst at PostScriptadio.com. You can find the show on Twitter at At CatalystPod. You can also find me there. If you like the show today, go over to Spotify or Apple Podcast and leave us a rating and review.

The show is a co-production of PostScript Media and Canary Media. You can head over to canarymedia.com for links to today's topics. And as always, PostScript is supported by Prelude Ventures, a venture capital firm that partners with entrepreneurs to address climate change across a range of sectors, including advanced energy, food and ag, transportation and logistics, advanced materials in manufacturing, and advanced computing. This episode was produced by Daniel Waldorf, mixing by Greg Vilfrank and Sean Marquand, theme song by Sean Marquand.

Our managing producer is Cecily Mazin Martinez. I'm Shail Khan, and this is Catalyst.