Catalyst with Shayle Kann - The challenges of building a carbon removal portfolio

Episode Date: February 29, 2024

The carbon removal market could reach $400 billion to $1.6 trillion by 2050, according to McKinsey. But it’s got a long way to go. Right now the market is wild, unexplored territory filled with unproven technologies, murky cost curves, and a motley mix of price points and standards. The hope is that one day it becomes a standardized commodity market of high-quality, durable removals. But for now, brave buyers have to wade into the wilds and see what works. So what does that look like – and what have they learned so far? In this episode, Shayle talks to Stacy Kauk, head of sustainability at Shopify, which paid $55 million for 85,000 tons of removal in 2023. Kauk says that very few of those credits have been delivered yet, but the company, along with a few other early entrants like Stripe, H&M, and Microsoft, are investing in a varied field of technologies to develop the market. Stacy thinks of Shopify’s approach like a venture capitalist’s portfolio, with some companies succeeding and others failing. Stacy and Shayle walk through the practical realities of building that portfolio, covering topics like: Using forward purchases, flexible contracts, and Shopify’s internal credit standards The challenges that slow down ambitious startups, like permitting delays and the complicated work of measuring, reporting, and verifying credits Which technologies are hot and which are not, ranging from biomass burial and wastewater treatment to enhanced weathering and ocean alkalinity enhancement Comparing the lower energy requirements of enhancing natural systems with the potentially clearer cost curves of engineered systems Building a diverse portfolio across technologies and maturities What determines the prices Shopify pays for different credits Recommended Resources: Bloomberg: Stripe, Alphabet and Others to Spend Nearly $1 Billion on Carbon Removal Carbon Dioxide Removal Primer Latitude: Fixing the messy voluntary carbon markets Catalyst is supported by Antenna Group. For 25 years, Antenna has partnered with leading clean-economy innovators to build their brands and accelerate business growth. If you’re a startup, investor, enterprise or innovation ecosystem that’s creating positive change, Antenna is ready to power your impact. Visit antennagroup.com to learn more. Catalyst is brought to you by Atmos Financial. Atmos is revolutionizing finance by leveraging your deposits to exclusively fund decarbonization solutions, like solar and electrification. Join in under 2 minutes at joinatmos.com/catalyst.

Latitude Media, podcast at the Frontier of Climate Technology. I'm Shail Khan, and this is Catalyst. We meet with a lot of companies, and I hear from them, and they're like, oh, yeah, we're going to be delivering credits in a year. They haven't built anything. They haven't commissioned anything. They haven't put it together. It's not yet done. And, you know, I hate to be the party pooper all the time, but I'm like, you know, we need to have a flexible contract because that's probably not going to be the reality.

This week, the practical realities of being one of the pioneering purchasers of carbon removal. 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.

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Fish Tank PR. To learn more about Fish Tank's approach, visit fish tankpr.com. That's F-I-S-C-H-Fish-Tankpr.com. I'm Shale Khan. I invest in revolutionary climate technologies at energy impact partners. Welcome. So I think the carbon removal or CDR market is super interesting and pretty weird, to be honest. it's like three, four years old.

It's really not that old, right? The first procurements, besides some really small individual ones for some of the early days of DAC, but the first procurements of this kind of new emergent market that is focused on durable carbon removal really only showed up in, call it 2020, 2019, 2020. So it's a new market. The other thing that I find interesting about it is that though there is a growing buyer pool, it's really still predominantly dominated by just. a small number of companies that are procuring, in part, not just for their own benefit,

but trying to foster an ecosystem and support the development of the industry, right? So the names here that everybody knows are Stripe, or now Frontier, which is the program that Stripe created with a bunch of other corporates, Microsoft and Shopify. And each of them are building these fairly broad portfolios of procurements from technologies and companies that are pursuing different pathways to carbon removal. And they sign lots of additional procurements as time goes on, more companies show up. You know, we've got hundreds of carbon removal companies now where we had, I don't know,

probably a dozen or less back before all of them started. And so it's this interesting dynamic in the market where there's like this explosion of possibilities, but also rapidly changing procurement guidelines and, you know, how the buyers, of which there's still a very small number, think about what is good, what is bad, what's a good fit for them. So, you know, it's interesting to talk about this market from a theoretical perspective and the different pathways. But I also think it's interesting to just talk to one of those buyers and see how they are thinking about, practically speaking, both buying and receiving delivery of carbon removal tons as they are just starting to show up in the market. So, who better to talk to

than Stacey Coutke, who is the head of sustainability at Shopify and represents, as I said, one of what I think of as the sort of three big buyers of durable carbon removal, or at least three initial big buyers of carbon removal. So Stacey has all the sort of early battle scars of this industry and is in a unique perch to talk about what is working and what isn't, what's hot and what's not, and what we expect to see next. Here's Stacey. Stacey, welcome. Thanks so much for having me. So we're talking about carbon dioxide removal and the market for it, which you're a big part of, So actually, I guess starting with, when did you start, when did you make your first procurement at Shopify for CDR? And then how much have you pre-purchased or purchased so far?

So we made our first purchase in 2020. I think we signed our first contract. It would have been in June of 2020. We made a batch announcement in September 2020, where we made, I believe, eight purchases. So that's where we got started And we had a good range We had a couple of DAC companies We had some ocean companies

Ocean alkalinity enhancement as well as biomass sinking We had some biochar in there Some charm industrial for some becks So we had a good range in our first portfolio So we've been at it I guess we're in year five now And how much have you purchased in total now in tons? So we're just under 85,000 tons

and that's durable carbon removal. So it doesn't include things with less than an estimated 100-year permanence. Okay. And so you mentioned a bunch of the categories, and I want to talk through some of those and talk about how you think about building a portfolio. But starting with one of the fundamental questions in CDR, which is that a lot of the purchases that have happened so far,

including, I think, most of the ones that you've made, they're all forward market commitments. They're all purchases for future delivery of carbon removal. So now that you're three, years and change into your procurement. You talk a little bit about how much has been delivered versus what you've purchased and how you expect that to trend over the next few years? Yeah, so a lot of it is forward purchases.

And since, you know, we're entering year five, if we talk about what happened in 2023, other than charm industrial, a large portion of our portfolio credits were reforestation, soil, carbon storage, and biochar. Things have started to change in the back half of 2023, where we got our first ocean deliveries from Running Tide. And then our first DAC credit delivery from Climbworks, which is the first batch of credits we've received from them from the contract that we signed in 2020.

So we're starting to see some things change in terms of the look and feel of what's being delivered. But it's a slow start for sure. Can you talk about volumes at all there? Like how much, even, or another way to put it, I don't know if you have this number offhand, but of that first batch, like what portion, that batch that you procured in late 2020, how much of that has been delivered? So I don't have the numbers offhand, but a lot of these contracts, we did them as five-year deals with extensions. And so each contract was around, it depended on the technology, but like say if we take a DAC contract,

You know, we're talking a maximum of like 100 tons a year being delivered is what we're looking for. So it's starting to trickle in is what's happening. And then how we designed these contracts was to have follow-on purchases where as things got proven out and we understood pricing and economics and all of that, then, you know, we would have rights to add on additional purchases from future deployments and things like that. So these are really credits that are coming in from pilot facilities. And to some extent that makes sense, right? You know, you're doing first-of-a-kind stuff, and so it takes time to build. And the whole point is that you're procuring this before it is built so that it is able to get built, right? A lot of the companies to raise the capital that they need to build the pilots and so on.

Does that, so that is a roughly three-year sort of time between original purchase and first deliveries of, you know, in the hundreds of tons scale. Have you seen that expectation moving in either direction since then? Like, are the new procurements that you're signing today? Are you expecting roughly three years before they'll start to be delivered? Are you expecting it to be faster? Are you realizing things take longer and it's going to take more time? I just think it's an interesting dynamic in this market because everything is forward purchase

commitments. Yeah. No, and like, it's frothy, right? Like, it's not straightforward. And, you know, some of our credit deliveries are on time. Maybe they're six months late. Maybe they're 12 months late. They're not that far off.

But we are seeing some that have massive delays because there's huge pivots happening by these companies where they, like, try their pilot. And they're like, oh, this absolutely doesn't work. And there's a big redesign that has to happen. And then you get those delays, right? Or what we also are seeing are permitting delays, things that, you know, companies take for granted sometimes and you know that government permitting process can take a lot longer where you're going to put the carbon that you capture you know you need a class six well in the

u.s that's going to take some time too so i think as a buyer and like that's the unique perspective that i can bring right as a buyer we meet with a lot of companies and i hear from them and they're like oh yeah we're going to be delivering credits in a year they haven't built anything they haven't commissioned anything. They haven't put it together. It's not yet done. And, you know, I hate to be the party pooper all the time, but I'm like, you know, we need to have a flexible contract because that's probably not going to be the reality. And like, that's what we're seeing play out is, you know, it is about three years before you can get those deliveries because when we're making those purchase decisions, often we don't have full visibility. And neither does the company. Like,

they're building the plane while they're flying it. They need to. to do MRV. They need to look at third-party verification. There's a lot that goes into shipping those first credits in addition to actually getting the technology itself to work. You've got to actually do that whole carbon accounting and verification process as well, which for a lot of these companies, there's not even a methodology yet. So, you know, there's a lot that goes into, as a buyer, being able to accept that delivery, and that takes quite a bit of time. And I think there's a lot of companies out there who want to be ambitious. You know, you've got to prove to investors. You've got to get financing. So you have to have good timelines. But when it comes down

to it, everything takes longer. That's the observation, I would say. Right. Which is, you know, I think it's true across lots of new technology categories. But, you know, it's interesting in this space just because we're at the front end. There's all this new procurement now. And the deliveries are just starting to happen, as you described for most of these. You mentioned in the original procurement that you made when it was a batch and there were a bunch of different solutions, some of those names. I'm interested in what you've been seeing since then. So, you know, in the three and a half years that you've been sort of publicly in the market, what are the trends that you've noticed in terms of categories of CDR? Like, what is hot and you're getting lots of folks banging down your door trying to sell you credits?

Where are you seeing the market languish? you know, what's the, because there's so many different ways and more ways every day to do carbon removal. I'm curious what you think is hot and not, so to speak. Yeah. And I guess it's everybody's personal definition of what's hot, right, and what you're into. So, you know, those first purchases, yeah, they were predictable. We know what they were known quantities. We knew who they were, we knew what they were doing. They'd been at it for a little bit of time. But there has been an emergence of new technologies. I think we're seeing a lot of activity in enhanced rock weathering space because that's very quick to deploy. I think, you know, when a lot of the purchases

started happening in the early days in 2020, 2021, there was that $100 per ton price target at scale that was put out there. And like, you know, whether or not that's achievable is one thing, but like that's something that you can use in order to have a baseline comparison point across different technologies and approaches. And I think what we're seeing is the market has taken that and kind of internalized it. And we're seeing an emergence of new types of approaches and carbon removal that are really focused in on trying to do it at a low price. So we're using wastes. We're doing it with existing infrastructure. Examples of that are like crew carbon, which is doing carbon through wastewater treatment plant sludge and outfalls and, you know, the optimizing that process.

We're seeing interesting companies like graphite come out of stealth where they're basically bailing hay and putting it underground, right? And then we've got other companies that are doing biomass burial, which to me is like kind of like the weird one that's coming out of like the initial market signals. It's like we want it to be cheap. We want it to be permanent. We want it to be permanent. We want it to be non-competing. And so like a lot of these performance criteria, because it was always performance criteria, it wasn't prescriptive of technology. It was like, here's what we like in terms of CDR. So we've got a lot of different approaches coming out that are hitting those performance criteria. And then I kind of step back and I'm like, do we really

want to be doing that? Do we really want to be taking waste, bailing it up, coating it in plastic and bearing it underground or do we really want to be like it just kind of goes on and on and on there's all these like different ideas really around you waste biomass which i think has its own bag of problems and you've had an entire podcast about that so i won't get into it but for me in terms of what's hot what's not i really like carbon removal that enhances natural systems because they use less energy which makes them work cost effective. Whether or not we're going to be able to optimize them to a point that makes the economics and the business case works, I think is yet to be seen. But that's what's hot for me

or things like that. So that's like ocean alkalinity enhancement, that kind of thing? Yeah, ocean alkalinity enhancement, ARCA, who's using mine tailings and treating those in a certain way to use to turn them into a carbon sink. There's a company out there that has figured out a way to do the aggregate and the coating of roads so that those roads harden and calcify and become a carbon sink in and of themselves. Like there's all sorts of neat things that are passive in terms of the reactivity. When we stack those up against, you know, what I was talking about in 2020 was DAC all the time. It was always direct air capture, and it was, I've got to find the one that's going to do this with the least amount of energy inputs. And now everything that sprung up, I think, is kind of a swing response to that, right?

Yeah. I mean, I think part of the challenge, the reason the DAC is to some people intuitively attractive is that it's an engineered system. it, in theory, if you're not constrained by energy, which you are, but if you're not constrained by energy, you can put it anywhere. So it's sort of like theoretically infinitely scalable. And because it's an engineered system, you can imagine a cost curve. So start on the cost curve and then ride down the cost curve and then eventually you hit some promised land. And so that sort of seems intuitively appealing about DAC. Of course, it runs into the constraint of that cost curve may be illusory, it may or may not be there, or if it's there, it may be harder

than we think. Energy is a constraint. It's not a constraint. It's very capital intensive, very energy intensive. So then you start thinking about these other things that you're describing, enhancing natural systems or the biomass burial stuff. And all those things relative to DAC are going to be lower energy intensity for sure. And generally speaking, lower cost on day one. right if you're doing a first of a kind of any of those versus a first of a kind DAC right it's always going to be more expensive to do DAC but the question with those of course is usually some combination of scalability so do you have enough mind tailings do you know have enough waste biomass whatever it might be and the cost curve being less obvious and so there's this sort of interesting dynamic of like

if you're going to do one of them you're probably going to do both but if you're going to do one of them you know, do you bet on the sort of like starts better, but maybe trickier to scale, or starts worse, but in theory over the long term scales really well? Question. I'm curious how you think about that from a procurement standpoint. Like, is your goal just to kind of like seed all the promising ideas with your buying power? Or are you sort of picking the pathways that you think are going to be best, either for Shopify specifically or just for everybody? So it started out with all of the things portfolio approach because, and I actually would say we're still there because we don't know actually what's going to play out and what's going to work out. And the reason we have decided, like we've got 40 companies in our portfolio now across a multitude of pathways.

And it's really about trying to give the best companies a chance to go out and build something and prove. that it works, hopefully. And if not, they've at least gathered and generated some data that shows us like, this is not going to work, or this is the first iteration, and we're going to have to start again, but we learned a lot. And so right now, we're still in that searching for what are the things that are going to work, because all of these things have research behind them and academic studies, and, you know, on paper looks like it should work. But in practicality, we have to actually go from zero to one and operate the project as it's been designed and have that learning experience. So we're still in the picking across all the verticals because we're not clear what's going

to scale. And the reason we're doing that is because we want to, so there's two pieces. One is to learn and to help the field advance. But the second is because we want to have a diverse tech stack within each vertical. So we don't just have like one or two. DAC companies, we have seven. We don't just have one or two like biomass based solutions. We're going to have five or six. And the reason behind that is because we try to pick companies that are doing it differently and that are taking a different angle on solving the same problem using a very

similar approach. However, they've got some kind of innovation that differentiates them from the rest of the field. And so we're picking that diverse stack because we're not sure which ones are going to prevail because they haven't actually operated at a significant enough scale from an engineering perspective for us to really know how much they're going to cost. And I think that that is part of the factor in having that diverse tech stack within the verticals. And the rationale from like a corporate buyer perspective is we try to do a lot of these in a way that gives us access to future projects so that if it works out, yes, we were a first buyer, first off taker. And, and And, you know, we have some risk because sometimes we'll actually make prepayments as well

so that there's non-dilutive capital coming in at an early stage that does a lot of catalytic things from a financing perspective for these startups. And so because we've taken on that risk, we do want to share on the upside. And the upside for us is access to those hopefully high-quality carbon removal credits down the road from future projects that are operating at a better cost per ton. And so that's what we're hoping for. And that's like a 10-year line of site. for us. It's not something that we're looking to cash in on today. And from a buyer perspective,

it's important for us to have a variety on that list because there's a lot of unknowns and developments happening in the voluntary carbon market. There's a lot of developments happening in the regulatory landscape where a publicly traded company. We're going to be doing climate-related disclosures. We're going to have all sorts of things coming at us when we get to 2030, 2035. And so having that diverse approach gives us the flexibility I think we're going to need as a corporate climate-aware regulated company likely in the long term. 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

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We're living through a profound economic shift, and energy sits at the center of all of it. Trillions of dollars are flowing into power plants, transmission lines, battery factories, data centers, but the future of energy isn't shaped by technology alone. 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, 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.

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Is it that type of a portfolio balancing thing? Or, you know, how do you think about, like, what is the right type of portfolio to construct? So we look at it from that perspective of tech diversification, but we also try to have a range of maturity of the technology and of the company looking to implement the solution. So we look at two things. We want to be balanced from a tech perspective, but we also want to be balanced in terms of like low TRL levels versus some. solution that's ready to be fully commercialized, like a Climbworks, for example. And so we need to have some of those safer bets because we do need those credits coming because we retire them against our footprint so that we can maintain that carbon neutral

commitment. So we turn the dials. And how we do that is we monitor our existing portfolio companies very similar to how, like, a VC fund would monitor the performance of their companies. We look at things like runway and cash burn and the financial viability of the companies. We look at the progress they're making from a technology development standpoint. Our other players in the market starting to support them. So we do a health check.

And we do that health check every six months. And on an annual basis, we'll identify companies that we have concerns about. And then we look at, okay, well, they're in this vertical. They're doing this technology. we probably want to get a deal with a startup who's coming into that space so that we have a backup plan if we have concerns about the performance of our existing companies. That's just starting to happen now. Because like as you said, at the beginning of this, we're three years in.

We're just starting to have enough dots on that plot to see if it's going in the right direction or not for these companies. So we're getting to that point where I think you're going to see more portfolio adjustment from us as we, as we go forward as companies, you know, prove in scale or, you know, prove that they're not going to scale. What about pricing? Obviously, this market is a funny one with regard to pricing. In theory, right, you're buying a commodity. You're buying a dollar of ton removed. And so in theory, you would have commodity pricing. But of course, it's not that way. The market is like all over the place. I mean, you're just doing durable 100 year plus. So, you know, you're not probably. buying anything that cost $30 a ton,

but you could be buying something that costs 100 bucks or 200 bucks a ton. You could also be buying something that costs thousands of dollars a ton. So one, how do you think about like, what is your willingness to pay for a given solution? What determines viable pricing to you? And two, do you, in your portfolio construction,

is that a factor? Are you saying, okay, let's, let's, Let's make buckets of credits based on their pricing and make sure that we're sort of exposed to all those different types. So there's a lot in there. So the first place to start when it comes to pricing, you know, you're talking about a commodity. That's not how I think about it at all because they're not fungible. Like they're not comparable. They're not the same.

Everything is different. But do you agree that at some point they should be? I get that they're not today but down the line 10 years 20 years from now there will be differences and I guess you could pay more for 10,000 years of durability versus 1,000 years of durability

but basically shouldn't this ultimately be a commodity market? 100%. I totally agree with that and I think it has to be in order to function properly we need to end up in a place where a ton is a ton is a ton and there's two reasons for that.

One, it provides that level playing field on the side of the suppliers, but it also provides a level requirement across companies or whoever could be governments at that point who are retiring these credits. You know, they have to be equivalent, tradable, interchangeable, resellable, and functioning. Otherwise, we haven't done our job. It's going to take 20, 30 years. But we haven't done our job well today because that's where we need this to be in order for it to work properly.

And, you know, a lot of folks make choices today to buy credits that, oh, they like the sound of that technology or that project or, oh, that's interesting. It's, you know, based on an agricultural process and my company's in the egg business. That's what I want to buy. Like, it just makes it difficult for cash flow and credit sales and for companies to perform. So it would be very good if we ended up in that space in the long run where it's irrelevant and here's the market price. But to go back to price, I think there's something to be clear on.

Like, what is the cost to actually capture and store that ton? Like, what does it actually cost? Because that's different from price because what we see as, like what I see as a buyer is we've got kind of two kinds of companies. One, they're going to charge the cost. Their price is equal to the cost. And then there are other companies that their price is less than the cost, and they're taking a loss because they want to come out and they have a different business strategy where they want to have a lower price than somebody else doing something similar, or they want to have a signal that this kind of technology is going to cost less. And maybe it will in the long run, but it's not today, but that's what they want to be as their market signal. So I think we're getting a lot of misinformation in terms of pricing that's out based on what you've actually paid.

So as a buyer, we look at the cost to do a ton. And then we can talk about price because it's important for us to understand the OPEX and the CAPEX that goes into a credit. Do you need to make a purchase, do you need to believe that the cost, of that pathway or that technology can ultimately be the lowest cost in the market for, you know, equivalent tonnage, right? Like, do you need to be able to believe a certain cost curve? Or would you say it is still worthwhile to buy something which is always going to come at a premium to everything else that looks pretty similar? I mean, the cost curve's critical. We don't want to be buying something that's going to stay flat.

because that's not pushing innovation, then that's not going to be an offering that's viable in the market of the future, right? We have to be seeing that cost curve, and we should see that cost curve. When you're doing something in a lab or a bench scale where you're doing 10 tons a year, the cost to do that is, you know, and more of an engineered solution is way higher than the cost at scale because you're running that plant for 30 years, for example. Like your amortization brings that cost down. But what's important to see in that cost curve, and this is what we ask to see as a buyer, because we're not buying that commodity, because we're placing bets and we're actually spending way more than we need to today because we're hoping we'll have access to great

credits in the future. We're taking that risk and that ROI. And so that's why we want to understand the cost curve. And we actually ask companies to tell us everything that happens to bring them down. It's not just, oh, here's our cost curve. It's like, okay, what are those step changes and why? And actually, what are the likelihood that that's actually going to hold true? What are the risks that are going to make that not true? And that's where we find a big difference in the companies, because some companies have thought this all through and have answered it

and, like, really can be like, yeah, we don't know. It's 50-50 if this is going to actually pan out for this price reduction that we expect. And then others, you know, oh, yes, it's fine. And then we know the difference. It's like when you're trying to get to know a founder and a leadership team for a startup when you're going to do an equity investment, it's very much a similar thing. Like you have to have that trust and you have to understand that they know their business and they've thought about this because it's not just, we're not just buying a credit.

It's really not buying a credit. That's not the mentality. It's the return on our investment, especially in most of our contracts where we do prepayment. the ROI is maybe we'll get a credit someday. And so we've got a lot of contracts signed because we don't expect them to deliver credits. The other thing I wonder about, I've thought a little bit about this.

I think there should be a different incentive from you a buyer versus either a company that could be a supplier or an investor in said company, which has to do with scalability. Right? Because if I'm Shopify and I see a solution, I could procure credits from, it looks like actually like maybe this is going to be, it's going to check all the boxes, it's going to be durable, it's going to be measurable and verifiable, no side effects.

And the cost could be lower than everything else in the market, let's say. But it scales up to some ceiling. And that ceiling is, I don't know, let's just call it like 100 megatons and, you know, globally. And then there's another solution, cost structure fundamentally higher or it has some other sort of challenges associated with it, but far more scalable and could do a gig a ton of the thing. If I'm Shopify, I think I'm fine procuring from the smaller thing potentially, right? It has to be some minimum scale because you want it to be able to deliver meaningful benefit to you as a buyer and to the industry in general. but I wouldn't think you need to only bet on things that can scale two gig a ton, whereas the company and the investors in the company probably want things that have a bigger tam. So I wonder whether you see that divide at all.

It's obviously relevant to things that leverage waste biomass, for example. Yeah, totally. And we definitely, I can definitely see the difference there. And, you know, deciding to go, I don't think it should be in either-or. We've got contracts that fit in both of the two buckets that you just described. But the lower scalability, that's the reality. And that's going to be the reality for quite a few carbon removal solutions. And, like, I like to think about it as I want carbon removal everywhere.

I want every system and every process and every good that we make. manufacturer to be a negative supply chain, right? And if I want that to be the truth of the future, then we need to support these smaller scalable items because they're actually analogous. You're going to learn something. You're going to learn a model. You're going to use some infrastructure that exists. You're going to do something that's then transferable to another sector. So I don't think it has to be gigatons scale in and of itself, but contributing to that whole net negative future because it's something that from a system's perspective, we're going to be able to learn how to apply it elsewhere. So that that kind of shift in understanding is important.

And some of the things that we thought in 2020 were gigatone scale for a variety of reasons may not be. And so you have to take that bet. You have to try first to get more information in order to actually determine if that scale up plan. plan is actually feasible. And I think that's true for a lot of these. Yeah, I think that's right. I mean, it's very interesting. I guess the other question that's sort of related to that, like, presumably most of the companies that you are procuring from today are venture-backed. Is that true generally? Yep. Yeah, some are venture-backed yet. Some but not all. Because I guess the question that I have is like there's a bunch of things that I

think we should do, like, carbon removal solutions that should, we should do as a world, but are not necessarily going to be like venture-backable companies, maybe because of scalability. This is smaller stuff even than sort of waste biomass driven things. And I don't know that there's like much of a, I don't know exactly how you build the company otherwise, but there are other pathways to scaling companies in venture capital. And I sort of wonder whether we've really shoved carbon, removal, this whole market, into a pure VC context, where not everything is necessarily going to fit that. And I wonder, like, how you think about ecosystem building outside of that world.

Yeah. I think the reality is that carbon removal is in the VC world right now because there's no funding from elsewhere. And I don't see this being a long-term financing solution because carbon removal is waste management. Like, it's just cleaning the air. Like, we clean our water. Like, we do garbage removal. Like, these are not things that tend to make money for anybody. So in the longer term, I think this is going to be more of a public requirement.

Then it is going to be something that's got to achieve gigatons scale and make, you know, the ROI that the VC funds are looking for. because without a requirement to buy the carbon removal, which we don't have, it's all voluntary. Like, it's a bit of a, it's not a solid structure for a new industry to be built on. And I think because it's being pushed through the voluntary market and through venture funding, I think we're going to get proof of concept with this setup. And then in the long run, in my hope is that this becomes more of, you know, yes, the commodities come out, but in order to generate a commodity that you can trade without any friction and there's no like real other definition than it's a ton is a ton, in order for that to take place, you have to

have regulation. You have to have rules of the game on both sides of the buying and selling equation. And when you have rules on the supply side, then we're talking about the projects. And then if you put the rules in place, are they going to be making money? Maybe, maybe not. And should it not be something that's publicly funded through governments or not? And I think it's going to be interesting in about 10, 15 years when we have a good shopping list of carbon removal solutions that have been proven. Well, who should pay? Because we're going to have to deploy them at a very fast rate compared to what's the projection today. I guess final question for you is on how you think about the evolving world of certification and standards.

There are many, many, many different certifications and standards that carbon removal companies can go through to get qualified for whatever. Do you rely upon those? Do you trust those? Do you have your own? Just how do you think about that whole universe? So when we started, we began, it was we didn't trust a credit that came out against an established protocol on a existing registry. We reviewed everything and went through it and set ourselves a new internal standard for what we would buy. So no, we do that. Rigorous review ourselves and we get support from industry experts depending on what kind of technology. or solution we're talking about.

But when it comes to a lot of the credits that are going to be delivered to us in the next year or so, these are the first credits from the first time something's being done at a meaningful scale to generate a credit. Like take ocean alkalinity enhancement or biomass sinking or enhanced rock weathering at scale. These things are all going to be coming through in the next six, 12, 18 months. And they're also writing the methodology. just in advance of doing the deployments.

And so the results of the deployment are going to test those methodologies. And so we're going to see updates happening. And I think this is the biggest holdback, I think, to getting more buyers into the carbon removal market is the infancy of the MRV for these new approaches. But there's a lot of credit buyers out there who are sitting on the sidelines waiting for these MRV approaches

to get tested, proven. increased data sets so that things are statistically significant. And then they're going to be like, okay, well, the risk is gone. I can now buy that. So we're five years out, I think, from that happening. And MRV, 100% is the key. And so as an early buyer, we take it very seriously to review everything and get input from scientific and industry experts to make sure that the methodologies

are robust and that we're setting that precedent. by accepting those first credits, should we be accepting them? Is this the right amount? And we don't want to take a misstep because MRV has to be trusted. And I see it as the critical key to unlocking more buyers joining the carbon removal market. So before we wrap up, you know, given that you've been to this market as long as anybody and kind of seen how it's progressed so far, like, what are your key takeaways? What's your overall view of the carbon removal space as it exists today and kind of what you expect to see over the next year?

One of the things that I kind of expected would bubble up that we never really got to. And it's really, you kind of touched on it when it was, you know, buyers are picking different projects based on different attributes that they, you know, it resonates with them. And I think, you know, one of the things that's popping out quite a bit right now, it's like we'll say, you know, oh, we got our first credits delivered from running tide. That happened back in August, September. And, you know, people will be like, oh, that's not a good carbon removal solution. You should have done X or you should have done Y. And, you know, there's a lot of everyone's picking their favorite solutions. And, you know, I would argue it's really important to pick ones that are not your favorite, to learn about those two and to push the field forward by having. that all of the things portfolio approach. And I think any step towards pushing a technology through the development process is an important step to take. And we're going to see things that don't work out in the next little while. And there's going to be stories about carbon removal projects that failed. And I don't think that these should be held up as a reason not to do carbon removal. they should be held up as progress and viewed as a successful discovery of something that did not work

and put us back on a better path to build the carbon removal ecosystem at large. And I think it's going to be an interesting time coming up. It's going to be fun to watch. All right, Stacey, thank you so much for doing this. Really appreciate you taking the time. No problem. Thanks for having me. Stacey Calk is the head of sustainability at Shopify. This show is a production of latitude.

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This episode was produced by Daniel Waldorf, mixing by Roy Campanella and Sean Marquan. Theme song by Sean Markwan. I'm Shale Khan, and this is Catalyst.