Josh Knauer in Financial Times on Carbon Market Leadership
Originally published on Financial Times:
Fresh Capital Brings New Climate Tech Online
By Neanda Salvaterra March 27, 2023
As companies anticipate new regulations in the U.S. that may require them to step up their reporting on climate change matters, a wave of climate venture spending is bringing online technologies that could aid with reducing the corporate carbon footprint and global reporting requirements. Meanwhile, large public companies, like Caterpillar, General Electric and Honeywell, are also overhauling operations and strategies to transition to a less carbon-intensive future.
As boards face tougher expectations from shareholders and other stakeholders to reduce and report greenhouse gas emissions and plan for a new operating environment, corporate investments or partnerships with climate-focused ventures can offer companies a way to achieve GHG-reduction pledges, sources say.
In the last few years, a large number of climate tech companies such as NorthVolt, a battery company headquartered in Sweden; Aurora Solar, a San Francisco-based software company; Helion Energy, a U.S.-based nuclear fusion enterprise; and Aiways, a Chinese electric vehicle manufacturer, have together received billions of U.S. dollars in investments. Funds are also finding their way to smaller outfits like Reseed, a carbon emissions offsets shop, and Octavia Carbon, a direct air carbon capture company. Both operate out of the global south and are adding layers of technology to their offerings that may be useful for companies that have to generate reports about their climate targets for regulators.
“We won’t get anywhere near the Paris Agreement goals without the mitigation efforts, which includes transitioning to cleaner energy sources. That’s where the bulk of the money needs to be spent.”Michael TaylorInternational Renewable Energy Agency
Global venture capital investment into climate technology, which includes sectors such as batteries, electric vehicles and carbon emission removal technologies, reached $70.1 billion last year, up 89% from $37 billion in 2021, according to data from HolonIQ, a New York-headquartered market research company.
Amid the funding bonanza, the world’s output of greenhouse gases reached record levels last year and is on track to continue to grow, according to a March 20 report by the Intergovernmental Panel on Climate Change. Scientists warn that the world has a limited window, approximately until 2035, to cut global emissions by 60% to keep average global temperatures from rising higher than 1.5 degrees Celsius, as agreed to by world governments in the Paris climate accord. Beyond the stated deadline, experts say weather patterns such as super storms, floods and droughts may become so extreme that humans may not be able to adapt. Oil, gas and coal contribute to more than 75% of the world’s greenhouse gas emissions, according to data from the IPCC report.
“We have to reduce the emissions from fossil fuels predominantly,” said Michael Taylor, a senior analyst, for renewable energy cost status and outlook at the International Renewable Energy Agency (Irena).“We won’t get anywhere near the Paris Agreement goals without the mitigation efforts, which includes transitioning to cleaner energy sources. That’s where the bulk of the money needs to be spent.”
The world will need to more than double what it spends per year now to pull off the energy transition to using non-carbon-based energy sources such as solar, wind, hydropower and geothermal to stay on track to realize a 1.5 Celsius scenario. The cost amounts to about $57 trillion in cumulative investments by 2050, or about $2.2 trillion per year, according to Irena.
Meanwhile, large U.S. companies such as Caterpillar, GE and Honeywell are investing in their transition away from fossil fuels and rolling out new products and services that can be used by other companies looking to reduce their carbon footprint.
For example, three years ago, GE, which is in the process of splitting itself into three separate companies and has a diversified business portfolio that includes aviation, health care and its renewable energy and power businesses, set an internal goal of becoming carbon neutral for its Scope 1 and Scope 2 emissions from its operations by 2030. The company also aims to reach net-zero emissions by 2050. This would mean that the company will have to reduce its Scope 3 emissions, which result from the use of its products. In the past, companies have voiced concerns about Scope 3 emissions, because of a lack of global standards for calculating such data. The company employs a multi-solution approach to reach its targets that includes switching to renewable energy sources such as solar power in many of its operations. GE is also seeking to position itself to sell products and services needed in the energy transition. It bundled its energy businesses into GE Vernova, which produces products including wind turbines. The company says it has a fleet of 54,000 wind and 7,000 gas turbines that contributes to 30% of the world’s electricity generation.
Meanwhile, another industrial giant, Honeywell, which offers products and services for industries such as aerospace and the buildings construction sector, has said it aims to become carbon neutral in its facilities and operations by 2035. The company says it has received a third-party verification of its Scope 1 and Scope 2 emissions targets from the International Organization for Standardization since 2011.
Recently, the company announced its commitment to setting a science-based target for Scope 3 emissions. A transition to using renewable energy is a cornerstone of the company’s plan to lower its carbon footprint, according to a statement by the company’s chief sustainability officer, Evan van Hook.
“A procurement team has been created with a global strategy for finding and developing off-site renewable energy,” said van Hook in the company’s ESG report for 2022. “The same team is also responsible for moving the company to 100 percent electric vehicles by 2035 and has begun by launching a pilot program.”
Consequently, the company installed renewable energy sources at several of its global facilities including a 1,870-kilowatt solar rooftop in Juarez, Mexico, and another 1,279-kilowatt solar rooftop system in Penang, Malaysia. Once fully operational, the equipment is expected to reduce the company’s greenhouse gas emissions and “offset approximately 24%” of the energy currently pulled from the electricity grid, according to an update from Honeywell. The Charlotte, North Carolina-based company is also offering products to assist other companies to track and reduce their emissions.
Meanwhile, market players have raised concerns that additional reporting requirements and regulations will increase the cost of doing business and may negatively affect productivity. For example, according to a letter sent to the Securities and Exchange Commission in 2021 from the Society for Corporate Governance, conservative estimates of costs related to climate change disclosures may be in the range of $50,000 to $1.35 million annually, per company.
Tim Draper, the founder of Draper Associates, a venture capital boutique known for backing companies like the electric vehicle maker Tesla, takes a dim view of the current trend toward increased regulations.“I don’t like regulations and don’t want to do anything to encourage them. They take away freedom, jobs, life and economic progress,” wrote Draper in an email to Agenda.
Still, experts say companies need to increase their tracking capabilities amid expectations that the SEC will require corporations to report more extensively on climate matters, seek to verify data provided by companies that have made forward-looking climate commitments, and require that a third-party auditor sign off on ESG-related filings.
Companies across the pond are already subject to more rigorous climate disclosure regulations. Starting from Jan. 5 this year, the EU’s Corporate Sustainability Reporting Directive came into force. It requires about 50,000 companies to contract third-party auditors to verify their reporting on ESG issues.
Furthermore, the energy transition is dependent on technologies that will remove carbon emissions currently already in circulation. In recent years, new companies are emerging that use a mix of artificial intelligence, blockchain and other technologies to realize cost reductions and add transparency and accountability to carbon emission removal schemes.
For example, Kenya-based Octavia Carbon is a startup direct air carbon capture company founded last year. The company’s CEO, Martin Freimüller, and its product engineer, Duncan Kariuki, say they may have cracked the code for making machine-enabled carbon emissions removal more cost-competitive.
Freimüller says the company has been able to reduce the cost of its services by sourcing the technology for its machines predominantly from less expensive Asian suppliers. More importantly, the process of capturing carbon emissions requires a heat source, according to experts. This is why Octavia Carbon is strategically located in Kenya, which has an abundance of renewable wind and especially geothermal energy, which the company taps for its operations. Lastly, Africa is home to a large and youthful population. So the company says it has benefited from employing well-educated and relatively inexpensive engineering talent in Kenya.
Experts say the direct air carbon capture industry needs to get to costs of less than $100 per ton of carbon removed from the atmosphere in order to be competitive with other removal schemes. At present the industry charges as much as $1,000 per ton of carbon removed. Still, the technology has an advantage over other removal schemes, such as through biomass, because the removed carbon emissions are easily tracked and can therefore more easily be turned into data for the purposes of companies reporting to authorities about their climate targets.
Octavia is part of a group of Africa-based technology companies that are getting increasing support from foreign and local investors. Octavia received $200,000 last year from the Catalyst Fund.
The latter organization was launched in 2015 as a global accelerator for early-stage inclusive fintech startups. Former backers of the Catalyst Fund include the Bill & Melinda Gates Foundation and JPMorgan Chase & Co.
Overall, Africa’s technology startups, with financial tech firms leading the way, received about $6.5 billion in funding from local and foreign investors, an almost 8% increase from 2021, according to sources such as Partech Africa.
Freimüller says Octavia is looking to help create a circular carbon economy by reverse engineering the captured carbon molecules to create commercial products such as diamonds, or aircraft fuel such as kerosene. “The new carbon economy is absolutely feasible and cost-effective today without any special policy incentive,” he said. Globally, there are about 50 direct air carbon capture companies in operation. Octavia is the only such business based in Africa, according to the company.
Similarly, Josh Knauer is the co-founder and president of Reseed, a company facilitating the sale of carbon credits to companies looking to offset their emissions through absorption by plants and the soil. During the Obama administration, Knauer served on the President's Council of Advisors on Science and Technology, where he created and implemented open data initiatives.
In recent years the biomass carbon removal sector has been plagued with accusations of flawed or fraudulent accounting. Consequently, Knauer and his co-founder, Vasco van Roosmalen, have created a company that employs several layers of technology to provide its clients with reliable, traceable data that can be reported to regulators looking for granular information.
Reseed currently works with more than 8,000 farmers in Brazil that derive revenue from using their land and plants to offset emissions. Reseed provides the farmers with access to corporate clients and others on the world market and uses a software platform to map farms, Google Earth satellite imaging technologies to verify the plant life and blockchain to track all the data and carbon credits.
The company has also developed a method to calculate the carbon emissions absorption rate by biomass, which its founders hope could become an industry standard. Knauer has been tapped by the World Economic Forum to help develop guidelines and best practices for the carbon offset sector.
“We’re trying to do this right, and one of the biggest potential weaknesses in methodologies such as ours is fraud detection. And so we’ve built in many layers of redundancy around the data,” said Knauer, who is also an adjunct professor at Carnegie Mellon University.
This year Reseed is expanding into Tanzania and will soon also be active in Nigeria, Egypt and Guatemala, he said.