The Exchanges

Q 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.

A Yeah, and I guess it's everybody's personal definition of what's hot, right, and what you're into. Um, so, you know, those first purchases, yeah, they were predictable. We know they were known quantities. We knew who they were, and 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, um, because that's very quick to deploy. I think, you know, when a lot of the purchases started happening in the early days in 20, 20, 20, 21, there was that hundred dollar 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 in carbon removal that are really focused in on trying to do it at a low price, so that we're using wastes, um, we're doing it with existing infrastructure. Um, examples of that are, um, like crude carbon, which is doing carbon removal through wastewater treatment plant, Sludge and outfalls and the, you know, the optimizing that process. We're seeing, um, interesting companies like Graphite…

AI assessment note: “I think we're seeing a lot of Activity in enhanced rock weathering space”

Q 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. Um, do you rely upon those? Do you trust those? Do you have your own? Just how do you think about that whole universe?

A 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. Um, so no, we, we do that rigorous review ourselves and we get support from industry experts depending on what kind of Um, technology or solution we're talking about. Um, 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. Like, these things are all going to be coming through in the next, you know, six, 1218 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, um, buyers into the carbon removal market is the infancy of the MRV for these new approaches. Like, 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…

AI assessment note: “we set ourselves a new internal standard for what we would buy.”

Q your portfolio periodically, as I suspect you do, um, do you look at it and say, okay, we're like, now we're maybe a little bit overweight on DAC, or we're overweight on biomass burial, and so now we're gonna try to rebalance? Is it that type of a portfolio balancing thing, or, you know, how, how do you think about, like, what is the right type of portfolio to construct?

A So we look at it from that perspective of, um, 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 look, we want to be balanced from a tech perspective, but we also want to be balanced in terms of, like, low TRL Number, like, low TRL levels versus some solution that's ready to be fully commercialized, like a Climeworks, for example. And so, we, we need to have some of those, like, safer bets because we do need those credits coming in 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. Are other players in the market starting to support them? And 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, you know, 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 h…

AI assessment note: “we look at it from that perspective of, um, tech diversification, but we also”

Q So that's like ocean alkalinity enhancement and that kind of thing?

A Yeah, Ocean Alkalinity Enhancement, um, ARCA, who's using mine tailings and treating those in a certain way to use, to turn them into a carbon sink. Um, there's a company out there that has figured out a way to, um, 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, um, In terms of, um, the reactivity, when we stack those up against, you know, what I was talking about in twenty-twenty was DAC all the time, you know, it was always direct air capture, and it was, I gotta find the one that's gonna 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?

AI assessment note: “Yeah, Ocean Alkalinity Enhancement, um, ARCA, who's using mine tailings”

Q But do you agree that at some point they should be? Like, I get that they're not today, but like down the line, 10 years, 20 years from now, you know, there will be differences, and I guess you could pay more for 10,000 years of durability versus a thousand years of durability. But, but, but basically, shouldn't this ultimately be a commodity market?

A A hundred percent. I, I totally agree with that, and I think, 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, 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, it 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, and this is going to take 2030 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 ag business, that's what I want to buy. Like, it, 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. Um, But to go back to price, um, What, I think there's something to be clear on. Like, what is the, what is the cost to actually capture and store that ton? Like, what does it actually cost? Bec…

AI assessment note: “A hundred percent. I, I totally agree with that, and I think, I think it has to be.”

Q Um, 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, um, 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.

A Yeah, no, and like, it, 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, um, 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, 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 US, 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 k…

AI assessment note: “it is about three years before you can get those deliveries”

Q 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 twenty-twenty, how much of that has been delivered?

A 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 Each, each contract was around, it depended on the technology, but like say if we take, um, a DAC contract, um, you know, we're talking a maximum of like a hundred tons a year being delivered is what we're looking for. Um, so it's starting to trickle in is what's happening. And then how we designed these contracts was to have, um, 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, um, add on additional purchases from future deployments and things like that. So these are really credits that are coming in from pilot facilities.

AI assessment note: “I don't have the numbers offhand, but... maximum of like a hundred tons a year”

Q 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, can 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?

A Yeah, so a lot of it is forward purchases, um, and since, you know, we're entering year five, if we talk about what happened in twenty-twenty-three, um, other than charm industrial, a large portion of our portfolio credits were reforestation Soil carbon storage and biochar. Um, 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 Climeworks, 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, um, some things change in terms of the look and feel of what's being delivered. Um, but it's, it's a slow start for sure.

AI assessment note: “things have started to change in the back half of 2023”