This is an adapted transcript of the GIC Speakers’ Series – Sustainability Edition with Dr Christoph Gebald, co-founder and co-CEO of direct air capture (DAC) firm Climeworks. Interviewed by Carsten Bleckwehl, Senior Vice President, Private Equity at GIC, and Katy Raven, Senior Vice President, Equities at GIC, Christoph discussed how DAC compares to other carbon removal solutions, what scaling the technology would entail, and what the future holds for Climeworks.

CARSTEN: For the benefit of those not familiar with the technology, how does direct air capture (DAC) work and how is Climeworks using it?

Direct air capture (DAC) essentially means building large machines that filter CO2 from the air. The Climeworks technology is a modular technology. Think of it as boxes similar to a 40-feet shipping container or truck trailer which make up the basic modules of our technology:

  • We equip those boxes with modules that have ventilators on one side and openings on the other.
  • We stack those boxes on top of each other and stream air through them via fans.
  • Inside the modules, we have a solid filter material which attracts CO2. We pull air through the modules, the CO2 content in the air gets stuck on the surface of this filter, and the remaining air leaves.
  • Once the CO2 is trapped in the filter, they are heated to 100 degrees Celsius – the boiling point of water -, releasing CO2 out of this filter material and converting it into gas.

The main question relates to what is then done with the pure CO2? When we started the company, we were focused on CO2 as a raw material. 13 years ago, it was wild to think about capturing CO2 from the air and storing it underground to create negative emissions, which is basically our business case today. Climate science had not progressed to the point where it is today.

Over time, the idea of creating negative emissions eventually became a very prominent one, and at the beginning of April this year, the latest Intergovernmental Panel on Climate Change (IPCC) has recognised its importance.

A comparison of carbon removal solutions

KATY: Scaling any kind of new technology can be challenging, and DAC is not the only solution in the carbon removal space. How does DAC compare to those other technologies, including in terms of cost competitiveness, now and in the future?

CHRISTOPH: To reach net zero, several billion tonnes of carbon would need to removed from the atmosphere by 2050, every year. That represents a multi-trillion market opportunity. We are talking about something very substantial which is still in its infancy today.

How are we going to get to this amount of carbon removal? One-third of it will have to come from nature-based solutions, mainly afforestation projects which involve planting forests in areas with no previous tree cover. Fortunately, these solutions already exist at scale today, and are low in cost. However, they also have an inverted cost curve and will become more expensive over time because of their reliance on arable land which is an increasingly scarce resource.

Ensuring that these projects are implemented in a thoughtful way is an additional challenge. For example, cutting down and reforesting original forests which were previously home to a diversity of animal and plant species with monocultures, especially if done at a very large scale, could have unintended consequences for local ecosystems.

The second pillar is hybrid solutions which combine nature and technology such as the UK company Drax, which aims to generate carbon negative electricity using bioenergy with carbon capture and storage (BECCS). These solutions still have an extensive land impact but can store CO2 for a very long time.

Pure technology-based approaches should account for the removal of the remainder CO2, which is what we focus on. These solutions would not require arable land and could be virtually implemented anywhere in the world, including in areas with little to no vegetation. They also make a clear case for additionality, meaning that the emission reductions achieved would not have happened unless the project was implemented, which does not always apply to nature-based solutions.

Scalability is a given since it’s a tech solution, but it’s also currently the most expensive approach at $800 to $900/tonne. Based on other successful, modular climate technologies, we are, however, expecting a rather steep reduction in costs, landing somewhere between $100 to $150/tonne in the next 10 years.

Carbon reduction vs carbon removal

CARSTEN: The latest IPCC report was very clear that to meet the temperature goals of the Paris Agreement we will need to both reduce and remove carbon emissions. There has been, however, an ongoing debate on what should come first, and whether carbon removal technologies would divert efforts from reducing emissions at source. What are your views?

CHRISTOPH: Well, the sequence is very simple: ‘all at the same time’.

In 2022, the word ‘or’ should not be allowed in climate science and climate change mitigation. According to the Science-Based Targets initiative (SBTi), carbon emission reductions will have to account for 90 to 95% of the efforts to get to net zero, while the remaining 5% will rely on carbon removal, and both must happen at the same time.

Carbon removal should target emissions that are hard to abate or are unavoidable, but emission reduction will almost always be cheaper than carbon removal. Industrial polluters such as steel or cement manufacturers, coal-fired power plants and any other industries with large emissions but low EBIT (earnings before interest and taxes) would struggle to justify the economics of focusing on carbon removal alone. These are some of the fundamental reasons why we must proceed with both routes simultaneously.

The role of carbon markets

KATY: How does the evolution of carbon markets and carbon trading schemes play into the hands of climate tech development?

CHRISTOPH: As a start-up, we are working on two priorities: scaling a new technology and scaling a completely new market, and carbon markets have been instrumental to taking our business to the next level.

The first key market traction happened about 18 months ago in the voluntary carbon market space when large-scale buyers such as Microsoft, Stripe, Shopify, Audi, The Economist and Swiss Re have committed to buying DAC carbon removal credits from Climeworks. This was a critical catalyst for investors to recognise that the technology is investable and has significant potential for future growth.

Our most recent fundraising round was the first time we have been able to secure funding by institutional investors.  For the last 13 years, we have been funded solely by private people. The conversation has changed drastically in the last 18 months. Investors want to make sure that the technology works, but they don’t foresee any substantial market risks.

Scaling for the future

CARSTEN: What are your priorities for the future?

CHRISTOPH: In terms of resourcing, we are the largest team dedicated to DAC globally. We have roughly 200 full-time staff, and have been growing by around 80% year-on-year, even amidst the pandemic. We would like to continue this growth, with the aim of expanding to 300 members of staff by 2023, and 500 by 2024.

We have also identified concrete steps to scale the technology, including building more plants. Currently, we have a facility installed in Iceland named Orca with a capacity of pulling 4000 tonnes of CO2 from the atmosphere every year.

In terms of next steps, we are planning to increase the operational capacity of the facility by ten times, followed by another round of scaling up to a capacity of roughly half a million tonnes. It’s a substantial investment that could offer a blueprint for global replication. The proceeds will ensure that we have sufficient equity to operationalise those plants.

In addition to working with businesses, we also offer an individual carbon removal subscription service on our website, and have to date grown our subscription base to over 14,000 people.

AUDIENCE: How much of the cost reductions you have mentioned earlier are due to natural scale effects as you build bigger plants, and how much of it depends on advancing the technology beyond where it is today, which might be more speculative?

CHRISTOPH: For the current technology platform installed in Iceland, we estimate to get towards $250 or $300/tonne, as we reach proper scale and a fully developed supply chain. We are aiming to eventually halve our costs further through technology advancements to around $100 to $250/tonne.

Moving forward, we want to keep innovation levels as low as possible. It’s not that we don’t want to innovate but considering the size of our projects, our goal is to minimise potential project execution risks. We hope to maintain a 20-30% innovation level to keep project risks as minimal as possible. We do have an innovation pathway where we de-risk technologies in the field, and once they are mature enough, we feed them into the implementation process.

Going forward, the largest and most immediate cost reductions will arise from building more plants or increasing plant capacity, costing out engineering, and looking at things that did not work well in Iceland and doing them better next time.

Innovative regulatory incentives

AUDIENCE: What should governments do to create a more enabling environment for climate tech?

CHRISTOPH: A very powerful mechanism could be a feed-in tariff type of structure. To increase demand for renewables including solar photovoltaics and wind in the 2000s, the difference between the cost of production and the willingness to pay was matched by a feed-in tariff.

Those types of mechanisms are needed from around 2027-2028 onwards – contracts to match the difference between the willingness of corporate off-takers to pay and our cost of production. I do see a willingness to pay in the long run at $200/tonne.

I think the challenge is the novelty of the topic, which is why it has not yet been integrated into regulatory models. The first scientific consensus on carbon removal only occurred in October 2018, less than four years ago. The first IPCC report which included carbon removal as a critical solution to mitigate climate change was published this April.

We are seeing progress though. The US has allocated $3.5 billion to develop DAC facilities around the country, while Canada has recently announced a 60% tax credit for DAC infrastructure.

Direct water capture                                                                                                               

AUDIENCE: Oceans are widely considered as effective carbon sinks. Could direct water capture be a viable concept? 

CHRISTOPH: Indeed, direct water capture is already being explored and looks very promising on paper, because you have a higher density of CO2 in water compared to air. Challenges, however, include designing large facilities underwater and the fact that water contains more impurities than air.

Designing the right chemical processes to deal with those impurities without damaging marine ecosystems will not be easy. My personal take is that while it’s pretty on paper, good in the lab, and shows high energy efficiencies, implementation will be tricky due to those impurities.