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Thursday, February 2, 2023

Carbon capture is here to hog the limelight


2022 was the year that funding for carbontech took off.

During VERGE Net Zero last week, two venture capital (VC) experts — Climate Tech VC newsletter founder Sophie Purdom and Lowercarbon Capital partner Mia Diawara — sat down to speak about the unprecedented funding boom within the sector and the main takeaways the VC and carbontech community should focus upon in the coming year.

Before diving into a discussion of market dynamics, Purdom defined which players exist within the carbontech space, saying, “[it] encompasses not just carbon dioxide removal technologies but also marketplace companies, utilization players, verifiers, point source, etc.” 

What’s emerging?

According to Purdom, in the first half of 2022 alone, $1.5 billion in venture capital flowed into this particular climate tech ecosystem. “Carbon deal activity [in 2022] doubled in count since 2021,” Purdom explains, “and that funding number increased eight times over” the value of last year’s funding numbers. Standout carbontech deals from 2022 include Climeworks $634.4 million Series F funding round, CarbonClean’s $150 million Series C infusion, and Twelve’s $130 million Series B round. 

Beyond carbon capture and storage (CCS) technology, one of the emerging subsectors of the carbon space centers on marketplace and procurement software. Earning over one third of total deals so far in 2022, Purdom stated, “[Marketplace and procurement software startups] are much more capital-efficient; and inclusively, they take up about 15 percent of total funding.” 

Which acronym offers the most potential for the carbon removal space?

“It’s very much alphabet soup,” Diawara joked, laughing at the multitudes of acronyms springing up each quarter with each new technology and purchasing model. But Diawara explained the acronym she believes will have the greatest impact in future innovation within the carbon space, AMC.

An AMC, or advanced market commitment, is, “a binding commitment of a certain amount of funding for an industry, very much an ‘if you build, they will come’ type of structure,” Diawara said. Because the money is already committed to the fund, it can send a “really strong demand signal to researchers, entrepreneurs, and those building within the carbon removal space … lower down on the cost curve, the demand is there.” Frontier, founded by payments software company Stripe, is the first major AMC vehicle with $925 million committed by players including Alphabet, Shopify, Meta and McKinsey.

Carbon removal wishlist for 2023?

Closing out the conversation, Diawara listed two key things she hopes to see expand in the coming year: measurement, reporting and verification (MRV); and a focus on the just transition.

MRV technologies focus on verifying the feasibility of CCS technologies; two examples of players are Carbon Limits and Carbonfuture. Often, Diawara says, companies such as Stripe are forced to bring in scientists and researchers to evaluate the impact of separate carbon dioxide removal technologies. But the practice of companies individually paying for private verification is not cost- or time-efficient — and not widely accessible. 

Instead, Diawara hopes to see an increase in “people working on the tech stack that will be used for measurement, people working on the standards and protocols that will be used for verification, and new organizations with proper incentives to execute for verification in a key gap that we’re noticing.”  

Lastly, Diawara stressed the importance of a just carbon transition, pointing to the jobs that could be created as carbontech matures. “There are a lot of applicable skill sets that can be transferred over from the oil and gas space … whether it’s engineers, buildings tech, operators executing either on verification or the removal itself, there are a lot of opportunities to translate over, and we can’t overemphasize how important it is to think about that,” she said.

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