Direct air capture has seen increased interest lately, as the world keeps trying to focus on decarbonization amid recession fears and conflicts that have triggered an energy crisis.
We managed to speak with Carbon Engineering’s CEO Daniel Friedmann about policy, financing the direct air capture infrastructure, energy companies’ expertise and improving the company’s technology.
This interview has been edited for clarity and length.
Let’s start with the big picture for policy and financial for Carbon Engineering’s business model. How important are compliance markets?
If we’re going to pull out gigatons of carbon from the air by 2050 we have to build a very large direct air capture infrastructure. To build large infrastructure, you need financing. There is no business model where the companies that are inventing DAC finance the infrastructure. Inventors of bridges and trains don’t finance their construction. Those are financed by the infrastructure funds of the world, by governments.
If you want to build 100 megaton plants [for removing CO2] you need the infrastructure guys that have financed everything in the world so far. And they need to see demand. We need a compliance market like the California Low Carbon Fuels Standard in the United States, that shows that this [investment] is going to get paid back.
Do you think a change in U.S. Senate control [the interview was taken before the mid-term elections on November 8th], and potentially a change in the White House, would have an impact on the trajectory of DAC businesses and their financing?
Obviously, elections have an impact but for the last five years we have seen amazing bipartisan support for almost everything. There has been 80% support for most proposals. With the Inflation Reduction Act (IRA) the U.S. has taken an approach to this market to be incentives [driven] instead of with penalties. We call it a climate package, but others call it a massive economic package. It’s in the name – Inflation Reduction Act. Credit Suisse recently published a long report on its impact.
It’s frustrating that, there are short term transient effects that can delay things with months, or even a year or two. The timing of this was very critical for us because we were getting our first plant financed. Now that the IRA has passed, it becomes much easier to finance the next ones.
The U.S. seems set to attract a huge portion of investments into carbon capture and carbon removal but Carbon Engineering is based in Canada. Is the U.S. your main focus?
From the day I joined the Carbon Engineering board I’ve made it my personal mission to make sure that our business plans are in the United States. This is going to take off in the United States. That’s crystal clear. There are other aggressive places like Europe but Canada is not one of them.
And it’s not only about having policy in place, you also have to have demand. The U.S. has the second largest demand in the world for carbon credits and our whole strategy is U.S. focused.
What are Carbon Engineering’s plans in Europe? Are there any other regions you’re interested in?
We’re very cognizant that if we are going to have a real impact on climate, we need to be worldwide. We’ve analyzed the whole world in terms of countries that have strong demand and countries that have strong supply potential. Sometimes they coincide in one country like the U.S. We have a large business development team and we have a significant team in London, focused on Europe.
I would say that Europe is the best example in the world outside the U.S. Europe has all the legislation in the books, and they’re processing through it at full speed. In terms of the next place to move, it will be the UK and Europe but we’re also active in Japan, Brazil and South Korea.
We’re also very cognizant that there are places in the world where it’s best to build our plants. We call these “supply markets,” that may or may not have a lot of demand themselves, but they could provide supply.
Is the partnership you have with Occidental in the U.S. the blueprint for these other countries and regions?
We have two separate relationships with Occidental. One is that they are our “territory partner” for the United States. They have the license to develop our plants in the United States. That is a partnership with 1PointFive that may or may be 100% Occidental in the future. And then we have a different, worldwide relationship with Occidental, the core company, to build our plants as a deployment partner.
Are you looking to have exclusive partnerships per country? Or would that be decided on a case by case basis?
It depends on the situation and on in demand. In places with high demand, we are doing exclusive deals because we have to capture that demand. In places where we’re talking supply, by definition, it can’t be exclusive. Because we’re selling to different clients.
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Our deal with Oxy in the United States is exclusive because it was a very early deal and a lot of money needed to be invested to make it happen and be the first mover. The only way everybody could make that commitment was on an exclusive basis.
Speaking of demand, would you say that aviation will create the largest market for CO2 sequestration?
I think the aviation market for direct air capture CO2 is one of the key markets at this stage. We are made for aviation, compared to any other [decarbonization] solution today and for the foreseeable future. The aviation market is showing a lot of interest, but it depends on whether they will move [on it]. Airbus has already acted and moved things forward. I think there will be a very significant market in the next five years.
Are there other industries that could generate strong demand?
You’ve seen the net zero commitments, a lot of the tech giants are in there. There’s also legislation going through in the United States for the government to buy CO2 removal.
Governments themselves are big polluters. Militaries are also among the world’s largest polluters. Their only real option in the short term is CO2 removal. So once again, the US is going to move first there, they are going to buy at all levels – federal, state, and city. That could be the first regulated demand market.
The banking industry is also starting to move aggressively. If you put your optimistic hat on, then there is going to be big supply crunch. The first movers are going to be supplied, but the rest will be waiting for infrastructure to pop up.
Do you see carbon management as something where oil companies they can take the lead? And basically make a profit from it?
I’m only peripherally involved with that, but it seems obvious that they are the world’s experts. They understand what’s under the ground and all the geology that no one else does. There is no one else [to work with] if you really want to sequester CO2.
They have spent 50 years understanding what’s underneath the ground and what can and cannot be done. They have been in the carbon management system, they’ve just been moving carbon from the ground to the air. We need to move it from the air back to the ground. That’s why we teamed up with Occidental. We have half the answer, we can remove carbon from the air. But the other half is to put it safety underground.
To qualify for the IRA, you’ve got to prove that CO2 is going to stay there, you have to verify it. These companies have the expertise to do that.
You’ve been in the role of CEO at Carbon Engineering for just under a year. Has your vision for the company changed?
The vision at the level of our major shareholders has always been to have a big impact. Not just to make a nice company, produce a product and make a return. The vision, especially with the investment from the Gates Foundation, has been to have an impact on climate change. If you do the numbers, you can see that it’s not [about] 100 plants, it’s a few thousand plants. If we don’t address the problem by size then we become irrelevant.
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My main focus in the last nine months has been to return to that issue. We’re trying to “grab” a double-digit percent of the problem. Everybody that studies the problem says that direct air capture is going to be one of the pillars of decarbonization behind electrifying everything and making green electricity. My focus has been on building 30 megatons at a time, at a fast pace, finding the partners and the sites, so that we can actually deploy at real scale.
The first step has been to get the first at scale plant financed. It’s a monumental achievement. I recognize that as the hardest milestone in the company’s history since I joined the board four years ago. Throughout my career in technology building the first at scale commercial plant, the one that will be duplicated, was always the most difficult part of the journey.
Do you foresee an improvement in the technology itself?
We’re extremely focused on that. When I arrived in January our Innovation Center was seen as being static, running almost like a plant, [just] collecting performance data. We have completely changed that around to work with a “run, replace, run” approach, where we run for weeks at a time, shut down, replace a piece and run again. We brought the capture efficiency of our first plant up 20% in the last nine months.
We have a technology roadmap, that goes into a fair amount of detail for the next three years with tasks and tests to be proven. From the lab we move to our advanced development center, where we can control airflow, temperature and humidity and run tests. Then we go to our Innovation Center, which is just outside the door and we can test on the actual plant. Our goal is to make significant advances in our performance in the next 12 months, like we did in the last year.
Are there any bottlenecks in terms of materials for this technology? Are there supply constraint risks like we are seeing with rare earths for renewables?
The genius of our founder [David Keith] is that he was not willing to entertain any invention that would get stuck with that. He didn’t want to have a battery problem, a rare earth problem. His whole approach was to use readily available materials and readily available supply chains.
We just need standard cement and standard steel. The sorbents are readily available commodity chemicals. The trick is how to get the air to contact with that chemical in an efficient manner. We build a complex honeycomb of PVC and you drip the chemical through it so that there’s a lot of surface area. Our whole company was invented on the constraint of solving a very significant part of the climate change challenge, without having any of those bottlenecks.
Do you see competitors for Carbon Engineering emerging in the near future?
I’ve been in the new technology development field my whole career and every time I’ve been in this situation, the competition has been the status quo. I don’t believe Climeworks is my competitor, they are my partners, they’re on the same mission. Тo have a competitor, you have to have a lot of people buying and you have to be losing to your competitor. We are losing to trees. We’re losing to apathy. We’re losing to everybody except Climeworks. So, at the moment I see my competition as people just not moving on the climate agenda.