With the first Carbon Unbound event starting later today, we speak with Philip Moss, the Global Director for Carbon Removal Markets at South Pole and chairman of the NextGen Carbon Dioxide Removal (CDR) facility. NextGen is a vehicle set up South Pole and Mitsubishi Corporation to help buyers access the CDR market and start building demand.
If you are attending the Carbon Unbound Summit in May in NYC, make sure to not miss out of the following sessions where you’ll have the chance to hear from him:
Day 2, 9am session: “Buyers Perspective: Balancing the Purchase of CDR Credits with Emissions Reductions”
Campfire session: “Unlocking CDR Markets: The NextGen CDR portfolio”
This interview has been edited for clarity and brevity.
NextGen was launched last month and joins a number of other initiatives in the carbon removal space. Are we seeing a watershed moment for CDR?
We’re just at the starting point of this and we want to send a strong signal to the market that there is demand out there for CDRs.
You had a very large transaction in the market, the Airbus 400,000 tons deal [with 1PointFive] but I’m not sure how replicable that is. From that standpoint, I think it is a little bit of a watershed moment.
The reason we set up NextGen two years ago, was to really show that there is demand for CDRs today. And we don’t need to wait until the costs come down to the magic $100 a ton target level. There is demand today and we think it’s critically important to support these projects today.
The number I like to cite is that we are facing a gap of about a gigaton of removals per year that we need to bring online, both with nature-based, as well as through technological solutions. And if we look at the tech market right now, I think we just have a million tons. So we rapidly need to scale that up.
Can you tell us a bit more about Mitsubishi’s role in NextGen?
Two years ago, we settled on the fact that there was this big gap in the market, particularly from the demand side of things, which was certainly going to impact the ability of technology companies to scale up and grow. Without the revenue streams, they can’t get the project financing they need to support the capex to build these projects.
Mitsubishi Corporation has an established track record in terms of supporting low carbon technologies, they also just announced a new climate tech fund to invest in climate tech companies. We were looking to Mitsubishi to provide us with some of that technical insight to complement our carbon expertise, as well as to ensure that we were building us up as a global initiative, and not one that’s focused on a particular region, geography, or industry.
Do you expect NexGen to grow in the ASEAN region?
Our goal is to make this global. We’re in discussions with a number of additional buyers from all over the world to join the initiative. We pride ourselves on the fact that we have quite a diverse range of industries as well.
We have financials, we have insurance, but we also have a heavy industry component with Mitsui Shipping out of Japan.
The industry cannot succeed or grow if it’s focused on one particular country or region, so our ambitions are to continue to grow in ASEAN and potentially bring in buyers from other parts of the global south.
Can you tell us more about the criteria for the suppliers you’ve selected, what is the thinking behind the selection process?
We’re balancing a number of different things while trying to ensure that we deliver three things to our buyers.
One is that we create this in a way that’s accessible, a $200 per ton price point which is viable for many companies. We’ve been looking at a pipeline of projects for at least 18 months now and we understand their price points and we were able to commit to this average target price because we saw how we could build a balanced portfolio across different technologies.
We are [focused on] projects that are operational by 2025, which is kind of our cutoff date for generating CDRs at a price in line with where we think corporates are today.
The portfolio approach we have means that we don’t want to be picking winners here. We’re trying to support the industry as a whole. Every different type of project has a specific and unique challenge associated with it. So we think it’s important to support multiple technology sectors to ensure that we diversify the risk exposure for our clients.
Second, and I think a critical one, a lot of the projects in the CDR space have not necessarily gone through the same sort of certification and verification process that other projects in the broader carbon sector have. We have been working to develop new methodologies specifically for CDR with a number of stakeholders through initiatives like CCS+, which brings together a number of different companies and their data. With them we can build data driven methodologies to ensure that we are creating robust assessment processes for these projects.
And then the last thing is scalability. What the likes of Frontier and others are doing is great but we need to scale now. We really want to focus on companies that can provide volume pre-2030. We’re looking at projects that will usually generate in excess of 10,000 tons per year, beginning in 2025 and overall [will be] removing about a million tons of carbon per year. That way we are actually building some liquidity into the system.
How important will certification be going forward?
We think the certification process is very important on a number of different levels. One, it ensures that if we go through an ICROA endorsed certification process, there’s a public consultation. So there is that transparency and visibility for third parties to critique and ensure that the methodologies are robust enough. It also ensures that by having an independent certification you avoid some of the potential conflicts of interest that might arise. And then there’s also the requirement of an independent verification of the data on the back end to ensure that what you’re actually being credited aligns with what you are claiming to begin with.
But I think one of the other points around certification that we’re particularly interested in, is the fact that it is creating a bit of a de facto fungibility, which is important for our buyers. We have all the projects certified under a harmonized standard, or in this case, different micro standards that meet a certain baseline. In the event a project is unable to deliver, we have confidence that we can say “although this is a DAC project, and this is a BiCRS project, they’ve both been certified” under a methodology that has gone through public consultation and are verified.
Do you expect other purchasing initiatives to appear?
This is not a very liquid market, and I don’t think there’s a lot of space for multiple initiatives. If you look at the number of companies that have committed to buying more than 10,000 tons today, there’s only 10 of them. We launched less than a month after Frontier announced their initiative in Davos [and] I think the space is well covered in terms of collective purchasing groups right now.
From a South Pole perspective, we need to more actively engage buyers, we need to bring them on this journey from an educational standpoint. There are a lot of misconceptions around the space – the difference between what is emission reduction actually doing and what is the removal doing? Why is there a 20-30-40 times price premium for long-term durable removal versus annual avoidance of emissions. We are trying to work with thousands of our clients globally, to get them to understand removals, to take a little portion of them into their portfolio and just to learn a little bit about it.
How big do you think this can get in terms of a percentage of South Pole’s initiatives?
I guess the question would be across what timeline. Obviously this is a fairly small portion of South Pole’s current business. But I think there’s a recognition that, in order to achieve the net-zero, there needs to be removals. We recognize that there will need to be an increased percentage of South Pole business that focuses on removals, as an additional component to decarbonization efforts.
You’re going to be attending Carbon Unbound, how important do you think events like that will be going forward?
This is a nascent industry and there are a lot of different narratives running around. Only in the last few months has there been a recognition of the demand side constraints that are limiting the supply in the industry. It’s because of these constant engagements and interactions [at industry events] that this is coming to the fore.
I’m involved with a lot of different initiatives and working groups around the CDR space and there is a lot of work that needs to take place in terms of homing in on a common narrative. And I’m hopeful that Carbon Unbound can help in terms of harmonizing that to some degree.
At Carbon Unbound I’d like to see a little more focus on the market side elements. There has been a lot of focus on the technology and the supply side, the need for innovation, R&D funding. At the end of the day, if we are going to get these projects implemented and scaled, we need to fix the revenue stream problem.
Part of that will be getting governments and other regulators to provide those targets and those demand side drivers. But at the same time, we need to do what we can to try and bring as much corporate interest into the space in the interim, and support as many of these technologies and companies as we can to get to scale as quickly as possible.
The fact that Carbon Unbound is having a number of engagements, not only in the U.S., but also in Europe is promising. I think we need to look at this as a global industry despite the fact that there’s been a lot of progressive movement from a regulatory and incentive perspective in the U.S., which has really helped accelerate the industry.
You mentioned harmonizing. Is there a risk too many people will do their own thing when it comes to project requirements, certification, marketplace rules?
Yes, I think there is a risk. You have a number of new entrants into the sector that are, for better or worse, [focusing on] some of the criticisms around the carbon market and saying we need to have something completely separate and independent.
I think there’s a lot of learnings from having worked in the carbon markets, both voluntary and compliance, for over 15 years. If you look at how the carbon market was able to grow in the initial stages, it wasn’t through the voluntary market. It was through compliance markets. So that created a standard unit that allowed different players to enter the space, that allowed funding to come to too many of these projects.
As long as this stays a fragmented and niche industry, which ends up benefiting specific players, as opposed to more broadly the industry as a whole, then I think we’re really going to struggle to build this up.
So I think as much as we can move towards a harmonization standardization, leverage off of existing frameworks and mechanisms like the certification standard that we have, but obviously ensuring that they have that degree of rigor and quality, to avoid any sort of reputational damage. That is the way to put together this industry much more quickly than to basically start from scratch.
Do you expect the price per ton for carbon removal to go down and set the conditions for the market to stand on its own feet, without the support of governments?
The $200 a ton is a blended price. We have some projects that are below and some that are above it. That allows us to support some of the more innovative technology companies and provide a price level which is comfortable for corporates.
I don’t think this is the benchmark price in the industry because it really depends on the scale of the project, the maturity of the technology and on whether they have access to other types of incentives.
But it’s going to need a lot a lot of support in the short to mid-term to get up to scale and liquidity. [With] compliance drivers that would support it you can then make it a case of asking: “Does it make sense for me to invest in removals? Or does it make sense for me to buy an EUA (in Europe)”?
I think a lot of the positive projections around the supply are optimistic, to be perfectly honest. I see a lot of supply that’s expected to come online around 2025. If all the supply comes online, what does that do for all the other projects that are supposed to come online later?
If you take the two projects that we have in our portfolio, 1PointFive and Summit, you’re talking about 4 million tons per year of capacity, coming online that needs to find demand. We have a million tons that have been done to date. You’re talking about a massive ramp up in demand to support all the rest of the supply.
This is another reason why we’re supporting those companies we think can scale in the short term. I think we will probably see a lot of those earlier stage projects soaking up most of the demand. Many of those other projects are not going to be able to get the revenue streams they need to build and scale.
Then moving towards 2030, when we hope compliance markets start to drive demand, we actually see a supply shortfall, but in the midterm, we’re going to see a supply glut. This is why we need those regulatory incentives to smooth things out a little bit.