Reimagining Carbon Investing

Reimagining Carbon Investing

The NRG COSIA Carbon XPRIZE and our community of innovators see a future where carbon is a key input to a trillion dollar circular economy. But we need to catalyze new investment in the carbon management space to get there. Specifically, we need investment to bridge the gap between the innovators and robust markets for fuels, chemicals, building materials, carbon nanotubes, and other carbon-based products. We will also need comprehensive approach to commercialization and financing challenges, platforms for knowledge sharing, and spaces in which relationships among investors, corporates, entrepreneurs, and other key stakeholders can develop and flourish. These basic ingredients can transform today’s carbon management space into the mature, large-scale, carbon recycling industry it can become.

With these lofty goals in mind, we were excited to host the Clean Innovation Investor Forum and Carbon XPRIZE Summit in New York in mid-June, where we brought together XPRIZE competitors with investors, corporate partners, and fellow travelers in the sustainable innovation space, including companies supported by the Canadian Consulate in NYC, The [email protected], Urban Future Lab, MaRS, and Greentown Labs.  Relationships were established, partnerships and deals began to bud, lessons from cleantech were shared, and our community continued to grow.

Systemic Innovation

A core theme running through the meeting was ‘systemic innovation’ -- the notion that business models based on known materials, proven components and simple manufacturing processes are best-suited to scale in cleantech.  Keynote remarks from Tom Rand, Peter Styring, and Richard Kauffman further crystallized the potential value of many product pathways in development and the scale of their potential impact. And tangible evidence of the market opportunity was further illustrated by the examples of big corporate players, including Covestro and Audi, who are actively supporting innovation and market development in this space. The recent $100M acquisition of an emerging technology by Saudi Aramco was highlighted as an example of an initial acquisition by a large corporate player looking to scale a CO2-based downstream business.  

Gaps, Solutions and a Path Forward

As a microcosm of the broader discussion, a panel of five investors identified four separate gaps in the development ecosystem that they deemed the ‘most significant impediment to scale’:

  • Capital availability for demonstration projects
  • Bench-scale capital availability of $1-10M to take basic R&D to prototype
  • Lack of growth capital for semi-commercial deployment of $50M+
  • The need for sophisticated IP management strategies

The conversation underscored that there is no “silver bullet” solution for catalyzing additional investment in this space, but instead that a comprehensive roadmap is necessary for addressing these issues in parallel. In parallel, it was recognized that we need to create visibility for capital providers and the broader industry ecosystem, including policy makers. Policy certainty is perhaps the most important tool government stakeholders can provide industry, especially during its current nascent stage.

Workshopping Solutions

A live workshop facilitated by Pure Energy Partners leveraged the wealth of experience in the crowd to draw out potential solutions to defined development gaps. Moving beyond the well-documented challenges to commercialization, deployment and scale in this space, solutions are beginning to crystallize, and stakeholders are beginning to pilot new approaches. The Oil and Gas Climate Initiative (OGCI) was cited as an example of a pooled, portfolio approach to fill demonstration and commercial financing gaps. Many other ideas are being tested and gaining traction. The workshop followed a keynote from Richard Kauffman, Energy Czar to New York Governor Andrew Cuomo, who’s theme of ‘linkage’ among potential solutions - between key stakeholders, between business models, and between synergistic innovative communities in cleantech and carbon - framed the workshop discussion.

In addition to the classic barriers to commercialization in cleantech, the conversation articulated a few challenges and potential solutions particularly relevant to carbon management. Corporate partnerships in these verticals can be both challenging to facilitate and end customer buy-in may be essential to getting startups off the ground, as most product pathways focus on large industrial technologies with entrenched incumbent customers. Concessionary capital can play a variety of valuable roles in the capital stack in the near-term. Performance guarantees can provide a backstop for many first-of-their-kind products and production facilities necessary to attract lower-cost capital for financing. A credit enhancement function could serve to mitigate counterparty credit risk. First-loss capital in a blended facility could protect banks from unwanted O&M risk. Philanthropic capital may also play a meaningful role as a layer in the capital stack that can improve equity returns to a level sufficient to attract meaningful project equity.

Going Forward

Capital is foundational to further animating this market segment. Catalyzing further investment requires tackling commercialization challenges as well as financial gaps, which are inextricably linked in these verticals. Corporates, investors, and entrepreneurs all play critical roles. Engagement across stakeholder groups will allow for increased transparency, more efficient relationship formation and increased deal flow will follow. Your input, feedback and participation on how you’d like benefit from the animation of this network is welcomed.

XPRIZE and Pure Energy Partners are working together to launch the Circular Carbon Network (CCN), an initiative of the NRG COSIA Carbon XPRIZE designed to seek active engagement of key players in the segment to shape the future of the carbon utilization investment ecosystem. A more robust summary of the the Summit learnings and capital landscape more generally is in development, with release scheduled for Q4 of 2017 -- sign up to receive the report when it is released. We’re excited to be moving forward in this space and hope you will join us on the journey!

Marcius Extavour is Director of Energy and Resources at XPRIZE and prize lead for the NRG COSIA Carbon XPRIZE, a global competition for conversion of carbon dioxide from power plants into valuable products.

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