Category: Sustainable Finance Lab Post

Albermarle Initiates Lithium Auctions

Albermarle Initiates Lithium Auctions

Exhibit: Spodumene Spot Price Trend, March 2023 – Present

 

 

 

 

 

 

 

 

 

Note: minimum 6% Lithium Oxide, cif China
Source: Fastmarkets

Key Points: Albermarle, a leading lithium producer, is introducing auctions; arguably this can improve price discovery and transparency, particularly for strategic buyers. Pricing may be finding its footing after an 85% drop. Price perception today is heavily influenced by Chinese exchange trading, which is said to be driven by speculators.

Albermarle conducts first of a series of auctions. In late March, leading Lithium (Li) producer Albermarle (NYSE: ALB) auctioned 10,000 metric tons of chemical-grade spodumene concentrate, a source of high purity Li. The company has indicated that it will conduct a series of auctions; Bloomberg noted ALB will auction 100 tons of battery-grade carbonate on April 2 and Fastmarkets reported that ALB is planning its next spodumene auction for April 24.

Although not necessarily apples-to-apples, ALB appears to be stepping in to auctions as a competitor steps away from them. Australian miner Pilbara (ASX: PLS) is reportedly pausing its spodumene auctions after having committed most of its product for 2024.

Auction pricing may point to “stronger” demand by strategics. ALB reportedly received ~$1,200 per tonne in the recently completely auction, approximately 15% higher than the midpoint of market intelligence agency Fastmarkets’ most recent spot price assessment (see Exhibit). (The implied premium actually appears modestly higher because the auction basis was ex-works, in which arrangement of shipping generally falls on the buyer, vs. Fastmarkets’ cost-in-freight basis, in which arrangement falls on the seller).

Intent of auctions is to aid price discovery and provide transparency from and to strategic buyers. Per initial reporting of company statements, ALB intends the auctions to aid in price discovery and transparency. The ALB auctions can offer “hard” pricing reference points from strategic buyers relative to what the market perceives as price measures that are heavily influenced by speculative forces in China currently.

This Chinese speculative influence takes its shape in the Guangzhou Futures Exchange (GFEX)-traded Li carbonate contract. The GFEX contract was only introduced in July 2023, but it has grown open interest (the total number of derivatives contracts that haven’t been exercised or closed) to over 300,000 tons. GFEX volume and price volatility is reportedly spurred by large amounts of speculative interest (as opposed to strategic activity from buyers); it is also reportedly difficult for non-Chinese entities to access the market.

For reference, recent trading on the CME in its Li (hydroxide) contract had open interest of ~23,000 tonnes — and is considered a success as it has only been listed since 2021. The London (LME) and Singapore exchanges have reportedly seen very little activity.

It is worth noting that other factors may have a bearing on the relative popularity of the GFEX contract. It is physically-settled, while those on the other exchanges are cash-settled. And the GFEX is that much closer to the 2/3 of the world’s Li that is processed in China, which creates a natural hub. That said, it is also believed that the GFEX’s growth has helped CME contract growth through arbitrage trading.

Auctions may also encourage commodity traders. With prices ~80% below 2023 highs but up ~25% from February 2024 lows (see Exhibit), ALB may be hoping to encourage opportunistic commodity traders to step in.

March 28, 2024

Largest CCS VCM Credit Issuance to Date

Largest CCS VCM Credit Issuance to Date

Exhibit: Schematic of BECCS Process Sourced from Ethanol Production

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Source: University of ND Energy & Environmental Research Center

Key Points: Red Trail Energy’s BECCS credit issuance is the largest technology-based carbon removal project to date. Hints at the economics point to ethanol’s position at the lower end of the CCS cost curve. RTE is a partnership, which limits use of 45Q (affirming additionality for the credits). The issuance adds to momentum in carbon capture project finance.

Largest technology-based carbon removal credit issuance in the carbon markets to date. Earlier this month, Red Trail Energy LLC (RTE), an ethanol producer in North Dakota since 2007, issued 157 thousand (K) carbon credits on the Puro.earth registry. This was the largest listing of technology-based carbon removal credits in the voluntary market (though a registry) to date; it was also the first ethanol plant to produce carbon removal credits. RTE’s credits are based on the first 14 months of operation of the carbon capture program (beginning in June 2022), known in this case as Bioenergy with Carbon Capture and Storage (BECCS). (Note: Puro.earth refers to its credits as CO2 Removal Certificates, or CORCs.)

RTE CORCs documentation appears to affirm low cost position for ethanol-based CCS. Documentation posted on Puro.earth provides some detail with respect to the cost basis for RTE’s BECCS-based credits, although the detail may be insufficient to characterize total (or per ton of stored CO2) project costs. The 157K CORCs issued reflects the total CO2 captured of 180K tons net of the emissions associated with the CCS process (largely electricity). Electricity used for the period was 33.4 Megawatt hours (MWh); if this reflects total power consumption, it would allow for energy costs below $20/ton of stored CO2. Total capital investment for “buildings, equipment, contractor work and research” was given as $39 Million; if this reflects the total capex, then even assuming no extensions beyond the initial program term of 5 years, it suggests low $40s/ton of stored CO2.

Additionality may rely on RTE’s status as an Limited Liability Corporation. The additionality audit avers that the project meets Voluntary Carbon Market (VCM) additionality principles, i.e. requires carbon credits to make it financially viable, in part because RTE is a partnership. The entity’s tax status (as a partnership it distributes profit to the partners and is not taxed at the entity level) suggest it cannot benefit from 45Q tax incentives (which for this activity would otherwise provide for $85/ton).

This is by far the largest listing on Puro.earth. Puro.earth, a registry dedicated to technology-based carbon removal projects, launched in 2019. In 2023, its listings totaled 81.5K CORCs (i.e. tons-equivalent) through 362 projects, or an average of 225 tons per project. Also in 2023, 80% of its projects and volume were sourced in biochar, with most of the balance sourced in “wooden building elements.” Puro.earth’s transactions have realized pricing between $110 and $180/ton since the beginning of 2023.

The move comes with momentum in future CCS funding commitments.  There have been notable commitments related to carbon capture support over the past year. These have, however, been structured through directly-negotiated (multi-year) agreements. Examples include:

  • OXY-and-Blackrock-owned 1PointFive have over the past year has announced purchase agreements with ANA AT&T (just this past week), BCG, TD Bank Group, Trafigura, and Houston professional teams the Astros and the Texans to purchase Carbon Dioxide Removal (CDR) credits for removals to be delivered by 1PointFive’s under-construction Direct Air Capture (DAC) facility STRATOS.
  • Microsoft committed an estimated $200 Million to purchase 315K credits from carbon mineralization startup Heirloom as part of Microsoft’s broader carbon removal portfolio commitments.
  • Respira International, a carbon credit investor, committed to buy 50K credits from DAC company Carbon6. This follows Respira’s 2022 MOU with power producer Drax Group to buy up to 2 Million BECCS CDR credits over a five year period to be generated from an as-yet-to-be-built Drax facility in the U.S. Respira intends to resell the credits in the voluntary carbon market.

March 21, 2024

The cleaning of U.S. natural gas; evolution of differentiated gas and related crediting mechanisms 2/15/24

The cleaning of U.S. natural gas; evolution of differentiated gas and related crediting mechanisms

Payne Institute Sustainable Finance Lab Program Manager Brad Handler and Student Researcher Felix Ayaburi write about the concept of differentiated gas, the emerging role of crediting mechanisms in promoting its adoption, and the prospects for demand growth and its evolution.  After rapid growth in the supply of U.S. differentiated gas through late 2021 and 2022, demand is rising from domestic utilities and industry as well as European energy companies. February 15, 2024.

Barclays’ New Rules for Financing Fossil and Transition Activities

Barclays’ New Rules for Financing Fossil and Transition Activities

Exhibit: Barclays’ New Fossil Financing Exclusions, by Effective Date

 

 

 

 

 

 

 

 

Source: Barclays

Key Points: Barclays’ new restrictions on fossil financing and Transition Finance Framework support its decarbonization push and $1 Trillion commitment, by 2030, to sustainable and transition finance. The bank treads carefully with existing, diversified O&G clients, mandating target-setting. The TFF aligns with accepted decarbonization pathways and new taxonomies.

Barclays issues new rules of financing Oil & Gas and Thermal Coal. The bank this month published an updated Climate Change Statement, in which it laid out constraints and restrictions on providing financing to upstream oil and gas (O&G) and thermal coal mining and coal fired power generation companies. The thrust of the policies are (1) constraints on financing O&G expansion generally and not financing specific locations and types of hydrocarbon resource (e.g. in the Arctic and oil sands); (2) taking on new clients in O&G (if they are seeking growth, but that would seem to apply to most upstream O&G companies); (3) O&G clients must develop plans to reduce greenhouse gas emissions and have adequate disclosure; and (4) a path to cessation of funding coal mining and power generation. See Exhibit.

Also, Barclays lays out parameters for transition finance. The bank has developed a set of over 110 transition activities across 11 sectors that it classifies as high-emitting and hard to abate. In addition, activities include seven “cross-cutting” technologies including CCUS, blue hydrogen and low-carbon fuels. These, along with the principles behind their use have been published in the bank’s Transition Finance Framework (TFF).

As it relates to Oil & Gas, transition activities include Carbon Capture Utilization & Storage (CCUS) on existing oil and gas assets (whether for geologic storage or H2 production but excluding for Enhanced Oil Recovery) and investments to (1) eliminate flaring, (2) reduce methane emissions, (3) improve energy efficiency of O&G assets, and (4) electrification of O&G assets. For coal, transition activities include CCUS and coal-to-gas switching.

The TFF lays part of the ground rules for the bank’s $1 Trillion commitment to sustainable and transition financing. Barclays has committed to $1 Trillion in sustainable and transition financing between 2023 and 2030. As the bank puts it, “[t]he inclusion of transition financing…reflects…recognition of the importance of lending, facilitating funding and investing in technologies and activities that support greenhouse gas emissions reduction (directly and indirectly) in high-emitting and hard-to-abate sectors.” To support that commitment, Barclays last month formed an Energy Transition Group within its Corporate and Investment Bank, which reportedly will have over 100 bankers.

Broadly, transition finance appears to be gaining momentum. The topic of transition finance was prominent at COP28. Growth potential was marked by large cash commitments from the UAE in conjunction with large investment houses, including Blackrock and Brookfield, and concessional sources, while the Monetary Authority of Singapore released the Singapore-Asia Taxonomy (SAT) — the world’s first, it claims, with a transition category. An enabling taxonomy will let a financial institution put money into a high emitting sector (with a transition plan) and not run afoul of its Net Zero targets.

February 14, 2024

Letter from the US: Chesapeake-Southwestern merger is big deal for US LNG 2/6/2024

Letter from the US: Chesapeake-Southwestern merger is big deal for US LNG

Payne Institute Director Morgan Bazilian, Policy and Outreach Advisor for Responsible Gas Simon Lomax and, Program Manager of the Sustainable Finance Lab Brad Handler comment on the Chesapeake-Southwestern merger’s potential to foster more differentiated gas use in LNG exports.  The merger comes amid a wave of multibillion dollar oil industry tie-ups, including ExxonMobil buying Texas-headquartered Pioneer Natural Resources and Chevron buying New York-headquartered Hess. February 6, 2024.

Lower Hanging Fruit in Filipino Coal Retirement

Lower Hanging Fruit in Filipino Coal Retirement

Exhibit: Economic Value of Filipino Coal Power Plant PSAs
($/ton CO2 on Left Hand Scale; $MM/MW on Right Hand Scale)

 

 

 

 

 

 

 

 

 

 

 

 

 

Key Points: A study of the costs to retire coal plants in the Philippines finds low hanging fruit. The economic value of the PSAs, a linchpin in the cost to buy them out, is less than $30/ton of avoided CO2 for just over ½ of the fleet. The study comes as momentum is building for coal plant retirement financing solutions, including carbon crediting.

A study last month of the costs of early retirement of coal fired power plants (CFPPs) in the Philippines. TransitionZero, a climate analytics not-for-profit assessed the cost of retiring all of the Philippines coal fired power plant (CFPP) fleet. Specifically, it reviewed the economic value remaining in the 209 existing Power Supply Agreements (PSAs) that govern the price of power paid to plant operators. The economic value in the PSAs should have a large bearing on the (negotiated) cost to buy out the PSAs, which is critical to utilities/governments if they are to retire their CFPPs early.

The study comes as there is some momentum building in CFPP closure in the country. At COP28 the Rockefeller Foundation’s Coal to Clean Credit Initiative (CCCI) and Monetary Authority of Singapore (MAS) announced (somewhat overlapping) exploratory programs for single plant closure. Both announced that they are working with ACEN Corporation of the Philippines to consider use of such credits as part of the early closure of the South Luzon Thermal Energy Corporation (SLTEC) coal plant. (For more of an update on CFPP retirement financing momentum see here.) The Philippines does not have a Just Energy Transition Partnership that (begins to) structure international support for its transition, but it is looking to partner with the World Bank and other development agencies.

The most significant cost of retirement is generally the cost to buy out Production Service Agreements (PSAs) with owners/operators of the CFPPs. For perspective, the actual cost of retiring a CFPP (decommissioning, dismantling, etc.) in the Eastern Hemisphere has been estimated at $58,000 per megawatt (MW). Per the TransitionZero study, 70% of the Philippines’ plants have a economic value over $500,000 per MW (and the highest is $2.9MM per MW). See Exhibit. Although the cost to buy out PSAs and to retire a CFPP is by no means the only criterion for prioritizing plant closure, this (wide range of) expense can no doubt inform that process.

~55% of CFPP generation in the Philippines could be retired for a cost per avoided CO2 that is well within current carbon costs. The TransitionZero study suggests that if PSA buyouts occurred at their economic value, ~55% of CFPP generation could be replaced for below $30/ton of avoided CO2. See Exhibit. For reference, this is below carbon pricing in most Western compliance markets (e.g. the European ETS is currently $68/ton) and well below more recent estimates of the Social Cost of Carbon, including the U.S. EPA’s late 2022 estimate that started at $190ton).

Details from the TransitionZero study:

  • The Philippines has 58 coal “units” (many CFPPs are comprised of multiple units) in operation with 12.2 Gigawatts of capacity. There are a total of 209 signed PSAs that represented ~2/3 of generation (in 2022). The economic value of all the PSAs is estimated at $7.1B.
  • ~20% (from eight coal units) of the country’s coal fired power generation could be retired for less than $10/ton of avoided CO2, with an estimated value of $275MM;
  • ~55% (from 26 units) for less than $30/ton with value of $1.8B; and
  • ~75% (from 39 units) for less than $60/ton with value of $3.3B.

We believe the costs to retire coal should be considered separately from the costs to replace the power. It is worth noting that TransitionZero concludes that the cost of retiring the Filipino fleet of CFPPs is $140/ton of avoided CO2. This includes the cost of replacing the capacity with solar and battery storage.

Although it is helpful to understand that the total costs to a country/power system includes replacement power, it is important to keep the analyses separate. This is because, most importantly, combining these costs, as is done in the TransitionZero exercise, accounts for only the capital costs of the solar and battery systems; it does not address, for example, operating costs savings of renewables relative to CFPPs. At the same time, the total capital requirement includes far more than just replacement power. For example, grids will require significant investment as well, in new transmission lines to connect the new sources of power (if different than CFPP sites) and frequency regulation to handle intermittent power.

February 5, 2024

VCM 2023 Update: Retirements Stable; Transaction Volume Falls

VCM 2023 Update: Retirements Stable; Transaction Volume Falls

Exhibit: Carbon Offset Credit Retirements, by Month 2023 (Millions Metric Tons CO2-Equivalent)

 

 

 

 

 

 

 

 

 

 

 

 

Source: MSCI Carbon Markets (formerly Trove Research)

Key Points: Strong YE VCM credit retirements may suggest companies eventually deliberated, but then used, purchased credits to fulfill climate commitments. Retirements were thus flattish yr./yr. in 2023; issuances likely fell more than 10% and transaction volumes perhaps >50%. Demand in 2024 may be bolstered by integrity frameworks and incremental company buyers.

Strong December brings VCM credit retirements in line with prior years. MSCI Carbon Markets (formerly Trove Research) posted its tally of carbon offset credit retirements in the Voluntary Carbon Markets in 2023. Including a record setting month in December, in which 36 million offset credits were retired (see Exhibit), MSCI counted 180MM retired offsets in 2023, down only 3% year-over-year (yr./yr.).

Note: to retire an offset credit is to take it out of circulation; in so doing, the buyer/”retirer” uses the credit to report it as an offset to its internally-generated carbon emissions. One credit is the equivalent of one metric ton of carbon dioxide equivalent.

This outcome surprises; per MSCI, retirements were on pace to fall 12% yr./yr. through the first nine months of 2023 (excluding crypto-based transactions). The pace of retirements had slowed through the course of 2023 through September and it was tempting to tie that slowing pace to greater scrutiny and integrity concerns across the VCM.

We are left to speculate about companies’ thinking. It seems plausible that companies engaged in review of credits they had previously purchased before deciding it was “ok” to use them as offsets. Further, as MSCI had identified earlier in the year, the decline in retirements by a few large buyers of offset credits had slowed their retirement cadence; this had been only partially offset by newer and smaller buyers. Perhaps more (many) of those newer entrants acted in December to fulfill annual commitments.

Issuances were presumably down more than retirements in 2023… Per MSCI, issuances as of the first nine months of 2023 had fallen 8% yr./yr. and 4Q22’s 141MM credits issued was particularly strong (it was double the pace of the first three quarters of 2022). This sets up for full year 2023 issuances to fall more than 10%. Given heightened integrity scrutiny being taken by Verra and other registries and the softer market generally, it is perhaps surprising that issuances didn’t fall more.

…while transaction volume appears likely to have fallen considerably. Ecosystems Marketplace (EM), which has conducted a survey of VCM participants and registries for a number of years, published an update in late November 2023. The report cautions that its 2023 data, which covered through mid-November, is preliminary and likely reflects very incomplete survey results. That said, with survey responses from 2/3 of the actors that responded in 2022, the fact that transaction volumes were down 80% in 2023YTD vs. 2022 certainly points to a dramatic decline — perhaps more than 50% yr./yr. (Our channel checks appear to support that as well.)

This slowdown in transactions likely reflects a pulling back by both buyers/end-users and speculators; it seems entirely plausible that they are waiting for the integration of recommendations/certifications by the integrity standards bodies (and specifically the Integrity Council of the Voluntary Carbon Market or ICVCM) into the registries.

ICVCM assessments and demand from new companies points to some recovery in 2024. Looking forward, transaction volume in 2024 —and demand generally — should depend on a few factors. These include the extent to which: (1) existing/issued credits are deemed to “fit” with ICVCM Core Principles; (2) companies conclude they can or cannot use credits they have already purchased for offsetting purposes; and (3) near term demand for offsets is bolstered by the addition of companies making climate commitments. To this last point, although data still pending, MSCI data through nine months of 2023 would suggest that the number of companies committing to align their emissions with limiting global warming to 1.5°C more than doubled in 2023 to well over 3,000.

January 8, 2024

Transition finance advances at COP28 12/12/2023

Transition finance advances at COP28

Payne Institute Program Manager Brad Handler writes about how announcements made during the COP28 climate talks signal progress on several fronts when it comes to unlocking finance to support the energy transition.  Transition finance holds the key in terms of giving the owners of emitting assets the financial incentive for closure or conversion, but flows of transition finance have not risen to the challenge so far.   December 12, 2023.

Coal retirement updates from COP28

Coal retirement updates from COP28  

 

 

 

 

 

 

 

 

 

 

 

 

 

Source: Pioneer Press

Key Points: Actors in coal plant early retirement signaled progress at COP28. ADB’s ETM hit a milestone. Carbon offset initiatives announced (1) individual plant pilot programs and a draft methodology, with the suggestion that crediting might accelerate retirement by 10 years vis-a-vis refinancing alone, and (2) a framework for jurisdictional level crediting.

The grind for ADB’s first Energy Transition Mechanism (ETM) continues. ADB signed a framework agreement with Cirebon Electric Power for the early retirement of its Cirebon-1 plant. This follows a Memorandum of Understanding (MOU) signed last December by the parties, which include Indonesian utility Perusahaan Listrik Negara (PLN) and the Indonesian Investment Authority (INA). The latest announcement lacks details; along with the long wait, this hints at the challenges in coming to terms. The release did, however, mention that the transaction is to be finalized in 1H2024 and that the retirement date was pushed forward to 2035 from the MOU’s indicative 2037. Please see here for more detail on last year’s MOU and background on the ETM concept.

Carbon crediting as a financing supplement to close single plants… COP28 also marked some progress in using carbon offset credits to fund closing coal plants. The Rockefeller Foundation’s Coal to Clean Credit Initiative (CCCI) and Monetary Authority of Singapore (MAS) announced (somewhat overlapping) exploratory programs for single plant closure. Both announced that they are working with ACEN Corporation of the Philippines to consider use of such credits as part of the early closure of the South Luzon Thermal Energy Corporation (SLTEC) coal plant.

The programs’ collaboration with ACEN follows that company’s late 2022 refinancing of SLTEC in the world’s first and so far only ETM (that was also notable because it included no concessional financing). The COP28 CCCI announcement suggests that the credits enable the SLTEC plant to retire a decade earlier (by 2030) vs. last year’s announcement.

Separately in the announcements, CCCI is working with carbon standard setter Verra to issue the world’s first transition credits. (Verra has published its Draft for Public Consultation of the methodology.) And MAS’s announcement notes that its coalition will explore another pilot in the Philippines island of Mindanao in collaboration with ADB and using ETM.

…And also at a “system” level. The Energy Transition Accelerator, which was introduced at last year’s COP, published a “core framework” for jurisdictional-scale (e.g., country-wide) transition credits to help finance energy transitions. The program offers the benefits, relative to individual plant crediting, of working at significantly larger scale and addressing risks of leakage (i.e., that power foregone from retired coal plants will be replaced by power that is generated from other fossil-based plants). The ETA states in its framework that any credits are to be contingent on the implementation of a Just Energy Transition Partnership (JETP) — a nation (or subnational)-wide plan for transition to clean energy. JETPs, bespoke agreements that are now in five countries, are anchored by planned international concessional funding, which is then to be supplemented by significant private financing.

12/12/2023

DAC’s Recent Cost Curve Signals

DAC’s Recent Cost Curve Signals

 

 

 

 

 

 

 

 

 

 

 

Sources: CarbonCapture, Heirloom

Key Points: Frontier Climate’s Advanced Market Commitment to CarbonCapture has average per ton pricing of $440, with a plausible step down from $650 to $350 by 2028. This compares, for example, to OXY Stratos’ estimated $400-500/ton cost and expected medium-term future gen cost of <$250/ton. Frontier’s other newly announced AMC, to Heirloom, equates to $990/ton.

Frontier Climate makes two new investments in Direct Air Capture (DAC) technologies. Frontier announced two additional AMCs last week, $20MM to CarbonCapture to remove 45,500 tons of CO2 through 2028 and $26.6MM to Heirloom to remove 26,900 tons of CO2 through 2030. CarbonCapture and Heirloom are deploying different DAC systems. CarbonCapture’s DAC uses solid sorbents to soak up atmospheric CO₂. The company is using a modular system that allows it to upgrade existing facilities with best-in-class sorbents as they become available. Heirloom accelerates limestone’s natural CO2 absorption properties.

CarbonCapture is developing its first facility, Project Bison, in Sweetwater County, Wyoming. The project has been delayed from its originally-announced startup this year; the company continues to target 5 million tons per year of CO2 capture by 2030. Heirloom commenced operations of its first facility in Tracy, California earlier in November with a capture capacity of 1,000 tons per year.

Using an AMC to track a carbon removal learning curve. Frontier addresses cost reductions for both CarbonCapture and Heirloom’s approaches, albeit in different ways. For CarbonCapture, Frontier has structured the AMC with pricing declining through the agreement period. Frontier will pay “at least 46%” less for CarbonCapture’s removals by agreement end (2028) than in year 1. Backing into possible annual volumes and prices to total the $20MM commitment and $440 average price suggests that pricing could be $600-650/ton and $325-350/ton in 2024 and 2028, respectively.

For Heirloom, there are no indications of a pricing trajectory in the AMC, but Frontier notes that Heirloom is projecting a 70% decline in cost by 2030 from today, after having reduced costs by 50% since 2021.

For reference, OXY anticipates current Stratos costs of $400-500/ton declining eventually to $150/ton. Construction of OXY’s Stratos DAC plant is 30% complete and the facility is projected to start operations in 2025 at a capacity of 500,000 tons/year. OXY has characterized a potential DAC cost curve declining to $150/ton by the “Nth gen” facility. OXY has indicated its intent to aggressively build out its DAC capacity, including having 135 facilities online by 2035.

As an important aside, this month’s announcement of Blackrock taking a JV stake in in Stratos, contributing $550 million of the project’s expected $1.3 billion cost, marked a data point regarding the perceived ability to earn an adequate financial return in DAC including from credit sales and tax credits.

Frontier Background. Frontier, a public benefit LLC owned by Stripe with funding support from Alphabet, Shopify, Meta and McKinsey, is employing an Advanced Market Commitment (AMC) model, in which buyers will commit to an annual spend on carbon removal between 2022 and 2030. Frontier has now made commitments to 28 companies for a combined $126 million (MM) out of total available committed funds of ~$1.025 billion; its commitments are all to new carbon removal technology companies that Frontier deems have significant potential to scale and lower their costs. The commitments are to companies that span technology approaches to DAC; a non-exhaustive list includes (1) new adsorbents for DAC systems (examples: AspiraDAC’s Metal-Organic Framework and Calcite-Origen’s slaked lime for calcination); (2) enhanced weathering techniques (examples: Lithos’ basalt application to cropland and Travertine’s use of electrochemistry to produce sulfuric acid); and (3) synthetic biology (e.g. Living Carbon’s algae biopolymer). Frontier has noted that it is paying as much as $1,800/ton for some very early-stage commitments.

11/20/2023