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