Frontier and its AMC progenitor
Comparing and contrasting the Frontier advance market commitment with the pneumococcal vaccine AMC that helped inspire it
April was one hell of a month for CDR! $925M advance market commitment from Frontier, new $350M Lowercarbon CDR fund, $14M in Dept of Energy funding to DAC, $650M to Climeworks. Chugga chugga choo choo. Some future wizardry is pulling out of the station on platform 9 ¾.
All of these are great developments, but coming from a background in global health, the Frontier AMC is particularly exciting and intriguing to me. In a prior life I helped lead the Clinton Foundation’s work on a similar situation—taking a market in its infancy (in that case the market for large-scale supply of HIV/AIDS drugs and diagnostics in the developing world) and trying to turbocharge the expansion of the market while shaping it toward healthy dynamics and great outcomes for patients. As we extended our market-shaping work into vaccines and other products we got involved in a range of innovative-finance experiments like the pneumococcal vaccine AMC that helped inspire Frontier.
In a series of posts, I hope to share some reflections on the Frontier AMC taking different lenses:
For readers who are new to learning about AMCs and the pneumo vaccine AMC predecessor to Frontier, this post compares and contrasts the Frontier AMC situation with the pneumo AMC situation building on a great piece Na’im Merchant wrote a few months back.
A second post will consider broader lessons to be drawn from the world of global health over the past 20 years, with a particular focus on the emergence of “market shaping” as a discipline we have used to applied to catalyze big new markets and simultaneously steer them toward healthy dynamics.
A final post will connect that thinking to the next horizon for Frontier. How might Frontier use its tremendous leverage to shape the CDR market most powerfully and creatively over the coming decade?
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Robinson Meyer recently wrote about the collective imagination problem with gigaton-scale CDR. The rub with creating enormous, thriving markets from scratch is that it’s hard to get people to even imagine a reality that looks as radically different from today’s as the one you’re trying to bring into existence. Frontier momentously solves the most fundamental chicken-and-egg question: where’s the first ~$1B in demand going to come from. Frontier helps us imagine more palpably, to dare to believe this might actually start snowballing the way it needs to.
And at the same time the Frontier announcement invites so many other questions. Lots of noodlings follow below — and none of them are any shade on the vision for Frontier. To the contrary, Frontier is an outright godsend. We owe endless gratitude to everyone who helped make it happen. It’s just that so many more questions flow from the announcement than any of us could glean from early news coverage, or even than the Frontier team could possibly have finished thinking through just six months after Nan Ransohoff and Susan Athey started kicking the idea around.
While the pneumococcal vaccine AMC in global health helped inspire the concept for a CDR analog, Frontier is a far from a rinse/repeat of the pneumo AMC. It’s a different beast in a whole bunch of ways.
Frontier came together way faster in a very different market situation. Unlike the pneumo AMC, Frontier has no strong existing quality assurance apparatus to rely upon and has to bridge to a market that will need to become orders of magnitude bigger. In what follows we look more closely at these realities—the speed to launch, the quality conundrum, and the bridge-building to trillion dollar market size.
Speed and baked-ness: Where the pneumo AMC funders took four years to methodically cook it up and launch it, Frontier came into being with comparatively blinding speed. History books will remember the importance of that speed. Millions of people dying of pneumonia every year demanded urgency, yet the urgency of kickstarting a huge CDR industry is arguably even higher given the lives-and-human-immiseration stakes.
The corollary of this speed is that the Frontier AMC will be an airplane built as it is flown. By the time it finally launched in 2009, the pneumo AMC had many things in place that Frontier does not: a large group of both private and government backers; a well-developed Target Product Profile specifying exactly what kind of vaccines would be eligible and what quality control requirements would be imposed; an Independent Assessment Committee assembled to make selection/allocation decisions; specific ‘tail price’ commitments that suppliers would be required to adhere to even beyond the end of the AMC mechanism; and more.
On all of those fronts, Frontier is still clay on the potter’s wheel:
The source of the initial $925M commitment is a group of just five private-sector players, with an explicitly stated goal of welcoming other companies to the table in the coming months and years
No governments have yet joined Frontier nor committed to any other forms of advance commitment
Both the Monitoring, Reporting and Verification (MRV) standards and the institutional architecture needed to deliver quality assurance are entirely TBD
Frontier only sets a long-term price goal of <$100/ton, while by design (and wisely) not setting any other immediate parameters around what cost/price levels will be acceptable or competitive down the road once scaling picks up
Quality assurance & MRV: Most of the TBDs above aren’t problematic at this stage. Just the initial $925M commitment by itself is enough to shift CDR entrepreneurs’ lens from a big honking “where will my demand come from in 2-3 years” to “now I need to focus squarely on delivering and scaling.” In practice, the only aspect keeping some CDR startups and suppliers up at night these days are the MRV-related uncertainties—but these loom large.
The pneumo AMC faced a far easier quality assurance task. It sought to accelerate the market for one specific type of product fitting a narrow profile. And the World Health Organization’s vaccine prequalification program (“WHO PQ”) offered an obvious QA solution for that product type.
Frontier has neither the luxury of narrow single-killer-product focus nor of a strong existing QA / MRV platform. It aims to inspire lots of ‘shots on goal’ to seed a diverse portfolio of CDR technologies, which means diverse MRV challenges. And to boot, where vaccine QA had to focus on a (relatively) limited set of empirically-addressable issues pertaining to quality, safety, and efficacy, MRV for CDR has to cover broader ground: additionality, net-negativity, permanence, safety, second-order environmental impacts, and some complex carbon cycle dynamics (e.g. air-sea flux) that may only be tractable through modeling. All this heterogeneity, together with the deeply problematic verification landscape in today’s voluntary carbon markets, makes MRV a huge conundrum. Yet Frontier can’t function without a rigorous MRV approach any more than the pneumo AMC could have functioned on Pfizer’s own assurances that it was producing quality vaccines.
Questions abound: What will the MRV standards and mechanisms look like? Who will own and enforce the standards for CDR the way the WHO held them for vaccines? If I’m a supplier, what implications for my unit economics? What if I can prove likely durability in the hundreds of years but not 1000+ year permanence? Etc. And these are much bigger in CDR zones where MRV questions are especially knotty—ocean, soil, and so forth.
Relative to the pneumo AMC situation, we’re in a much more Wild West situation with the early CDR market—and we risk staying that way for far longer, even as big dollars start to flow. More than 1100 teams applied for the Elon Musk-sponsored carbon removal XPRIZE. We’re seeing everything on the spectrum from ultra-legit to not-worth-the-paper-it’s-written-on. This may not be a huge problem for early risk-tolerant buyers willing to accept deep MRV shortcomings; but from the perspective of building a huge market in which the public has growing confidence, it’s a big deal. As we try to build a new category to crowd out lower-quality carbon offset supply in today’s voluntary markets, we want to avoid an extended Wild West era where the Pro Publicas of the world are cranking out take-downs of questionable CDR ventures like they rightly have for so many sham offsets.
How does Frontier respond to this? It urgently needs better MRV architecture, but taking the monkey on its own back and becoming the early quality referee for the CDR space will be increasingly problematic. Early buyers have often pulled in independent or contracted experts to apply analytical rigor on issues of additionality/permanence/etc. (e.g. Microsoft / Carbon Direct). Stripe in particular is building out its in-house scientific expertise (e.g., the great Zeke Hausfather), and Frontier will build a wider network of experts whose counsel it draws on. But the dynamic is different when Stripe is merely one of a handful of early buyers vs. when Frontier becomes the 800-pound gorilla buyer in the space.
Frontier and the CDR space as a whole will be better set up for success if something vaguely akin to WHO prequalification emerges. I’m sure Frontier would welcome this and is working behind the scenes to catalyze early motion in this general direction. The pneumo AMC benefited tremendously from the institutional separation of the purchasing function from the QA function. Trust is everything when it comes to QA and MRV. We ideally need an actor whose institutional positioning lends it perceived independence, no conflicts of interest, and generally high regard. And while there are certification providers in the voluntary carbon market (Gold Standard, Verra, etc.), they are too deeply compromised by the role they’ve played in carbon offsets 1.0 to recover and play a leading role in the CDR industry.
Size: The initial $925M commitment—let’s round it to $1B, about two-thirds the size of the pneumo AMC—from Frontier is both huge and tiny at the same time. $1B, or ~$100M annualized, is huge in the sense that of current supply/demand: you couldn’t possibly spend that kind of money on high-quality, delivered-tons CDR supply today. Even when you think ahead a couple of years, and start to contemplate bigger multi-year offtake agreements (versus just pay-as-you-go for delivered/sequestered tons), the current Frontier funding pot will stretch a long way. If Stripe’s and Shopify’s purchases solved the demand problem for whatever we call the 2020/2021 era of the CDR industry (Phase 1A? Angel phase?), Frontier’s existing funds will largely solve the demand problem for the next multi-year stretch.
Yet mapping backward from where we need to be by mid-century, and what that implies about projected CDR market size by 2030, $100-200M/yr starts to look quite small. We don’t yet know exactly what gigatonnage we’ll need to (or be able to) reach by 2050 nor what cost levels will be achievable, but we clearly need to be imagining a CDR market that is ballpark at least as big as today’s aggregate global carbon compliance market size and possibly much bigger (ie high hundreds of billions to low trillions of dollars).
So $100-200M/yr is huge with a 2022 point of reference, and a drop in the bucket with respect to 2050; how big is it thinking in ~2030 terms? There are at least a couple of ways of looking at this:
One lens would project the exponential scale-up in CDR tonnage we’ll need to see between now and 2050 and trying to put an interpolated number to 2030 tons and market size. This is fraught with the uncertainties of the scale-up curve and learning rate / cost curve, and having no stable existing CAGR to project forward from. But even a bit of what-would-you-have-to-believe analysis points to $100-200M being at or even below the absolute low end of what would plausibly keep us on track toward 2050 goals. More likely, we need 2030 market demand at least in the high hundreds of millions or low billions.
From a deployment and scale-up standpoint, we start getting to big inflection points in cost when we get into the tens of millions of tons—when plants the size of 1PointFive’s first announced commercial-scale plant are becoming commonplace. If our $100-200M/yr were (like the pneumo AMC) going to just 2-3 suppliers, it would go even further helping individual suppliers get to and past 1PointFive scale. Yet Frontier will rightly be spreading its funds to water more seeds in the garden.
Another sanity check is to consider the emergence of a thriving VC-backed CDR industry. By 2030 a thriving and heavily VC-backed CDR space will presumably need at least a bunch of unicorns driving outsized returns and tens of companies with fast-growing eight-figure revenue in VC portfolios’ upper performance quartiles. That only happens with a market well north of $200M.
This is all a bit of a straw man. Frontier isn’t trying to suggest that $100-200M per year will be enough to carry the industry in 2030 (and Frontier on its own will almost certainly be bigger by then). But thinking along these lines reveals the demand-building challenges ahead, and that they start way before 2030 rolls around. Frontier may largely solve the next few years of demand, and plant a great seed for the latter half of the decade, but is only a (desperately needed!) bridge to what we’ll eventually need.
Crossing the bridge: The pneumo AMC had to create a pot big enough to help suppliers get over the hump of scaling up production to serve unmet need and demand in developing countries. Yet the projected market size in the decade after the AMC period wasn’t orders of magnitude bigger than the market size during the middle of the AMC period. So Frontier has this added challenge of ferrying the market across an early chasm to something far, far bigger.
Clearly we can’t let the first $1B become a bridge to nowhere. Scaling supply to gigaton levels will take all of our species’ superpowers, and we never want to put the brakes on by allowing demand to fall behind available supply. So what does all this imply?
First, Frontier itself is designed to grow over time. We can think of the announced $925M—for now—as a ~$100M/yr pot of pooled CDR demand, though almost certainly following a non-linear disbursement curve from lower to higher annual payout assuming the pace of scaling outstrips the march down the cost curve. The pot itself will grow—and if I had to guess, likely dramatically—over the coming years. Even thinking only about private sector dollars, the first set of companies to join Frontier is just scratching the surface. It’s not just the Stripes and Shopifys of the world that will consider participating—think of non-tech companies like (e.g.) Airbus buying a four-year CDR strip from 1PointFive at 100K tons/year, presumably an eight-figure or even nine-figure financial commitment. As it dawns on people just how problematic most ‘certified’ garden-variety carbon offsets are, and just how inevitably some forms of CDR will follow a scale/cost trajectory comparable to photovoltaics and lithium-ion batteries, voluntary markets will gradually migrate toward CDR and Frontier will be a compelling option.
Ultimately, though, the demand crux for the latter half of this decade will be bringing government CDR procurement to the table in a big way. Carbon180 is rightly shifting its primary focus even more squarely to US government funding for and direct purchasing of CDR. But other wealthy countries like the UK and Norway that have been pioneers in innovative finance for global health (not just the pneumo AMC but other vehicles like UNITAID and IFFIm) will need to be in the vanguard in normalizing large-scale public CDR procurement. And as governments step up on CDR procurement, we will need them not just to pay for delivered tons but to make advance commitments just like Frontier. This may be unlikely to happen through Frontier itself, but that matters much less as long as Frontier helps set the table for order(s)-of-magnitude bigger public commitments.
The financial architecture for a flourishing CDR market will also need to develop in the coming years to enable supply and demand to grow in lockstep. Large current demand isn’t enough to solve financing challenges for CDR companies that have to build pilot scale plants, followed by first-of-a-kind commercial-scale facilities, followed by the next several iterations before everything is sufficiently de-risked and proven out for project finance to take over. Frontier has signaled that over time it intends to enter into bigger, multi-year offtake agreements with suppliers rather than just make year-by-year purchases. That will be a big next step at the nexus between demand de-risking and levelized cost reduction that Neil Hacker has highlighted. We will need an ecosystem of financing solutions (think Generate, Evergrow, Energetic Insurance, etc.) filling gaps that VC funding, customers, and project finance don’t collectively solve.
Finally, it’s worth noting that Frontier makes future purchasing commitments transparent—powerfully so—but doesn’t do anything to securitize future cash flows. As the predictability of future flows (public and private alike) increases over time, there will also be a compelling opportunity to securitize and bring tomorrow’s CDR purchasing dollars forward to today to further accelerate the scale-up curve. Here again we can look to vaccines and global health. IFFIm—the International Finance Facility for Immunization—may be less famous than the pneumo vaccine AMC but has been a similarly important innovative financing vehicle in speeding vaccine availability. Since 2006 IFFIm has been issuing bonds against governments’ multi-year commitments to funding global vaccine delivery and thereby enabling much larger immediate purchases and investments than would otherwise have been possible. Building on the thriving landscape of green bonds, there should eventually be a similar opportunity to extend aggressive securitization into the CDR market.
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To reiterate, none of these considerations imply that Frontier could or should have done anything differently up until now. But there is so much to figure out in the coming months and years.
Frontier has set off a loud starter’s gun. So much good will flow from this giant slug of industry-awakening Red Bull. The $925M in CDR purchasing matters in its own right, yet what matters even more is the powerful virtuous cycle Frontier’s cash injection will spin up—dramatic new investment, begetting more new ventures and scale-up on the supply side, begetting more buyers shifting from garden-variety offset purchases toward CDR, begetting vastly accelerated progress on MRV architecture and other forms of public goods and connective tissue, begetting emboldened government action and policy entrepreneurship … the list goes on. This kind of virtuous cycle is what we’ve seen with HIV drugs, with vaccines, with malaria bednets. And we started in the same place: faced with the same chicken-and-egg problem in HIV/AIDS treatment in 2003, we created a buyers club to commit to large-scale purchasing if generic drug manufacturers would start scaling up and climbing down the cost curve. When someone starts bravely dancing the funky chicken like Stripe and Frontier have, it’s safer for others to start dancing too.