Frontier as CDR market steward
Using massive leverage and unique positioning to build and shape the market we so desperately need
In an earlier post I shared some observations about Frontier and the pneumococcal vaccine AMC that inspired it—and the very different market situations into which each was launched. Frontier faces at least a couple of big hairy challenges that its predecessor didn’t need to sweat nearly as much.
Yet Frontier also has a huge opportunity to outdo the pneumococcal vaccine AMC in its execution. If the pneumo AMC had a singular shortcoming in its implementation, it was underutilizing the AMC’s leverage and market-shaping power.
The Doctors Without Borders report critiquing the pneumo AMC calls out big missed opportunities along these lines, with a particular emphasis on how the AMC was too passive in seeking to re-shape competition and behavior on the supply side. First, competition among suppliers was limited and the AMC didn’t urgently seek to induce and support the entry of new suppliers. Second, the AMC team didn’t have sufficient expertise in forensic cost analysis and negotiation to push back on suppliers’ initial bargaining stance around pricing. And finally, the AMC didn’t require the major suppliers (Pfizer and GlaxoSmithKline) to commit to technology transfer agreements or otherwise take any big steps toward enabling expanded manufacturing in the developing world.
The 800-pound gorilla status that comes from establishing yourself as the dominant buyer in an infant- or toddler-stage market gives an AMC entity like Frontier a ton of power and leverage.What does this mean in practice? AMCs may look like simple demand commitments, like big pots of money waiting to be disbursed. But AMCs are actually actors. Wielding power that no other market actor yet has, they are the dominant early players in the markets they are trying to kickstart.
And there’s the rub: to understand its true identity, we should think of Frontier not merely as an AMC for CO2 removal but rather as inaugural steward of the CDR market. If you believe it will be the dominant buyer for years to come—a premise that we’ll parse below and not take as a given—then Frontier doesn’t choose whether it is the de facto market steward. Its heft dictates that. What it does get to decide is how it inhabits the steward role.
In my last post, outlining the role CHAI played in helping to create a thriving market for HIV drugs in the developing world, I considered the distinction between market creation and market shaping. Market creation is comparatively straightforward. If they’re big enough and don’t totally screw the pooch, AMCs kickstart inchoate markets fairly automatically just by deploying lots of cash. And if we’re wise, Frontier won’t be the last AMC we see in climate tech—we should be considering AMCs for green steel, green hydrogen, sustainable aviation fuels and many more categories.
What will increasingly differentiate AMCs is how broadly and aggressively they seek to continuously shape the markets they create as market activity picks up steam. Through a combination of action and inaction—both intentional and inadvertent—Frontier and other AMCs will play an outsized role in the emerging dynamics of these markets and the outcomes they produce.
I know I promised one final post on how Frontier might shape the CDR market, but I realized it’d be better to chunk this out into two pieces:
How do we conceive of the potential market-shaping role Frontier might play in the CDR market—i.e., to what extent will it be a dominant buyer and choose to wield its leverage extensively?
Toward what market-shaping ends might Frontier powerfully and creatively deploy that leverage to shape the CDR industry optimally for the long haul?
Today’s post covers the first of those questions, and my next post will tackle the second. In what follows below, we will first pressure-test the notion that Frontier will be the dominant buyer and therefore the default market steward. Then I consider a mental model for thinking about the various different stances a market steward can take, and what all this might mean for Frontier in the coming years. (Note: skip over this next section if you’re more interested in AMCs and market shaping generally than in CDR specifically.)
An 800-pound gorilla dominant buyer? Really?
Let’s rewind to April. Frontier announces itself, the CDR world is rightly aflutter about a big new AMC, it’s the biggest CDR news ever … so of course Frontier will be the dominant buyer, right?
Then all these other announcements hit the wires: more USG funding, new Lowercarbon CDR fund, and just in the past week a set of Davos-connected commitments from other big future CDR buyers. It starts to feel like the big commitments will just keep on coming. Hopefully—almost certainly—they will, even if at nothing like the pace of the last six weeks.
The Davos commitments are worth unpacking. The First Movers Coalition (FMC) announced $500M in future CDR purchase pledges from Microsoft, Salesforce and Alphabet; and meanwhile South Pole’s NextGen CDR facility announced five new participating companies aiming to collectively purchase one million tons of CDR by 2025, at an aspirational average price of $200/ton. These commitments don’t represent $700M in new AMC-like money. Everything announced in Davos appears to have taken the form of pledges rather than iron-clad AMC commitments, with the exception of the Alphabet $200M piece (of the $500M pledged through FMC) that simultaneously makes up part of the $925M committed to Frontier and therefore was effectively already announced in April. Pledges are just that—and yet these are big and meaningful new pledges.
With big new pledges cropping up, with new pooled CDR procurement facilities like NextGen emerging … people might start to wonder about Frontier’s 800-pound-ness. And looking at this from the lens of a CDR supplier, if you’re trying to project out what your customer base might look like years from now at (just e.g.) $40M in sales, maybe Frontier is a $3M or $5M or even $10M customer, but is it a $30M customer with its maximize-shots-on-goal approach? Might Frontier end up very quickly becoming just one significant but far from dominant buyer?
I’m not sure any of these considerations dramatically change the frame of Frontier as inaugural market steward. For one, the buying power Frontier represents won’t be a static $925M. That pot will grow with new members joining Frontier and perhaps even existing members increasing their commitments in coming years. Meanwhile, a quieter piece of news in the Davos blitz was that Frontier will serve as an implementing partner for the FMC, and therefore do a big chunk of the eventual buying that happens against FMC pledges (presumably even in cases where companies don’t choose to formally join Frontier, though the mechanics of this aren’t clear). And lastly, Frontier isn’t limited to acting on its own. At any point it could choose to create a looser ‘buyers club’ that folds in companies or even governments (e.g., local or state governments) who for whatever reason don’t want to or can’t practically join Frontier as full members and thereby yield full control of purchasing decisions to Frontier. This wider set of buyers would then be aligned with Frontier, making some threshold commitments about their buying behavior and getting to piggyback on supplier pricing agreements or other advantageous arrangements Frontier has negotiated—while still leaving Frontier in the alpha wolf role repping the club’s aggregate demand. So Frontier can be building its core membership while expanding the purchasing power it effectively represents by implementing for and organizing other buyers.
Clearly in any scenario there will be a growing set of CDR buyers who have no relationship with Frontier at all. As regards how big their buying gets and how quickly, we should take pledges lightly; there will be lots of cheap talk and what matters is action. Maybe more importantly, not all buyers will be buying the same stuff. The CDR tonnage Microsoft has been purchasing, for example, tilts heavily toward less permanent but less supply-constrained forms of CDR. Meanwhile, the buying that Stripe or Shopify have been doing—reflected clearly in Frontier’s stated parameters—lean toward next-generation forms of CDR with better durability and additionality profiles. So Frontier could be a 400-pound gorilla in the CDR market as a whole in any given year, and in the same moment an 800-pound gorilla in the section of the CDR market that we most need to cultivate for the long run.
Yet we should want—and maybe expect—Frontier to step up as a market steward even if it gradually becomes merely a 200- or 400-pound gorilla in that section of the CDR market that we care about most. Why? Because the more Frontier is just one moderate-size gorilla among many other buyers of varying sizes (fellow gorillas, honey badgers, mice, etc.) in the CDR market menagerie, the higher the risk that the market either isn’t getting intentionally shaped by anyone or is getting shaped by buyers who may be steering in competing and sub-optimal directions.
For the foreseeable future—and this will be true for years no matter what—Frontier is the only big emerging buyer overwhelmingly optimizing for the long-term size and health of the CDR market and boasting a clear multi-year track record of walking that walk. Sure, the track record isn’t technically Frontier’s, and Frontier may have some new internal dynamics that come with a growing set of members; but Frontier is an avatar of Stripe and Shopify for all effective track record purposes.
And it isn’t just vision and track record that sets Frontier apart:
Staffing and talent: How many buyers will have large teams with the caliber of talent to pull off meaningful market shaping? Teams made up of people like Nan Ransohoff and Zeke Hausfather and Jane Flegal and the-list-goes-on do not exactly grow on trees. Even beyond the core team, Frontier will have Stacy Kauk-etc. advisory board members and Phil Renforth-etc. technical advisors.
Trust and transparency: The model of transparency that Stripe and Shopify have created will presumably mostly port over to Frontier and goes to the core of what enables trust-based coordination of market actors.
Positioning and incentives: Though Frontier is legally a wholly-owned subsidiary of Stripe, it is a non-governmental body with a multi-member advisory board that is not beholden to a single corporation’s set of interests and would wither if it got entirely ‘captured.’ And while other pooled CDR procurement facilities will take a hefty cut of the cash flow and turn their operations into juicy profit centers, it seems unlikely that Frontier will drift in this direction.
Whether by default as the 800-pounder, or by choice as a 400-pounder, we’re lucky to be in a position where Frontier can become the inaugural market steward in the early years.
How might Frontier play its hand in the market steward role?
There is no pat recipe for an AMC entity like Frontier taking on a market steward role. Frontier could eagerly and holistically assume this mantle, moving aggressively to quarterback many aspects of the CDR market’s early evolution. It could do the inverse, scrupulously limiting its scope to purchasing and closely-related activities. Or something in between.
What stances can an AMC take? Consider for a moment this spectrum of options from buyer to architect to quarterback(if this is too small to read you can click here):
There are a few things worth calling out about this mental model:
All of these are ways of inhabiting the market steward role. Any big AMC mechanism has power and leverage intrinsically; if it chooses to limit its scope and restrict itself to buying, it’s just consciously declining to use its leverage more widely and thoroughly to shape the market. Quarterbacking is the most extensive and hands-on form of stewardship.
The labels I’ve used are an attempt to characterize a broad-brush-strokes spectrum of options, not a set of discrete choices. It’s not an “are you this or are you that” thing, but a continuum, where a market steward can either permanently aim for a given stance within the continuum, or selectively take different stances along the continuum (either at different points in time, or in different sub-markets, etc.). Judging by its actions, the pneumo AMC generally fell toward the buyer end of the spectrum, somewhere between buyer and architect. By contrast, CHAI almost always explicitly sought to play a quarterback role.
No point on the spectrum is necessarily or intrinsically better than another. But any of the stances has its own set of risks, challenges, and potential missed opportunities to create value.
I’m not sure that we know enough yet—I certainly don’t—to make some prescriptive recommendation for where exactly Frontier should fall on the spectrum above. And its optimal stance may vary—playing more of a quarterback role in the earliest stages, or in specific technology areas, or on specific issues (e.g. MRV).
With everything we don’t yet know, what can we say? First, I think we can confidently predict that the CDR market will evolve much more quickly and in a healthier direction if Frontier uses its heft more consistently and thoughtfully than the pneumo AMC did. In other words, it would ideally fall at least a few big notches further to the right-hand side of the spectrum above. There is endless potential to create value through an architect or “architect-plus” stance.
Second, it seems likely that there will be times, issues, or zones where Frontier can produce tremendous impact by playing a quarterback role. There are internal tensions in an AMC playing quarterback. It takes finesse to act as a big-money responsible buyer (and therefore market participant) while simultaneously trying to coordinate action and build trust across the supply side, demand side, and “third estate.” But CHAI’s experience temporarily taking on AMC-like buying power (e.g., through UNITAID programs) while quarterbacking more broadly shows that these waters are eminently navigable.
Third, we shouldn’t expect Frontier to be our across-the-board savior quarterback from now until the CDR market is mature. In some situations the internal tensions will make it too fraught for Frontier to quarterback. Over time, its heft will become less distinctive as other heavy hitters arrive on the scene. The great heterogeneity of the CDR market—which will remain at least unless and until a small set of dominant winning technologies emerge in the very long run—suggests that Frontier couldn’t carry out all the hands-on quarterbacking activities across all CDR technology pathways. Even just the staff size and geographic footprint implications of an operation that comprehensive would be mind-boggling.
And finally, there are ways Frontier can exert quarterbacking influence on market evolution without always doing the direct quarterbacking itself. Other narrower potential quarterbacks are emerging in particular CDR zones; Additional Ventures is already doing more hands-on quarterbacking in the ocean alkalinity enhancement space than what is publicly visible, and new organizations continue to pop up like the exciting DAC Coalition announced this week. Frontier will increasingly have opportunities to quarterback-the-quarterbacks, doing much of its market shaping indirectly through a variety of actors taking on the hands-on quarterbacking in different spaces. Frontier can even help stand up new quarterbacks to jack up the pace of progress in particular CDR zones. All else equal, better-quarterbacked CDR zones will scale up and resolve shared bottlenecks and disprove falsifiable hypotheses much more quickly in the coming years.
Why does all this matter so much?
Everything above is mostly wasted breath if we conceive of the CDR market problem as market creation. Again, AMCs and other demand-kickstarting approaches to market creation typically don’t have a hard time getting supply to start ramping up and prices to start falling. If you believe market magic takes over from there to produce a booming and flourishing market, then you don’t need to sweat market shaping and stewards and quarterbacks.
Unfortunately, we see again and again that market magic isn’t everything it’s cracked up to be. It’s powerful, and it’s also deeply flawed. Unstewarded markets develop honking afflictions and can find themselves in deep purgatory for long stretches. We’ve seen this again and again—in countless examples throughout history (e.g., patent medicines in the 19th century), in global health (e.g. the malaria drug marketplace of the aughts), and most immediately for our purposes in the voluntary carbon markets of today. Regulation can help. But private stewards and advocates play critical roles too. And we’re kidding ourselves if we expect government regulation to take the lead in shaping the early CDR market this decade.
Even by general market standards, building and shaping this CDR market is going to be a doozy. MRV is underdeveloped yet we need a market centered on unimpeachable quality. We feel the need for speed: to build a new infrastructure-heavy, atoms>>bits market from scratch faster than just about any market has been built in human history. As demand skyrockets the market will be supply-constrained for a long time to come. The depth of that likely supply constraint will have far-reaching implications—with buyers competing to get allocations from desirable suppliers the way VCs clamor to get into sexy deals, temptations to lower the quality bar, and (as I’ll explore in a later post) a slower path to commoditization and fungibility. And we need to transform a supply base that starts heavily US- and Europe-centric into one that extends across—and creates jobs and wealth for—lower-income countries in Africa, Latin America, and Asia.
All of these factors point clearly to the need for market stewardship, yet quality may be the easiest lens through which we can see this. Major CDR buyers will clearly influence which quality standards gain acceptance and what institutional arrangements for quality assurance increasingly take root in this foundational decade. As companies start commissioning academic studies making the case that XYZ method for MRV is good enough to rely on, as the Verras of the world start trying to expand into the durable CDR market, as debates rage on about ton-year accounting … who do we want steering where these things settle out? A fragmented group of profit-maximizing corporate buyers scrambling to minimize a liability to their business?
If what we care about is the mid-century size and health of the CDR market, what we need more than anything else in the coming years is at least one mission-driven market steward. A steward that isn’t shy about an expansive ambit—architecting, quarterbacking selectively, and supporting other narrower quarterbacks. To be sure, we need lots of things: technology breakthroughs, new MRV methods, and more. But if you imagine a collaborative CDR market board game, and we can pick one card that gives us a special power, let’s take Market Steward. Taking the Government Procurement card gives us one huge scaling lever … but Market Steward increases our chances of winding up with better MRV and lower pricing and better geographic distribution and wider public license and so on (even bigger government procurement, yahoo!).
Frontier is our best hope for an enlightened and courageous market steward. It won’t be easy. Frontier has to move forward in parallel on two fronts: getting its core systems in place as an AMC pooled-purchasing facility, and simultaneously building the foundations of a sophisticated market-shaping operation. But no-one is better positioned to set out a big-picture vision for the CDR market, to develop a coherent market-shaping agenda that flows from it, and to take the early lead in getting market actors aligned and cranking.
What might that market-shaping agenda include? That’s where things get especially intriguing, and where we’ll pick up next time.
Googling ‘800 pound gorilla’ you find “a person or organization so powerful that it can act without regard to the rights of others or the law.” I don’t mean to suggest Frontier will go rogue; just that it’s hefty and has silverback-esque status in the early CDR market.
Frontier has been the hook for this series of posts because it’s the first climate tech AMC and because it’s explicitly patterned after a global health precedent. But the lines of thinking I'm trying to deepen through these posts are important because they potentially apply to lots of climate tech zones beyond CDR.
With apologies for the US-centric and concussion-evoking metaphor. Maybe I should be calling it orchestra conductor or general contractor or something else that evokes the hands-on shuttle diplomacy / coordination / negotiation / knocking heads together / etc.