Toward a vision for the CDR market
How building the beginnings of a shared market vision helps crystallize a market shaping agenda for Frontier and its allies
Somehow I’ve managed to dodge the ultimate point of this series of posts until now. My pieces to date have reflected on Frontier having an even tougher hill to climb than its advance market commitment progenitor (the pneumo AMC); important lessons from market shaping in global health and the inspiring story of HIV treatment scale-up; and the notion of Frontier as inaugural CDR market steward.
If you’ve read some or all of those, my hope is you’ve had at least this take-away: AMCs create markets, but market creation isn’t enough. As AMCs start to snowball markets toward substantial supply and demand, they can snowball downhill in many different directions. A market can become really healthy and productive, or it can devolve into a semi-hellscape of unintended consequences and perverse incentives like we’re seeing in today’s voluntary carbon offsets market. We need to relentlessly shape markets toward the good-movie version of their future selves as they grow.
What matters in the end is this: what is our vision for how we want the CDR market to evolve, and how might Frontier use its market-shaping leverage most powerfully and creatively in the coming years to steer toward that vision?
Market shaping is always complex, and shaping the high-durability CDR market is going to be a particular beast. The portrait of the mountain we need to climb is daunting: building an infrastructure-heavy market from scratch faster than any comparable market has ever been built; managing deep supply constraints every step of the way; and starting from a place where we don’t yet even have the means to consistently establish quality.
As my last post argued, no-one is better positioned than Frontier to lead on market shaping for permanent CDR. But Frontier can’t do all the market-shaping legwork solo. Other players will have significant ability to steer demand (like Carbon Direct, Watershed, NextGen, etc.) or bring big philanthropic dollars (like the Gates Foundation did in global health) or be able to help quarterback by staking out unique positions in specific segments or technology zones within the permanent CDR market (e.g., Additional Ventures, DAC Coalition, Spark Climate, etc.). Frontier will be the leading steward but we need others to step up and help mold the clay.
The goal of this post isn’t to lay out the whole path up the mountain nor even to relay blinding insights on any specific components of the CDR market-shaping agenda. Instead, my hope is to at least start painting a picture of the pieces, contours and magnitude of the market-shaping challenge that lies in front of us. As a global community we ultimately need a shared vision of the future CDR market, and I haven’t come across much writing that starts to broach that holistically. I hope this piece can be one small contribution toward that eventual shared vision. I’d also like to turn this into a living document where I continually update the thinking below based on feedback and ideas I hear from any of you reading this. Gotta crowdsource our half-baked market vision!
To push our thinking about shaping the CDR market over time, it may be helpful to start by setting out some basic frames for thinking about markets. In the next (skimmable) section, we start with a quick-and-dirty treatment of desired market outcomes, market features that help produce those outcomes, and the stages of market evolution. The rest of this piece then tackles six major elements of a vision for market shaping and the steward role Frontier can play in each:
Winning the race against the clock on MRV and quality
Pushing for broad-based and radical market transparency
Using aggressive cost-plus tactics to drive pricing down and make the best pricing widely available
Accelerating the pace of technology shifts and breaking through recursive chicken/egg traps as next-generation technologies emerge
Extending CDR supply across the developing world to optimize deployment speed and cost while using CDR as an engine for wealth and job creation
Lining up financial catalysts (offtakers, insurers, etc.) and laying groundwork for securitized, multilateral government procurement in the long run
Simple mental models to scaffold market-shaping thinking
As I consider each of the foundational questions below, in the back of my mind I am trying to strike a balance between thinking generically about any market and thinking about the CDR market specifically. You could improve upon my answers to any of these questions, so take these in the spirit of a work-in-progress mental model just solid enough to serve as a workable backdrop for the later thinking on Frontier and CDR market shaping. Like last time, skim this section and read the later sections if you have limited time and are already knees-deep in this kind of thinking.
What market outcomes do we care about?
Some target outcomes are more obvious. We care about how big a market gets and the pace of growth toward its long-term size; we care about cost and price points; and we care about quality. What’s distinctive about the CDR market is the stakes of these outcomes with so much human and ecosystem welfare hanging in the balance. We need the market to become one of the biggest in the world in a quarter century. Every dollar shaved off long-term prices will change countless lives. And, taken together, the core elements of CDR quality (permanence, additionality, verifiable net-negativity, etc.) constitute the reason for building this market in the first place.
Yet we also care about externalities and equity considerations, both having been so central to the story of how we fucked everything up in the first place. In the bad-movie future of the CDR industry, we remove gigatons of carbon but cause all kinds of undesired second-order effects (ecosystem damage, “natural” disasters, you name it); replicate today’s patterns of where-the-money-and-benefits-flow; and allocate net new energy production that could alleviate energy poverty toward CDR. In the good-movie future, we remove gigatons of carbon while creating positive externalities (e.g., ocean de-acidification) and—as I’ll explore more below—steering big chunks of the financial and social benefit toward those the world usually screws over.
What are the features and pillars of a healthy market that make these outcomes possible?
Here it’s helpful to distinguish between a) the most core, must-have pillars of a healthy market that make possible the beginnings of a virtuous cycle; and b) the next wave of features that market actors can cultivate to help turbocharge the snowballing and to continuously shape the market toward good-movie dynamics and outcomes.
At the top of the list of must-have pillars we have:
Significant and predictable demand (enter Frontier, stage left)
Meaningful competition—both overall, and within niches or sub-markets
Strong quality assurance mechanisms (particularly in markets like CDR, healthcare, etc. where the stakes of quality are so high)
Transparency and absence of huge information asymmetries
Regulatory and policy regime that is at worst mixed-bag or neutral to market scaling
As the features above progressively take root, the next wave of turbo-boosting and market-shaping pillars can include these and others:
Fertile innovation and incubation architecture (extensive R&D funding, research/permitting hubs, accelerator programs, first-customer commitments, innovation prizes, etc.)
Stewards—i.e., market-shaping coordinators—who consciously adopt what my last post described as ‘Architect’ and/or ‘Quarterback’ stances
Shifting production toward the lowest-possible-cost geographies through technology transfer, licensing, industrial policy and more
Financial and procurement intermediaries who help make markets and organize or facilitate demand (by pooling, brokering, insuring, etc.)
Ecosystem of activist and advocacy groups that help push the policy, regulatory and other public-goods landscape from swirling winds to strong tailwind
How does a market evolve stage-wise from infancy to healthy maturity?
In his excellent book How Solar Energy Became Cheap, Dr. Greg Nemet outlines three broad phases of the solar market’s evolution: first, creating the technology (i.e., R&D); second, building or establishing a market (i.e., German feed-in tariffs and the early virtuous cycle); and finally, making it cheap (the explosion of large-scale solar manufacturing in China in the wake of Shi Zhengrong’s return from Martin Green’s lab in Australia).
At CHAI, adopting a market-shaping lens, we tended to parse the phases a bit further to consider six overlapping but broadly successive stages of shaping a market:
Pre-launch phase: essentially the same as Dr. Nemet’s first phase, noting that R&D typically goes on for many years before commercialization and continues in parallel with market evolution.
Initial launch: first product(s) hit the market, but in an un-quarterbacked market often see slow penetration with a vicious chicken-and-egg cycle of high prices, low demand, and low production volume as we saw in the HIV drug market.
Cracking the chicken/egg problem: the crux change that makes the very beginnings of the virtuous cycle or ‘green vortex’ possible. This is typically a demand-side intervention (CHAI buyers’ club with ARVs; German feed-in tariff with solar; Frontier with CDR) but can sometimes be largely supply-driven (e.g., Tesla jumpstarting EV market).
Establishing the must-have market pillars: solidifying the early virtuous cycle through heavy focus on any missing pillars from the ‘must-have’ list above.
Layering in turbo-boosting and market-shaping pillars: a long-lasting phase of progressively cultivating and deepening the second wave of market features outlined above.
Stewarding the later chapters: coordinating market actors to navigate through dynamics that emerge in the middle and later stages of market evolution. Two of the most common issues are accelerating critical technology paradigm shifts and managing the double-edged sword of commoditization (with positives like fungibility and what flows from that, and risks like prematurely killing promising technologies or suppliers).
Building blocks of a market-shaping vision for CDR
How do we apply some of these lines of thinking to high-durability CDR? The sections below cover six essential building blocks of a CDR market vision and market-shaping opportunities connected to each.
In the coming few years, Frontier as market steward (and the high-durability CDR community more generally) should be heavily focused on establishing the must-have market pillars. By lining up a billion dollars of first-customer demand and partnering with incubators, Frontier has gotten the wheels powerfully in motion on a) cracking the initial chicken/egg problem; and b) eliciting many shots on goal with a remarkable amount of talent and VC funding flowing into permanent CDR. I spend less time discussing incubation below not because more competition and more shots on goal aren’t needed, but because we’re already on a reasonably good track in that regard.
But a couple of the must-have pillars—especially (though not only) quality assurance and transparency—will need extra market shaping attention. I start with those below, tackling MRV first because it represents the biggest gap between the current state of affairs and the ideal future state. The latter sections below cover building blocks that largely fall in the realm of “turbo-boosting pillars” and “later chapters.” Some common threads and assumptions run through all the sections below, notably the assumption that we will be in a profoundly supply-constrained situation almost indefinitely as demand continues to ramp up faster than supply can come online.
Each section touches on what Frontier can do as market steward. There is a huge amount of market shaping to be done, and Frontier can’t be an Everything Everywhere All at Once quarterback. Consider all the “Frontier can …” formulations that follow as a mix of what Frontier can directly do and what it can architect or influence or help tee up partners to do. Still, even if Frontier doesn’t do all the doing, we will get closest to the promised land if Frontier shows an expansive rather than narrow willingness to exert its shaping influence.
Building block 1: Quality assurance and MRV
As I discussed in my first post, the Frontier AMC will launch without the benefit of a dominant, trusted QA or MRV player like the pre-existing WHO vaccine prequalification program (“WHO PQ”) that the pneumo AMC was able to rely upon. Instead, Frontier faces a QA/MRV landscape where:
Emerging CDR technologies are very heterogeneous and need a correspondingly heterogeneous portfolio of MRV approaches.
That heterogeneity is compounded by the breadth of QA/MRV concerns. Where vaccine QA had to focus on a (relatively) limited set of empirically-addressable issues pertaining to quality, safety, and efficacy, what we care about with CDR covers broader ground: additionality, net-negativity, permanence, safety, environmental impacts, and more.
We see Wild-West proliferation of teams and companies trying to prove out novel CDR concepts that run the gamut from credible to outlandish.
MRV methods and standards—let alone the institutional setup to uphold those standards—are still in the early stages of development for many forms of CDR.
All this drives MRV right to the tippy top of the CDR market-shaping priority list for the foreseeable future. Of the core must-have market features on the path to escape velocity, it is easily the most show-stoppingly underdeveloped.
Getting MRV and quality assurance right in the permanent CDR market is far too knotty to tackle in depth here. So I won’t even make a half-assed attempt to suggest how MRV should work in the future. But I will try to crystallize the nature of the challenge—drawing on the stark contrast with pneumo vaccine quality assurance—and some potential implications for Frontier might navigate the path forward on MRV.
How do we understand the MRV or quality situation we’re in? The most fundamental lens to use is that we are in a race to build the airplane as we fly it. The whole reason that Frontier and the permanent-CDR community are setting out to build a new market is to differentiate that market based on quality (especially permanence and additionality). Yet the market itself and the MRV required to backstop its claims to legitimacy are evolving in parallel. When the pneumo AMC was launched, we already knew how to confirm vaccine quality. Breaking that down further, we had three things in hand: 1) the technical methods and tools (clinical trials, biomarkers, adverse event reporting systems, diagnostics, etc. etc.) to assess quality; 2) the standards (i.e., widespread agreement on where to “set the bar”) to serve as the basis for quality determinations; and 3) trusted certifiers/verifiers (most importantly the WHO PQ program) to make and defend those determinations. With permanent CDR MRV, we don’t yet have any of those three.
So we’re in a race—but more specifically, we are in a race on two simultaneous tracks:
An R&D race to help ensure that the development of MRV methods and tools (#1 above) keeps pace with the pace of CDR tech development and deployment
An MRV market-architecture race to ensure that reasonably rigorous MRV standards and trusted certifiers/verifiers (ie, #2 and #3 above) emerge as fast or faster than the permanent CDR market shifts from niche to mainstream
Let’s unpack that MRV market-architecture race a bit more. Far enough down the road, as higher-durability forms of CDR become more affordable, the typical buyer in the permanent CDR market won’t be the forward-thinking, act-in-the-best-interests-of-humanity buyers that we’ve generally been lucky to have in the early days. The average mass-market buyer will be the same kind of company, organization, or even government that we see in today’s low-permanence voluntary carbon market. Obviously these buyers aren’t all consciously trying to buy fraudulent offsets, and many of them are high-integrity organizations. But if they can buy a socially acceptable offset that’s at the cheaper end of the spectrum and contributes to their carbon-accounting claims on the path toward net zero, they happily will. What will make these buyers shift to buying higher-permanence forms of CDR is that it will become progressively less socially acceptable to buy lower-permanence forms of CDR for the purposes of offsetting and net-zero targets.
The million-dollar question is whether, as these buyers enter the high-durability CDR market, how easy or hard will it be for them to buy tons of more dubious quality? We’re in a much better place if they enter a market where there are dominant, rigorous MRV standards and a settled, well-developed institutional architecture for certification/verification aligned to those standards. If mass-market buyers effectively have no choice but to get on the rigor train, they will. But if they enter a market that still has a significant Wild West flavor when it comes to MRV, where it’s socially defensible to choose to rely on higher- or lower-rigor standards and providers—nothing will stop a big subset of buyers from choosing whatever’s cheapest. We can’t let lowest-common-denominator dynamics win the day again.
The build-as-we-fly character of our MRV situation also points to the need for iteration. In the case of vaccines, we had settled quality standards and quality determinations were yes/no, point-in-time decisions. In permanent CDR MRV, the MRV science itself is evolving quickly enough that the standards themselves will need to evolve as we learn, and even quality verdicts on specific tons from specific suppliers may need to evolve. For example, we might end up adopting something a step closer to credit rating, where (e.g.) a ton of carbon removed through ocean alkalinity enhancement off the east coast of Iceland initially gets rated AA but later downgraded to BBB+ when a study reveals that downwelling rates of the surface layer in that location are higher than previously known.
How might Frontier approach this highly immature and iterative MRV landscape? Even without knowing what set of standards, methods, tools and providers will materialize, a handful of principles could guide Frontier’s market shaping on quality:
Endorse and coalesce: Of all the many ways Frontier might use its heft to shape the permanent CDR market, winning the two races outlined above—and particularly the MRV market-architecture race—is the single most important. The flipside of that same hypothesis is that we have no bigger weapon to win the MRV market-architecture race than the existence of Frontier.
Whoever controls the dollars controls the standards. Or to make that a bit more nuanced and accurate, no-one has as much ability to shape quality standards as the biggest funders. In the expansion of HIV treatment, the two dominant funders (the Global Fund to Fight HIV, TB and Malaria and the US government’s PEPFAR program) called the shots on quality standards for antiretroviral drugs. When borderline issues came up—e.g., should developing countries be allowed to use donor funds to buy ARV drugs from local suppliers who couldn’t yet meet WHO PQ standards?—these funders consistently steered toward a high quality and rigor bar, even when doing so involved tradeoffs like a slower path to local production.
Frontier will have huge leverage in the early going. Though its relative heft will gradually decline over the long run, it will last plenty long for Frontier to help coalesce the space around early standards and a market system for certification/verification that progressively achieves a high level of legitimacy. Obviously it can exert this influence through its own buying activity. But it can powerfully steer MRV arrangements in non-Frontier transactions as well. Frontier can require suppliers to abide by certain MRV-related commitments in selling to any buyer in order to remain eligible for Frontier procurement; require members in any broader buyers club it helps create to abide by MRV-related commitments to remain in the club and enjoy the advantages of membership; and use its public voice to influence decisions made by buyers, investors and regulators.
The fact that MRV standards will need to be iterative attaches even greater importance to a stable and trustworthy institutional architecture for certification/verification. It’s too early to say whether we will wind up with a single dominant certifier analogous to WHO PQ (though this seems unlikely, and carries high bureaucracy risk), or a multipolar arrangement with a few leading agencies (imagine a better version of Verra/Gold Standard in carbon offsets or Moody’s/S&P/Fitch in credit ratings), or a decentralized architecture similar to public accounting (think SASB/GAAP/auditors/etc.). But what we do know is that the sooner Frontier develops a perspective on the optimal architecture and begins openly and aggressively steering toward that vision, the more likely it is that we wind up close to that landing place.
Boost MRV transparency: In the next section I cover transparency-related opportunities more generally, but even within MRV Frontier can lead by example in modeling specific types of transparency. As it works with others to develop rigorous MRV standards, Frontier can steward or host an open process that includes things like public comment periods and published working group reports.And as suppliers develop and inevitably patent some of their own MRV approaches, Frontier can push the space away from a highly-proprietary endgame for MRV IP and toward a public commons that benefits everyone.
Meanwhile, for any given carbon removal purchase Frontier can openly report:
What certification body (or other forms of quality refereeing) were relied upon
What underlying MRV standards/methods were the basis for approval
The cost of MRV as a fraction of the purchase price
Specifics around any ton-years accounting issues or uncertainty-related discounting that was applied to the purchase math
Refrain from taking the monkey on its back: With no current go-to certification body to rely upon, Frontier could easily slide toward becoming the quality referee itself.It could develop its own MRV standards through a closed-doors process invisible to the public eye, and use its network of technical experts to render verdicts on CDR suppliers’ MRV reporting. And even if these verdicts were technically just for Frontier’s internal decision-making, one can easily imagine how other buyers would come to rely upon Frontier’s quality determinations (“hey if it’s good enough for Frontier it’s good enough for us!”).
Though Frontier is unlikely to entirely take the MRV monkey on its back like that, doing the inverse won’t be easy. As we have seen, the pneumo AMC benefited tremendously from the institutional separation of the purchasing function from the QA function—but it had an easy set of preconditions that made that separation possible. Frontier and its partners will have the challenging task of gaining broad buy-in to MRV standards and building out new third-party MRV market architecture.
It’s worth the effort. Levels of trust are much higher when quality arbiters are perceived to be truly independent and aren’t playing a big role on the demand or supply side of a market. And compared to vaccine QA, carbon removal MRV goes well beyond narrow science questions to touch on social and biosphere considerations: public safety, environmental impact, community impact, and more. In the long run, governments need to step in on far-reaching normative questions like these and play a big role in MRV. In the near term, there’s no way for Frontier to play the market steward role we need it to while dodging those questions altogether. But the more it can both be transparent and push MRV responsibility onto others the less the whole system will risk attracting criticism and losing public trust. The high-wire act entails doing those things while embracing aggressive market-shaping on quality.
Help the market embrace a high yet nuanced rigor bar: The current state of our voluntary carbon market illustrates just how unworkable things get when we set our MRV rigor bar too low. We get controversy, greenwashing, and some outright fraud. We need a CDR market that sets a high bar for additionality, permanence, safety and more—and yet in the swing toward a high bar it is inevitable that we will encounter some absolutists unwilling to brook any nuance or tradeoffs in MRV rigor. There is such a thing as too much rigor. And especially in a highly supply-constrained market, we can’t be penny-wise and pound-foolish with our rigor bar. Imagine a situation where we set the bar in such a way that we drive up the total cost of a given form of CDR by 40% in the hopes of removing a residual uncertainty that at most would reveal a 20% swing in net tonnage removed. Or a different situation where we disqualify a given approach (e.g. sink-to-sequester kelp) in a particular location because it has projected durability of 700-1,100 years and therefore isn’t certain to always meet a 1,000 year threshold. The complexity of carbon cycles doesn’t always lend itself to 100% certainty; we have to be prepared to consider tradeoffs, transparent approaches to discounting or ton-year accounting, and the like. By analogy, we’ve seen the FDA’s approach to rigor during the COVID pandemic cause huge delays and cost lives. When our justifiably high rigor bar causes carbon removal of very high value not to happen or to happen much more slowly, we need to catch ourselves.
Push for accelerated MRV R&D funding and incubation: Frontier can use its soft power to change the conversation and shift the share of attention, talent and resources flowing to MRV development. Why is there seemingly more talent and entrepreneurial energy flowing to starting carbon/CDR marketplaces than to CDR MRV? How can we increase MRV R&D velocity the way FastGrants tried to accelerate COVID research? Taking ocean CDR MRV as an example, why let leading researchers like David Ho waste many months trying to find single-digit millions of philanthropic dollars for tracer-based ocean CDR MRV when we could be ArcInstitute-ing him and others like him? How can we most powerfully cheerlead and advocate for ARPA-E expanding its ocean CDR mandate into MRV? As inaugural market steward, Frontier can be the leading voice urging the global community to move in these kinds of directions. The CDR community talks about maximizing shots on goal but we haven’t yet applied that kind of pull-out-all-the-stops mentality to MRV even though it’s the biggest fish we have to fry.
Building block 2: Transparency
Stripe and Shopify have already created tons of value by being transparent about their own internal buying and portfolio construction process, demanding transparency from their CDR suppliers, and making funding applications open-source.This has helped to snowball the space toward transparency. Even where sharing is voluntary rather than customer-imposed, we are starting to see more signs of companies erring on the side of sharing more rather than less. A good example is Heirloom’s recent white paper that unpacks the details of early progress in accelerating carbonation rates with its passive contactor system.
But we can’t assume that voluntary transparency will win the day as the industry grows and matures. There will always be a tension between a zero-sum-game mindset where it’s in a company’s interest to err toward stealth and be guarded with its learnings, and a grow-the-pie frame where whatever advances and builds confidence in the category as a whole (e.g. mineralization) is good for all the players in that space.
No-one will be in a better position than Frontier to firmly steer the CDR industry as close to radical transparency as possible. The stakes and breadth of transparency needs will only grow over the coming decade, reaching issues as diverse as:
Price and sales trends (including to non-Frontier buyers)
Demand/supply analysis—i.e., demand forecasts and deployment/supply projections—to monitor the evolution and extent of supply constraints
MRV methods/costs/etc as mentioned above
Process and rationales for siting decisions
Labor and supply chain practices
Adverse event reporting
Frontier can continue to push the transparency envelope—using its soft power by modeling and encouraging transparency practices, and selectively using its hard power by imposing transparency requirements on suppliers as a purchase condition.
One critical distinction to call out is the difference between backward- and forward-looking market information, particularly around pricing, costs, and levels of demand and supply. Both are critical, and we can’t take for granted access even to good retrospective data. Today we’re reliant on brave volunteers like Robert Höglund for data on known CDR purchases; tomorrow we need Frontier or partnered-with-Frontier market observers to be systematically publishing both reliable retrospective data and informed projections on what can be expected in the months and years to come. This doesn’t necessarily mean exact predictions in the sense of (e.g.) “$225/ton by 2026”—as there will usually be too much uncertainty to allow for that—but even predicting broad likely ranges helps.
In the early days of the HIV drug market, Doctors Without Borders published reports with detailed drug-by-drug and supplier-by-supplier data on ARV prices. CHAI later built upon that by sharing projections of near-term expected price trends to help countries make prospective, calculated-risk decisions about shifting their national treatment guidelines and procurement plans. In the absence of forward-looking projections, CDR buyers and suppliers will respond to the information vacuum by making wildly different (and rarely accurate) assumptions about where things are heading. The IPCC’s reports on future warming illustrate just how useful projections can be in creating a grounded narrative about the future and informing planning efforts, even when those projections are of the wide-error-bar, scenario-based variety.
Building block 3: Pricing
The pneumo AMC’s approach to pricing involved requiring suppliers to commit to a “tail price cap”—a long-term price ceiling for their vaccines sold to developing countries in years beyond the initial multi-year scale-up period. These price ceilings were ~90% lower than the pricing suppliers offered in developed markets like the US and Europe, and yet substantially higher than critics felt was achievable while still allowing a reasonable profit margin.
A simplistic view of Frontier’s future operations might assume that Frontier will just run year by year RFPs and be a passive awarder of purchase volumes to the lowest bidders, with competitive bidding ensuring the best possible pricing. But this is short-sighted in several ways. For one, Frontier seeks not just to accelerate the advent of a big CDR market, but to promote ‘shots on goal’ and a diversity of thriving CDR approaches and sub-markets (e.g., DAC, microalgae, enhanced weathering, etc.). This requires a much more nuanced approach to navigating prices. We shoot ourselves in the foot if we prematurely shut the door on a new CDR technology that initially has higher pricing but in the long run has outstanding cost potential. Yet we shouldn’t let suppliers of CDR types with limited competition get away with any proposed pricing just because no-one else is making credible bids with the same technology type.
Even more importantly, Frontier can create pricing-related value in ways that go well beyond securing low prices for Frontier’s current purchasing in any given year:
Getting under the hood with CDR suppliers—similar to the approach CHAI pioneered in global health—to understand their cost structure in detail, build a shared model of how costs will evolve with expanding deployment, bring non-proprietary insights on cost reduction opportunities from other parts of the CDR space, and more.
Building on that deeper understanding of cost drivers, Frontier can engage suppliers to push productively on both current and future costs and prices, whether through bilateral negotiations or other creative mechanisms. CHAI’s success using a ‘cost-plus’ pricing and negotiating approach—i.e., pricing based on agreed costs plus a moderate profit margin—accelerated price declines in numerous health product categories including drugs and vaccines.
Extending attractive pricing that Frontier secures to other buyers by getting suppliers to commit to price ceilings/caps that apply even to non-Frontier buyers under specified conditions. (As discussed in my previous post, one mechanism for doing this could be for Frontier to create a broader buyers club open to companies or governments even if they aren’t prepared to join Frontier itself and thereby yield full control of purchasing decisions to Frontier.)
Publishing clear near- and medium term price-expectation signals—broken down by technology type or sub-market—as discussed above.
CDR pricing dynamics will be complex in the coming years. On the one hand, there is no doubt we will get into a virtuous cycle with growing deployment and falling prices. But it won’t be all tailwind. Even if there are many CDR suppliers in any given year, competition will be limited within many individual CDR technology types for years to come. Meanwhile the depth of the overall CDR supply constraint will often have buyers competing to get an ‘allocation’ of tonnage from suppliers the way VCs compete to get allocations in attractive deals. Frontier or other buyers might do a bunch of legwork to line up a deal with a supplier at XYZ price and with XYZ conditions on quality-etc. only to have another buyer swoop in at the last minute and—desperate to fill its tonnage quota for the year—offer to buy those same tons at a higher price. In this way, Frontier’s work will sometimes involve not just extending the benefits of its pricing work to other buyers but preventing other buyers from counter-productively bidding up scarce supply. Together, the effectively-limited competition and supply constraint will give suppliers meaningful leverage; they won’t give up on juicy margins easily in the interest of accelerating overall market growth.
At the end of the day, the evolution of a market that just wants tons of carbon verifiably and permanently sequestered will be driven above all by the evolution of costs and pricing. Frontier will play the central role stewarding pricing dynamics so long as it remains the dominant buyer. It can’t be afraid to use its heft creatively and aggressively to push on costs and pricing even as (by design) it avoids the trap of steering too much volume too quickly toward early cost and price leaders.
Building block 4: Technology evolution
In my earlier piece on market shaping in the HIV drug market, I highlighted the importance of CHAI’s role in moving the market from a phase where most patients were given sub-optimal stavudine-based regimens to the current phase where patient-friendly tenofovir regimens predominate. This wasn’t an easy technology shift to pull off. Everyone knew about the side effects and drug-resistance risks of the stavudine regimens, but they were dirt cheap, and doctors were accustomed to prescribing them. Tenofovir regimens held out the hope of better patient outcomes, but were quite expensive as they first hit the market because they weren’t yet being produced at large scale by generic drug manufacturers. Funders and buyers feared that if they started putting patients on tenofovir, the added expense would kill the sustainability of treatment expansion.
What we might call the “stavudine trap” is a phenomenon we see in many different markets. It can be hard to convince people to move away from something very comfortable and familiar that’s working passably well today toward an unfamiliar option that isn’t as attractive in the here-and-now but that could become the best option down the road. Stavudine traps aren’t permanent: markets do eventually move, but they move much faster if one or more market stewards actively pushes and facilitates the shift.
We will almost certainly hit crux moments like this in the CDR market. It seems quite likely that some of the CDR technologies that will win out in the long run are not even a blip on the radar screen today. Yet by (e.g.) five years from now it may feel like a small handful of first-wave technologies are starting to gain a commanding lead in the market, with a great permanence profile and rapidly falling prices. As that starts to happen we risk getting stuck in the CDR version of the “stavudine trap.” Any next-wave technologies caught in the high price/low volume stage could languish while the lion’s share of demand, investment, media buzz, and supportive government policy flow to the first-wave, much-cheaper-for-now technologies that have built an early lead. This state of affairs can persist for quite awhile no matter how much more (potentially) attractive a next-generation technology’s profile could become with time.
In this way, the chicken-and-egg problem Frontier is currently trying to solve with first-wave CDR technologies will become a recursive one. If we want to deliver CDR at gigaton-scale with the lowest possible cost, greatest permanence, best safety profile, smallest energy and land footprint, and so forth—then we can’t become prisoners of what’s humming along today and need to be relentlessly pulling the next-wave technologies out of the woodwork.
Frontier can pursue a range of stewarding moves to minimize “stavudine traps” and maximize the speed at which new technologies get over the hump:
First, it can steer its buying disproportionately (though not exclusively) toward the most promising next-generation technologies at any point in time. The distinctive role that Stripe and Shopify have played as ‘first customers’ or ‘buyers of first resort’ will not lose its tremendous value even as the market starts to mature because of the recursive chicken-and-egg dynamic.
Second, Frontier can help stand up key new entities—particularly Focused Research Organizations, other types of quarterbacks, and incubators specifically focused on certain next-wave technology zones—to drive faster progress in the maturation of these technologies.
Third, Frontier will have a unique ability to influence opinion leaders, policy makers and public dialogue as next-wave technologies emerge. Exercising this soft power will be particularly important in cases where newl technologies go through unhealthy cycles of initial hype followed by overreaction before there is enough evidence to reach conclusions about a technology’s true potential. Moving the mindset of even 5-10 key people can make a huge difference.
Finally, Frontier can shift gears into aggressive move-the-market quarterbacking mode when a given next-wave CDR technology is ready for its inflection point or breakthrough moment. CHAI’s most intense quarterbacking period during the stavudine-to-tenofovir shift fell in the middle-of-the-S-curve years from 2006 through 2010. Those years saw CHAI doing far more shuttle diplomacy, deploying a wider variety of market-moving tactics, and allocating more team capacity to this market shift than in the years before and since.
It’s worth calling out that this role stewarding the advent of next-gen CDR technologies is one key way in which Frontier can play a critical and influential even in the longer run. While its overall market-shaping heft may fade somewhat as orders-of-magnitude bigger CDR demand eventually starts to materialize, its heft in the emerging-technologies wing of the market will remain if it strategically focuses on the kinds of things outlined above.
Building block 5: Geography
US- and Europe-based ventures dominate early supply of permanent CDR. The leading companies are based in wealthy countries, and by and large (with exciting exceptions like so and so and so) the removal is happening in those places too.
There’s no reason this pattern needs to persist, and as we build toward a gigaton and trillion-dollar scale industry, there are at least two reasons why it shouldn’t persist.
First and foremost, creating a distributed global CDR industry is an unparalleled opportunity to build wealth and create jobs in developing countries by having them play a central role in CDR supply. Far too often the narrative is that the Global South is just a victim of climate change and needs to be helped with adaptation. We need to flip that script. Both in CDR supply and in other aspects of the green transition, developing countries can lead the way with big pieces of the puzzle.
“Loss and damage” payments to developing countries will play an important role in supporting adaptation, but as leading voices like James Mwangi are urging, CDR advocates in the Global North can’t settle for a lazy “we made the mess so it’s on us to clean it up” frame. Instead, we can go out of our way to help low-income countries gain a big foothold in CDR supply and pay them generously to help us clean up the mess. Doing so in any given country would expand its tax base, boost employment rates, and (by creating a large and reliable source of offtake) accelerate the deployment of renewable and clean firm energy—in turn helping to clean up the grid and reduce energy poverty. As James says (paraphrasing here), “it seems silly to say, well, we should not involve developing countries in this because the countries that are already quite wealthy and have plenty of jobs should keep this new industry to themselves.”
A second reason to expand the CDR supply base globally is to optimize for everything we care about, including cost and the pace of scaling. We should be aligning CDR supply footprint with locations that have intrinsic advantages for any given CDR technology. The places that offer the best (or most affordable) available land, latent clean energy resources, potential storage sites, permitting speed, social license, and so forth don’t just happen to cluster narrowly in wealthy countries. And when developing countries start making the most of their advantages, their amazing progress can easily get overlooked (e.g., Kenya’s leadership role in geothermal).
Frontier can play a passive role in this regard, or as time goes on it can aggressively and inspirationally steer toward an inequality-curbing, globally-distributed market.
As just a few examples of possible levers or tactics, Frontier could:
Give some degree of preference in its purchasing to developing-world suppliers, and also to wealthy-country suppliers who are expanding operations and/or partnerships into developing countries.
Stand up or partner with CDR incubators in places like sub-Saharan Africa or South/Southeast Asia along the lines of the CDR Imperative model Stripe has cooked up with Activate and Carbon 180.
Incentivize or even require wealthy-country suppliers to make technology licenses available on reasonable or even preferential terms to developing-world suppliers—something the pneumo AMC failed to do effectively.
Help advocate for and eventually establish something akin to the Medicines Patent Pool that creates a transparent, affordable and low-friction way for developing-world suppliers to use IP developed in the Global North.
Even setting aside concrete moves like these, Frontier’s uncommonly powerful normative voice in fora like Davos and COP can steer the geographic evolution of the market. Twenty years ago, many of the institutions that have been the biggest accelerators to progress in global health (Global Fund, PEPFAR, UNITAID, etc.) didn’t even exist. A small number of voices played make-or-break roles in those huge players coming into being, and the same dynamic will play out when it comes to the institutional future of global funding and steering for carbon mitigation and removal. In the coming decade Frontier can kill two birds with one stone by supporting global supply diversification—both speeding the path to affordable gigaton-scale supply, and greatly contributing to environmental and climate justice along the way.
Building block 6: Financial acceleration
Speed—ie, the pace of progress to gigaton-scale permanent CDR—is implicit in much of the above. Everything from trusted quality assurance to steeper price declines to geographic distribution will kick things into higher gear.
Perhaps the biggest speed lever not captured above is financing. Some ingredients of the potent financing cocktail we will need are increasingly lining up. We’re in particularly good shape (relative to current market stage) when it comes to venture capital dollars, while Frontier itself has gone a long way toward solving for early-customer demand in the coming few years. In opening its doors to more participating companies Frontier—along with emerging enablers and channel partners like Watershed—will also boost speed by giving businesses a way to start buying permanent CDR without reinventing the wheel themselves on diligence and purchasing operations. And (see footnote 6) it can juice this effect even further by creating a broader buyers club.
Yet there are a bunch of other financing cocktail ingredients that will need to be added in the years to come. The challenge in front of us is helping CDR companies move as quickly and affordably as possible through the progression from lab to pilot-scale deployment to first-of-a-kind commercial-scale deployment—and then through what can be a financing no-man’s-land of the second/third/fourth/etc. deployments until everything is sufficiently de-risked and proven out for project finance to take over with the ‘nth’ deployment and beyond.
Consider as a partial list of what we still need to add to the brew:
Offtake agreements: guaranteed multi-year offtake is the most powerful form of demand de-risking for CDR suppliers and helps unlock debt finance in particular, lowering borrowing costs and thereby levelized costs of delivered tons. Frontier and other new players (e.g., Evergrow) can make CDR offtake agreements more readily available while reducing the friction or soft costs of entering into such agreements.
Insurance: whether insurance on the delivery or quality risk of purchased CDR tons (see e.g. Kita), counter-party insurance like Energetic has pioneered in the commercial solar space, or other ways to grease the wheels by pricing different risks, insurance offerings will likely play an important role.
No-man’s-land solutions: as mentioned above, it can be hard for suppliers to bridge the gap between equity financing that may stretch through pilot-scale deployment or a bit beyond and project finance that picks up at the nth deployment. To get to trillion-dollar scale, the CDR market will need as many gap-bridging financing options as possible—including private players like Generate Capital that offer flexible capital mixes and government solutions like the Loan Programs Office.
With the exception of offtake agreements,Frontier won’t be stepping into these financing roles itself. But as an architect or quarterback it can help catalyze progress toward the financial ecosystem the CDR market will need: advocating, connecting dots, even potentially being an early customer (e.g. for certain types of insurance).
Plugging these gaps in the financing ecosystem will accelerate progress—but the shape of the required CDR growth curve in coming decades means we need to be looking for warp zones and cheat codes to jump ahead a few levels. Two interconnected opportunities of this stripe come to mind: government procurement and securitization.
In pursuing gigaton scale we ought to be working backward from a clear vision of future demand premised on securitized, multilateral government procurement just like we have for vaccines in the developing world. Let me shorthand this as ‘SMGP’ just for now (and hopefully never again). As we marshal our collective imagination SMGP should feature centrally in every story we tell about the future of CDR.
How does SMGP work in the vaccine space? A multilateral vaccine delivery organization called GAVI pools government funding streams for developing-world vaccine procurement, securing binding commitments from (e.g.) the US, UK, Norway, and many other donor governments that extend 5+ years into the future. A separate entity called IFFIm—the International Finance Facility for Immunization—then securitizes those future cash flows by issuing bonds against the governments’ commitments and makes the resulting capital immediately available to GAVI to conduct procurement. This system enables the participating governments to collectively buy now and pay later.
While CDR advocates are already making the case for government procurement, SMGP pushes the vision two steps further: 1) new global institutions will emerge to pool government CDR demand; and 2) pooled government commitments extending many years into the future will in turn be securitized to bring tomorrow’s CDR purchasing dollars forward to today. Together these distinguishing characteristics of SMGP will help bend the scale-up curve to maximum steepness.
What can Frontier do to accelerate the path to a world of SMGP for carbon removal? Ultimately, it will be up to governments and forces larger than Frontier to make SMGP a reality. But Frontier can lay the groundwork by showing what is possible. We can imagine a progression where Frontier:
Continues to expand its own funding base well beyond the current $925M
Secures funding commitments (from at least a subset of Frontier members) sufficiently long and binding to enable Frontier to pilot securitization of its own future cashflows
Expands the securitization approach either within Frontier or more widely through the aforementioned kind of buyers club open to governments and any private entities for whom full Frontier membership isn’t possible or desirable
Uses its international influence and early securitization track record to help make a compelling and tangible case for the wisdom of SMGP
Today it can be hard to imagine even just one or a couple of national governments doing significant CDR procurement; yet SMGP is already a thing—and CDR is every bit the massive public need that vaccine delivery is. We need the biggest and the most front-loaded dioxide drawdown ducats we can get as we set out to climb the mountain.
That’s, um, a lot of market shaping. Pulling off even a substantial chunk of it takes a rare combination of things: the ability to steer large amounts of demand and funding; a large team of world-class talent; organizational positioning and incentive structures that enable trust; far-reaching relationships and networks; and more. Frontier has the nucleus of all these assets. And by helping to stand up or align a variety of co-quarterbacks, funders, incubators, FROs and more it can assemble a small army pushing toward a shared vision.
There’s tons of room to improve the proto-vision sketched out above. I would love to hear your feedback. What’s one aspect of the vision that particularly resonates for you? What’s one thing you’d change or add?
Whatever shared vision progressively emerges, the permanent CDR community needs to be thinking big. A global health precedent inspired Frontier, but more importantly the recent history of global health shows that we can do pretty miraculous things. Time to go do it again.
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There are great reasons to invest in nature-based solutions that create some lower-durability carbon benefit alongside other benefits to biodiversity, ecosystem health, and human communities. We should be investing far more, not less. As many have argued, the problem—which becomes even more acute as both voluntary offsetting and the supply of higher-durability forms of CDR grow—lies in implicitly and falsely equating a permanent ton removed with a lower-durability (or less clearly additional) ton removed.
Hat tip to Chris Tolles (who also provided some great feedback on my draft) for pointing out a useful example — some of the great stuff baked into Climate Action Reserve’s process documentation for developing a Soil Enrichment Protocol.
I don’t mean to suggest that there are no offset certification providers—agencies like Verra and Gold Standard do exactly this, but a) have been subject to a lot of reasonable criticism of their practices that has damaged public trust; and b) have not yet tried to extend their work into high-durability CDR in any big way.
Microsoft has admirably done the same thing, though primarily in the lower-durability segment of the CDR market, with support from Carbon Direct.
From my last post: “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.”
Apart from active market stewardship, the other common way shifts can happen more quickly is when next-generation technologies follow a classically disruptive pathway. With disruption, a next-generation technology gains a beachhead by offering lower pricing at a lower performance level to non-consumers or under-consumers of the current technology—and then proceeds to move "upmarket" from there. However, next-generation CDR technologies generally won't follow a disruption pattern attacking from the low end of the market. Instead, they will have to get over the same chicken-and-egg hump as first-wave CDR technologies, where costs and prices initially remain quite high until production volumes start to hit meaningful commercial scale.
Frontier has signaled that it plans to enter into multi-year offtake agreements itself, though there will be a balancing act involved as it seeks to spread its dollars widely to maximize shots on goal.