😇 Is choosing Climate Tech, really choosing the « good » side? 😈 - Part I: CCUS

For debate: The multi-trillion-dollar green tsunami 🌊 seem "Good". But unfortunately the closer you look, the higher lobbying and corruption are at play. And the more its outcomes are questionable.

Note: [Honest Deep dive/Debate] This month edition is really to open up a debate. I have been holding on pressing the send button for this newsletter for more than 3 weeks. I would love to hear what you guys are thinking about this topic so feel free to comment or write me back directly over email your thoughts on the subject.

To introduce you the topic, last month, Exxon bought Denbury, the largest CO2 pipeline network in the US.

You will tell me: “Not exactly a climate tech news for your newsletter, Djoann!”, and here is the point: Yes it was… they say.

The $4.9B acquisition is the largest single government-backed carbon-management investment since the Inflation Reduction Act and is accounted as part of the carbon capture, utilization, and storage (CCUS) project support.

definition: CCUS also referred to as carbon capture, utilization and sequestration/storage, is a process that captures carbon dioxide emissions from sources like coal-fired power plants and either reuses or stores it so it will not enter the atmosphere.

Indeed, the routing of such an amount of supposedly government-backed climate tech funding to an Oil and gas entity could conceivably hinder the intention of technologies that wield the most potent influence on the climate.

Could Oil and gas companies impede genuine decarbonization innovations to extend their core business lifeline via carbon trading? With their lobbying power, would these corporations monopolize most of the climate technology funding for Carbon Capture projects instead of more impactful solutions that could compete with them? Continue reading to discover my ugly truth about CCUS investments.

Meanwhile, we’re already becoming numb to new heat records, ice is leaving our glaciers and coral reefs are dying while we got told to buy more (electric) cars…

Record-breaking weather continues to claim headlines, with an epic heat wave hitting 25% of the US, massive flooding in the Northeast, and a Gulf that may be warmer than 90°F. Across the globe, the first week of July scored the four hottest days on record.

So let’s start investigating what’s going on, where is this climate tech funding going… and why are you being sold carbon capture and electric cars instead of actually fixing the problem at its roots?

This month we will be diving into Carbon Capture Usage and Storage (CCUS). Next month we will hit very hard with our hammer on the EV value chain and its lobby. So put your belt on, grab a helmet, and start diving in with me.

That was the plan.

What gets all of us excited about Climate Tech? Supposedly to be part of the 1%, these heroes of our generation that our kids will be remembering for saving our planet. Possibly also to be part of this extraordinary adventure marking a transition from the realm of software to hardware, robotics and geo-engineer the physical world. Following the trajectory of a tech founder like Peter Reinhardt, who sold a software company for $3.2 billion in 2020 and now leads carbon-storage company Charm Industrial. The newer startup, which he co-founded in 2018, turns carbon-rich biomass into sludge that can be safely buried underground. “We need to rebuild almost all the infrastructure around us to eliminate fossil fuel emissions and return the atmosphere to pre-industrial CO₂ levels,” Reinhardt says. “That will require a tectonic shift.”.

• Indeed, according to this Bloomberg report, Bank of America analysts estimate that the climate adaptation market could be worth $2 trillion a year within the next five years.

• Because of their fixed location, real estate assets — valued at $200 trillion worldwide — are uniquely vulnerable to natural disasters and resource shortages.

• The insurance conglomerate SwissRe warns that a global temperature rise of 3.2°C by 2050 would wipe 18% of global GDP.

That is the type of stuff that got me going since 2020, writing a lot of these newsletters, and writing my book about the “Adaptation Economy” our generation will have to build.

Source: McKinsey Platform for Climate Technologies

So, for the past few years we have seen the rise of a new paradigm in tech, the “Climate Tech” movement… one growing at a faster pace than ever. With 35,000 climate tech start-ups created since 2010 and climate tech stocks now outperforming the Nasdaq, the sector shows no signs of slowing down. Indeed, climate tech is primed for another record year of growth, with an estimated $73.86 billion investment, despite the challenging economic environment.

"Climate tech has transformed from being on the fringes to being integral to the future of our economy, society and way of living" - Tech Nation's Climate Tech Report, 22

With this, came to discussions of every government agencies, corporates, family offices, VCs and entrepreneurs that we will need to invest, refine and deploy climate technologies across every industry if we are to scale down global emissions at a fast enough rate to achieve net zero carbon emissions.

So, where did the money go?

That sounded good. Too good! So lots of people like me started to be joining the Climate Tech movement. Investors started to invest money in the space, entrepreneurs started new companies, engineers quitted Facebook and Twitter to join climate tech companies.

“There’s a huge migration happening,” Justin Hardin, the CTO, and co-founder of Climatebase, a talent directory that facilitated 500,000 people to join climate tech jobs since 2020.

Anyhow, the heat was on.

But did the funding actually reached these climate tech startups or did the evil corporates actually seized the momentum to take it off course?

Did this climate tech movement — and the funding allocated to make this a reality — on track or off track?

Well, let’s look at the numbers.

Climate Tech Innovation Hype Curve,” SVB, April 2022.

When we look at the Co2 emissions key contributors on this graph, it seems pretty clear that there is a lot of work to be done across 4 key pillars:

1. Pillar I: Industrial decarbonization (Energy, Manufacturing, Iron & Steel),

2. Pillar II: Agriculture decarbonization (Livestock, Pesticides, Crops burning),

3. Pillar III: Built environment (HVAC, building retrofitting, etc),

4. Pillar IV: And lastly mobility decarbonization (EVs, aviation, ships etc).

So in a perfect world with rational economic agents, rational investors, entrepreneurs and large corporations— a world where we would assume humanity would look to actually work together for its best interests— we could imagine each of these key 4 sectors would receive the most funding, right?

But, here is where the money and efforts actually went:

Well, welcome to reality, a world where:

• More than 2/4 of the funding went to EV battery innovations & EV charging…

• Another 1/4 is going to something completely out of the blue called “Hydrogen and Carbon Capture”, (WTF is this? Will detail later)

• ….And almost none went to (Pillar II) Agriculture, even less to (Pillar III) Built environment, and almost none to (Pillar I) the most important component of industrial decarbonization (Iron & Steel, chemical, cement, etc).

This, my friends, is where “Climate Tech” has gone wrong, and I’m not even talking about the climate fintech segment yet, tho there are a few scandals in there already.

One of the root(s) of the problem.

So the question now is: why are there so few investments in industrial decarbonization, agriculture, and building retrofitting? And why so much in EVs, carbon capture, and “renewable” fuels?

Well to answer this question we are going to need to put our hands deep in the swamp of venture capitals and limited partners relationships…

Here is the graph of what people in San Francisco are talking about.

As you can see on top of the hype, at the moment CCUS (Carbon Capture, Utilization and Storage), DAC (Direct Air Capture), Electric Aircraft, Hydrogen, and Climate Fintech, (whatever this means).

If you are an entrepreneur pitching one of these categories to VCs this quarter, you are most likely to get funded. And here is why…

Gartner’s Climate Tech Innovation Hype Curve,” SVB, April 2022.

Just like every funded company, every venture capital has to raise their money.

We, venture capitalists, simply play on a longer cycle, usually 10 to 12 years to bet on several investments, wait for the returns, and pay back our investors, the “limited partners” of our funds.

Now the process of raising this money can be/is always tricky.

No GPs will admit it but inside they all know the truth: unless they have the luxury to be corporate funded or have their daddy giving a few millions to anchor their funds, VCs for their first 2-3 funds really have to go to whoever limited partners (LPs) want to give them the most money.

And guess what, those LPs are mostly uninformed about the grand scheme of what scientists think is needed in the world:

• For corporate investors, they often want to grab a slice of the “innovation pie”, more from being scared of loosing market shares than for “saving the world”, and end up making a lot of noise about investing 0.01% of their profits into mostly EVs & corporate greenwashing. [We will develop this on another newsletter]

• For family offices investors are often are extremely sentimental about their family offices investments and would follow the less risky, bigger guy in the room, or the trend they heard about during their last trip in San Francisco.

This is where the available money we — humanity— has to shape the future is very often going in the wrong direction:

1. Initially: An LP heard about the latest hype in California

2. A VC pitched his fund to an LP

3. The LP asks if the VC will invest in this latest hype

4. The VC said yes to getting the LP to invest and now has to adjust his thesis

5. The VC closes his fund and deploys into hyped-up verticals instead of what is actually needed.

6. Other VCs fear missing out and investing in this wrong vertical / overhyped-up company.

7. Conclusion: Everyone has invested in creating a Frankenstein.

The result: a superpowered fraking industry hidding behind CCUS.

Without a doubt, drilling and fracking shale can produce a lot of oil and gas in the right geological regions. It just usually costs more to get the oil and gas out of the rock than the fossil fuels are worth on the free market. If you want some case studies on fracking, check this out.

This is why these technologies needed another product to be financed. And they found it: Carbon Capture underground Storage.

Here is a detailed explaination of how this works

How carbon storage works well for Oil & Gas companies like Exxon.

“Exxon believes it can double the amount of oil production from its fracked wells using new methods.”

“There’s just a lot of oil being left in the ground,” Exxon’s Chief Executive Officer Darren Woods said at the Bernstein Strategic Decisions conference. “Fracking’s been around for a really long time, but the science of fracking is not well understood.”

The same CEO who is heavily investing in fracking as part of the future of his company just pulled a few billions to do CCUS. Coincidence? You are being cute.

So yes, indeed, in February 2023, the U.S. Department of Energy (DOE) Office of Clean Energy Demonstrations (OCED) opened applications for up to $1.7 billion in funding for the Carbon Capture Demonstration Projects Program that will demonstrate commercial-scale carbon capture technologies integrated with CO2 transportation.

A large part of this 1.7 billion went to finance Exxon’s $4.9B acquisition of this carbon-management and is accounted as part of the Inflation Reduction Act under “carbon capture, utilization, and storage (CCUS) project support”.

Conclusion: Ignoring Hyped Up Distractions

I told you this episode of our newsletter will be blunt. And I’m not done yet. Next month will be on the EV lobby and it’s scandals.

Please share your view on CCUS and other greenwashing scandals in the comments or if you have experiences to share via email, it would be appreciated for my next newsletter.

Despite all the hype in the VC world for CCUS, superpowered by US subsidies and Oil and Gas companies, I believe mechanical carbon capture and sequestration is a mostly dead end, and against everyone, I will not invest in this. And I recommend you not to.

You understood it by now, I don’t want to be part of this nihilistic financial scheme of taking investors and government money for hyped up concepts and investing it in doubtful projects that will lead our world into complete destruction.

Every CCUS site of any scale is extracting CO2 from underground in one place and putting it back underground in another spot is essentially to mine governmental tax breaks and perform fracking or enhanced oil recovery. Yes, extract more oil, by fracking (details here).

I recently turned off a large Limited Partner from an Oil and Gas company that would have helped us to close our second fund last quarter but also would have mandated us to invest in CCUS.

Painful decision as I’m delaying our fundraising a lot, but being myself a real Doomer, I just can’t do things that would make the condition of our planet worse, even for a few millions. (This might change as I get desesperate).

If I have the chance to, I will take my time to speak with limited partners that will understand my thesis rather than closing a fund with the wrong intentions.

As investors, we are shaping the world. Hence, we have a responsibility to the world. We should stop pretending CCUS is a scalable climate solution as opposed to a fig leaf, ignore these distractions and really focus on difficult sectors actually making a difference like industrial, agriculture and built environment decarbonization.

And if you really want invest in carbon capture, look at blue carbon instead.

Cheers,

Djoann Fal