DAC’s bumpy road to commercial scale

The world’s first large-scale, commercial direct-air capture (DAC) plants are coming online — or are about to. How soon will we see a boom in high-quality, durable DAC supply? 

In this episode, Shayle talks to Andreas Aepli, chief financial officer of Climeworks, the world’s largest provider of DAC. They talk about Climeworks’ challenges with its two commercial plants — challenges Andreas argues the industry needs to be transparent about in order to  earn the trust of skeptical buyers. Shayle and Andreas also cover topics like:

• The real-world challenges of building a DAC plant, like extreme weather, supply-chain quality issues, CO2 purity, and more
• Why Andreas advocates a step-by-step scale-up of progressively larger deployments
• How to set pricing and and structure a carbon removal contract
• How to build a capital stack for a carbon removal plant
• Why Andreas believes the market will become even more supply-constrained in the next few years

Recommended resources

• Latitude Media: Google says it's the first to purchase direct air capture for $100 per ton
• Latitude Media: Can a new generation of DAC companies overcome the tech’s big challenges?
• Latitude Media: Climeworks begins to offer “PPAs” for carbon removal
• Catalyst: Fixing the messy voluntary carbon market

Catalyst is brought to you by EnergyHub. EnergyHub is working with more than 70 utilities across North America to help scale VPP programs to manage load growth, maximize the value of renewables, and deliver flexibility at every level of the grid. To learn more about their Edge DERMS platform and services, go to energyhub.com.

Catalyst is brought to you by Kraken, the advanced operating system for energy. Kraken is helping utilities offer excellent customer service and develop innovative products and tariffs through the connection and optimization of smart home energy assets. Already licensed by major players across the globe, including Origin Energy, E.ON, and EDF, learn how Kraken can help you create a smarter, greener grid at kraken.tech.

‍On December 3 in Washington, DC, Latitude Media is bringing together a range of experts for Transition-AI 2024, a one-day, in-person event addressing both sides of the AI-energy nexus: the challenges AI poses to the grid, and the opportunities. Our podcast listeners get a 10% discount on this year’s conference using the code LMPODS10. Register today here!

Transcript

Shayle Kann: I'm Shayle Kann, and this is Catalyst.

Andreas Aepli: What we're worried about is what's going to happen if people are not transparent about the challenges, is that people will lose face at some point when they say, "Well, this is just an industry that makes a lot of promises but doesn't really keep them."

Shayle Kann: This week, how to do a DAC deal. I'm Shayle Kann, I invest in revolutionary climate technologies at Energy Impact Partners. Welcome. All right, so phase one of the new technology landscape is all sunshine and roses in my experience. The technology is abound, the promise is endless, the future is bright. And then comes phase two and that's where the proverbial shit hits the fan. All these new technologies now need to be financed and scaled and constructed and operated, and it basically never goes as smoothly as you think it will up front. I think we're just starting to enter phase two when it comes to direct air capture. We have the very first few commercial plants coming online now or just having come online, and what the market at least hopes will be a massive wave of others coming behind.

But while we wait for that wave, I thought it would be interesting to talk to one of the very few, in fact perhaps the only one who has actually built something at commercial scale, that would be Climeworks, the Swiss direct air capture leader. Two notable things about Climeworks. First, on the deployment side, Climeworks operates Orca, the 4,000 ton per year DAC plant that began operation in 2021, which was the first commercial DAC plant in the world. Second, on the capital side, in April 2022, Climeworks raised a massive $650 million US equity round of funding to scale up. It was their series F. Climeworks has also been a little more transparent about its experience and challenges than I think most companies in this space. It's a very good case study in expectations versus reality and what it takes to scale up one of these big industrial type technologies. For this one, I wanted to get into the deal and the financing side, talk a little bit about the market for CDR and for direct air capture, so I brought on Andreas Aepli, who is Climeworks's CFO. Here's Andreas. Andreas, welcome.

Andreas Aepli: Great to be here.

Shayle Kann: I want to start by talking a little bit about the history of Climeworks, I think particularly through the lens of over the years when you were reaching certain levels of scale and then along that way how you were doing capital formation. Maybe just walk me through the quick history of Climeworks, but focused on what were you building at any given time and then how were you capitalizing it?

Andreas Aepli: Climeworks was founded in 2009 by Jan and Christoph. Basically it was a spin-off out of the university, they both founded the company when they were doing their PhD. And in the beginning ... Actually, the PhD was part of the funding that enabled a little bit of a scholarship and access to the labs. And then it was the typical friends, families and fools, who started investing in the company at a very small level. And then for quite some time, the company was funded through first angel investors and then family offices, because at the time there weren't really any climate VCs over the timeframe. And the company built its first DAC machine, the first collector as we like to call it, in 2014, deployed that.

Then in 2017 was the first time that there was a commercial pilot plant built, commercial in the sense of actually delivering product to the customer. And at that time it was delivering CO2 to Coca-Cola into a greenhouse for reuse, essentially recycled CO2. That enabled the company to then fund more, also to suit existing investors in their network, get more funding in place, have access to quite large family offices, which really had that long-term orientation to put more money into the company. And then the next big milestone was really starting up Orca, the first plant that did direct air capture, together with permanent storage and then selling that as carbon removal services at the time, or credits now.

Shayle Kann: And can you just remind us the scale of Orca?

Andreas Aepli: Orca has nominal capacity about 4,000 tons. What do we mean with that? That's what the plant was designed to capture at maximum efficiency, so maximum run rate, etc. And there's some losses that go away from that. Yeah, on the backbone of operating Orca and having that in the field, we then launched a new fundraise, our series F already at the time, and that was the first time when large institutional investors came into the cap table. And we managed to raise about 650 million US dollars, I think the largest venture capital type raised in Switzerland and for sure also one of the largest in the climate tech space.

Shayle Kann: Okay, so that's 650 million US raise, when was that completed?

Andreas Aepli: That was completed in April of '22.

Shayle Kann: April of 2022. After the peak of the market, which I would say is in 2021 but as things were just starting to turn a little bit, I find that one interesting because my presumption is you as the CFO were contemplating various ways to finance the next set of projects and the next scale that you needed to hit. You ended up raising a really large corporate equity round to do that. Talk me through how that thinking process went and basically what you needed to do, why do you need that much money? Is that going to capitalize additional order of magnitude larger projects? And what were the other options you considered to do that? Because this is a challenge that many climate tech companies ultimately face as they start to get into the real commercial deployment world.

Andreas Aepli: Yes, absolutely Shayle. We are all agreed that over time you need to have a fully diversified capital stack that goes into these projects. You need to have it diversified across potentially some government grants which help you on the deployment across project finance, both project equity and project debt, potentially some tax equity and other instruments, and some amount of equity. But you wouldn't expect to fund all of these projects just with TopCo equity. However, for these projects to be profitable, they need to be at a certain scale. And you need to make your way towards that scale by subsequently larger deployments. We are of the fundamental opinion that it doesn't really work to deploy in the lab or at very small scale, at pilot scale and then go from that straight to the size that is required for the plant to be profitable, because that's a huge technological risk. And if you look at what happened during the deployments of our plants, that was a good strategy to have because if you can de-risk the technology over time as you scale and you build subsequently larger ones but in digestible steps, so 5 to 10X, you can scale the market better, you can de-risk the technology at lower amounts of capital deployed. And to do that, that just requires a higher degree of equity than if it was already mature technology and you could fully project finance.

Shayle Kann: With that large equity, the series F that you raised, what was the key milestone that you were offering to investors? What was that money going to deliver?

Andreas Aepli: The key milestone was scaling that technology by a factor of about 10, improving on the cost curve, deploying more on the off-take side, so really building the market for these project financeable off-takes, and also making an improvement on the technology, which is one of the key milestones aside from the scale of the plants to bring down the cost.

Shayle Kann: That gets to one other thing that I've appreciated about Climeworks, which is having been an early leader in this market and having actually built some projects, albeit not the big, big projects you're ultimately going to build, you guys have been pretty transparent about what has gone well, what hasn't gone well, what the challenges have been in scaling. Can you talk a little bit about that? What are the learnings? What has happened as you've deployed Orca and look to deploy additional projects beyond that, how have they performed and then what are the broader lessons that you would take from that from a company and capital formation perspective?

Andreas Aepli: When we turned on the switch in Orca after a two-year build time and as we went into the first weeks and months of operations, we figured out a lot of things that we didn't know before. And this is despite us already having commercial scale planned in Switzerland, this is despite us having run a smaller scale pilot unit in Iceland, but there's just many things that you only really experience when you deploy at scale and you deploy in an operating environment, when you deploy in an environment where you need to run the plan 24/7, where you need to deliver to the customers. And that has been a pretty steep learning curve, to be honest with you. It's one of the reasons why we're very happy that we made the decision to move in the smaller and faster steps, so we can learn along the way.

What did we learn? There's also an article on our website which goes into quite a lot of detail on this. On the learning curve, we've seen for example, how the direct air capture is difficult because you have to capture CO2 at very low concentrations, 420 parts per million, one out of 2,500 molecules you have to capture. And one key thing that differentiates running in a pilot scale or lab scale environment to running in the production environment, is the quality fluctuations in your supply chain, the manufacturing tolerances that you have on your equipment, on your filters, et cetera. Often, that equipment is ... Sometimes it's purpose built and sometimes it's repurposed from other industries, and these other industries might have very different quality requirements. For example, one thing that we experienced is on the filter side that there were quite high quality fluctuations over time from our supplier, which didn't matter to that supplier originally but which had quite a big impact on the efficiency of our operation if you look into not just the performance per hour or the performance per day but the performance over weeks and months.

Similarly, also we were exposed to quite extreme weather conditions in Iceland, not something we didn't know but something that really presented itself over time. If you do direct air capture, that's the other nature, is you have to deal with the weather how it is because it's quickly becoming completely uneconomical if you have to pre-treat any of your incoming feedstock so to say, the air that comes in. You have to take it how it is with all the snow and hail and horizontal rain that you have in Iceland, with all the impurities that you have. And operating in this type of environment, we really learned how to deal with all of that. Our CTO at the time often said, "We're building a tractor, not a sports car."

Because you have to really deal with all of the things that happen in there, and that had quite some impact on the volumes initially. And then a final one is the sensitivity of the sequestration on the purity of the CO2 and your ability to deliver that purity 24/7 with all the things that happen in this type of production environment. You have to deliver really, really pure CO2. It doesn't really matter on the sequestration method, but it needs to be super pure. And if you don't have downstream a process to upgrade the purity to deal with a high range of fluctuations, then you might need to dump the CO2 that you've already captured because it doesn't fulfill the quality requirements.

These are just a bunch of different experiences that we made. And in any production environment, you have a production waterfall. You talk about your uptime of your equipment, the percentage on that, you talk about your capture efficiency, but then finally you also talk about lifecycle emissions. That's the last point that I didn't mention. The way that certifications work today is you deduct all of the lifecycle emissions that exist for the construction of the plant, as well as for the operation of the plant, the energy that you use, et cetera. And we could predict some of these but others required really deep due diligence with our suppliers and others also required that when you start up a plant, it's not going to be as efficient right away but the deduction of the lifecycle emissions that you have to make, that kicks in on day one. In the beginning you're also going to have a high percentage of much higher than over the lifetime. You're going to have a high percentage of lifecycle emissions that you have deduct every month and that you can't really sell.

Shayle Kann: You mentioned before the nominal capacity of Orca is 4,000 tons per year. Have you reached that performance now, and how long has it taken? What's the curve of actual to nominal looked like?

Andreas Aepli: We can reach now performance of around two and a half thousand to 3000 tons of run rate, and that took us about two and a half years to get there.

Shayle Kann: That's a really key point. You're taking all the arrows here being early in this market, but that's notable. It's been two and a half years, you've been working out all the kinks, you're still not up at that 4,000 ton per year capacity. And I think my assumption is that one of the purposes in being really transparent about that, apart from obviously telling customers how many tons you're delivering,+ is to just note to the rest of the market which is coming behind you that actually probably it's going to be harder than you think it's going to be when you start to build these things. Was that part of the point?

Andreas Aepli: Yeah, I think, look, a lot of the efforts that we do on the market are about education. And we fundamentally think it's important that we as an industry send the right message to our customers and to partners. And that means talking about the opportunity and the need for DAC and all the super exciting business value that that represents, but it also means being real about what are the challenges that you face? Because we feel especially if you're in an environment that relies on a lot of equity funding, you sometimes can get into the temptation of over-promising on what you can actually deliver. And we just want to ... Now, given that over the last three years there have been a lot of DAC companies that have popped up, there's a lot of new startups, which is really exciting to see, a lot of new approaches, but we think sometimes there's a real danger in the industry over-promising on the cost target or on deployment and volumes. And what we're worried about is what's going to happen if people are not transparent about the challenges, is that people will lose face at some point when they say, "Well, this is just an industry that makes a lot of promises but doesn't really keep them."

Shayle Kann: Let's use that as a segue to talking about the broader market for CDR and for DAC, rather than just about Climeworks, but maybe starting with a segue from Climeworks. You're now going from this nominal 4,000 ton per year plant to plants that'll be in the tens and hundreds of thousands of tons per year, so much larger scale. Talk about the buyer pool as it exists today. Who do you think of as the big categories of buyers for specifically direct air capture credits?

Andreas Aepli: Yeah, I just want to mention that we've already deployed our next plant. In May, we deployed Mammoth, which is a 10X almost scale up from Orca. That plant has been operating for a while as well. And the next one that we'll build is about 250,000 tons, so another 7 to 8X scale up, that will be our first plant in the US. Who's buying for these plants now? Orca and Mammoth, luckily they're already completely sold out for the life that we expect the plant to operate. We're really now selling on the next one. And today you see there's obviously one large buyer which has bought a huge chunk of the market for permanent removals, that's Microsoft. At the time when we last raised money, so by the end of 2021, globally sold volumes were only about a hundred thousand tons. And now we talk about I think, 4.6 million tons last year and 5.7 million tons to date already this year. This is really a market that has grown.

It has grown by early buyers, pioneers or an early buyer and pioneer like Microsoft doubling down and buying much, much larger volumes. But maybe something that doesn't always get seen is that there's a lot more companies participating in that market now. They're still participating in smaller volumes but you see more companies getting in there and these are also technology companies. We've seen announcements from other technology companies who come into the market. We've been quite successful in the financial industry. There have been a number of banks, J.P. Morgan, UBS etc, insurances, these type of buyers. And now we also see more buyers from hard to bate industries, for example, airlines and other companies which have invested here.

Shayle Kann: Do you see there being other buyers who are ramping up to the type of scale that Microsoft is at? It is really notable if you look at the numbers so far, how much bigger Microsoft is in terms of tons procured versus the next largest. And ultimately, I can imagine it going either way. Either there's a few really large buyers like Microsoft, and then a long tail, or just a very long tail, many, many buyers but most of whom are not willing to spend the money that Microsoft is spending on this.

Andreas Aepli: I think it's two factors here. Number one, is when we first started selling this, and you can say we invented a little bit this category of these really high-quality carbon removals six, seven years ago, we first started with individuals through a subscription model and then we started talking about these corporate off takes. And it's a learning curve also with the customers. Buying carbon removals today and buying high-quality carbon removals to get that right is not that easy. Microsoft has been doing this for a very long time, they have a lot of experience in the market and they're also helping a lot to educate the rest of the market. And so I think the second reason aside from the one that you mentioned is how do you structure your procurement the right way so that you can actually be sure that you're buying the right thing?

And I think a lot of customers today that participate in the voluntary carbon markets, there is some insecurity around, "What should I actually be buying and how should I be structuring my portfolios?"

Because there has been also a lot of pushback, with lower quality offsets, with people buying stuff and then getting a lot of pushback because it's seen as not really effective. In a way that also has been helpful because it has pushed the move towards quality. And to answer your question, I see there are more companies that want to invest in higher-quality carbon removals and there's more companies which follow that best practice of putting a portfolio together so that you can get to an average price that is lower if you just bought DAC, but where you still have shares of higher-quality removals so you can participate in that market, get some exposure to it, and also secure some optionality for buying more volume later.

Shayle Kann: That gets to my next question, which is around pricing in the market. It's a weird market when it comes to pricing, there's not really a market price. In theory, if everything were equally durable and transparent, then you'd imagine this as a commodity market where there's a single clearing price, but it's nothing near that. And you see currently purchases publicly being anywhere from high hundreds of dollars a ton, maybe low thousands of dollars a ton, down to certainly in the nature-based, less permanent world, in the tens of dollars a ton. But even if you just take bottom of the market of, 'durable', stuff like biochar may be in the low hundreds. It's a really wide range. How do you set pricing? Because there's no market price. Is it cost plus or when you're talking to a customer, what determines the price that you are selling at?

Andreas Aepli: Yeah, it's an excellent question. I think it's finding the balance of eventually making these projects economically viable, and that the size is that we are now building it, they have to be economically viable otherwise they just won't get built. That's the cost plus aspect but also meeting the market where the market is at. And one of the things that we have been doing in determining that is starting to not just offer customers direct air capture agreements but also structuring portfolios for customers. One, to make it easier for them to do that because as I mentioned, that's quite a hard job, but also to allow them to have a portfolio that's aligned with a scientific glide path. You do a bit more lower permanence, lower additionality in the beginning and over time you shift to higher additionality and higher permanence as the cost of these solutions come down.

Shayle Kann: Do you see competitive pricing pressure? Certainly what's happening in the market is Climeworks is ahead in terms of actual deliveries and deployment. There are lots of other DAC companies emerging that are earlier stage. Is there beginning to be a coalescence around a direct air capture credit is worth X in year Y, and so you have to hit that market price? Or is it still so desperate that there's just no relationship between the price for a 2027 vintage Climeworks direct air capture credit and a 2029 vintage some other direct air capture company credit?

Andreas Aepli: I think what you've seen over the last two years is many more companies offering credits in the market and also signing off take. I don't think there is yet full comparability or some standard. I think the quality differences even between DAC companies, there's quite a wide range. Some companies, like us, have already independently certified volumes, make a full deduction of life cycle emissions. Other companies are a lot more earlier stage but they have a high confidence in the technology that they have and they really need off take. We've also seen companies come in at much, much lower price and essentially promising that to the customers.

And then also one thing that we see on the market is we've worked really hard over the last, I would say, four years to move the market to something that will actually work for project finance in terms of off take. That means long duration contracts over five years plus, ideally 10 years or 15 years, longest we signed was 15 years, having it be take or pay contracts, having clear payment terms et cetera, in the contracts and having assignability to the assets that eventually need to be financed. And sometimes you also get pushback from customers because sometimes it seems like we are one of the few companies who are asking for these type of terms, but we ultimately think that's really necessary if you want be able to have a real financing solution for these assets over time.

Shayle Kann: That was actually going to be my next question anyway, on how the contract terms are shaping up. Makes sense that you would want long-term take or pay contracts. That's obviously the thing that makes anything bankable ideally. You don't want to be selling merchant credits X post. Are they fixed price contracts typically? Because one thing that I've wondered about with direct air capture ... Your capital costs are fixed and you deploy the project, the capital costs are what the capital costs are, but then you have OpEx, and as I understand it, most of that OpEx is going to come in the form of the cost of energy. And so if you believe that over the life of the project the cost of energy will change, which I think is certainly true, probably increasing, you'd imagine that actually what you want is a price that is either indexed to the cost of energy or labor over time, or just has an escalator automatically within it. Is that part of the calculus? Because this is another thing that I don't see a lot of companies thinking about, is they're trying to sign 10 or 20 year contracts but they're making them fixed price. I think they end up underwater at some point if they do that.

Andreas Aepli: Yeah, excellent point actually, yes. And those were precisely some of the conditions that we started introducing about three years ago because we made that same math and we saw, "Hey, energy is likely not going to be freely abundantly available sometime in the next 20 years, but rather is also going to be constrained."

I think the way that we operate is yes, it's fixed price but also yes, there's indexation. The market isn't yet there how you see it somewhere else in markets that are high energy exposed where you say, "Well, actually the energy price is floating and the rest is fixed."

That's not where the market is today. But we have indexation in our agreements and we also work quite hard on the supply side to fix as many costs as possible. For example, in Iceland we have very, very long duration energy contracts with fixed pricing and a certain indexation, so we reflect that in the customer agreements.

Shayle Kann: What is your take on the market ecosystem? Climeworks has actually ... In part I think because you were early, you've sold direct generally speaking, even all the way down B2C, you sell credits to individuals if individuals want to purchase direct air capture credits from you. There's this emerging ecosystem in carbon removal in general that includes some intermediaries, brokers, things like that, also includes organizations that are focused on measurement reporting and verification so that you have some independent verification of delivery and LCA calculations and so on. How do you see that ecosystem developing and what do you think is the ideal value chain from project to buyer?

Andreas Aepli: Look, I think the intermediaries are fulfilling one very important role, and that is making it easier for customers to buy, reducing that friction and that hurdle to put together the portfolio. And in a certain way we're also playing that role as an intermediary for everything that is not DAC. And I think they contribute a lot to the education of the market. And it's not like when we started selling these off takes, there weren't any of these intermediaries. There were already a lot of intermediaries in the market typically focused on carbon reduction offsets, and a lot of them have shifted now to carbon removals and some of them also to higher duration carbon removals. And I think they play an important role in the market.

I think for us, we were always in discussions but it wasn't a viable option, for the reasons that our capacity is in the end still relatively limited as we scale. And we have to think about what's the best way for us to retail that capacity and have the biggest impact? And obviously, signing these long-term off take agreements directly with the off taker has a lot of benefits. You enable potential resale or further contracts, you help educate that customer for direct sale, you build an important relationship with that customer for the volumes, and you also understand better what they actually need. And then finally, on the financeability of it, a lot of the intermediaries today in the market, they don't have the balance sheet of a Microsoft or J.P. Morgan, so not all of them are really credit worthy off takers over a period of 10, 15 years and many of them come from an environment where they just used to sell spot and they're now moving to longer term agreements but many of them are also still quite limited in the length of the agreements they can take. Very few of them can do agreements beyond 2030.

Shayle Kann: Beyond 2030, that speaks to I guess, the next thing I wanted to ask you about, which is how the project finance world is emerging. Obviously you, given the ability to do so, raised a really large corporate equity round in 2022, the alternative to which probably would've been project finance but it probably wasn't available yet. You were trying to scale up to first of a kind larger project, I'm sure ... Project finance, it's a notorious challenge to get a first of a kind project financed generally speaking, but now I imagine that's very much on your radar. And you hear a lot about the world of off balance sheet financing for next generation projects like this. Is it out there? Are there structures that people are pursuing already? Is it nascent? Do you think you're going to be able to finance your next project with some version of a traditional project finance structure, or are you going to have to do more corporate equity or government money or ... What's it going to look like?

Andreas Aepli: I think it's not a black or white, it's not a light switch that you switch. I think it has to be gradual. And there's different types of risk appetite in the industry. We actually already executed a project DAC facility in one of our projects that was for Orca, and that was definitely very hard to get over the line, also had to be subsidized because Orca isn't profitable at the size where it is. But it really gave us a lot of experience on how can you project finance this? And it is possible but I think it has to go a little bit over time.

I think what we have seen in the market is increased interest from for example, project equity, to work in this type of market. And I think the closer you can bring your off take agreements to that, the closer you can de-risk your technology and show those proof points that you've actually done the de-risking, the more of the project you can actually hand over to a third party that then gives you performance guarantees, et cetera. That will never be possible for everything but for part of it, the more likely you can finance this. And this is very much in the cards now for next project, where we think it makes sense to assume that type of structure, including the government grants that we've been allocated, including a portion of project equity and then eventually also a project that from a classic project financiers, it might be that then happens once the plant has gone through the ramp up curve and has proven that it's operationally stable.

Shayle Kann: When you say a third party who can offer a performance guarantee, are you thinking of an insurance backstop or are you thinking of an EPC who's going to offer a performance wrap on having constructed the project?

Andreas Aepli: Rather of the latter. I think the first we've also explored, I think the latter is possible at least for part of the project. Also with us, our own tech is less than 50% of the CapEx that we need to deploy. There's a lot of stuff in any project that you buy that is standard, and for that you can get wraps. And I think that will help on the way to project finance.

Shayle Kann: Okay. I guess, wrapping up, I'm curious how you see this market broadly shaking out over the next let's say, three to five years. You're going to be in this scaling mode building now hundreds of thousands of tons per year, megaton scale type plants, lots of other earlier stage companies are entering the Orca phase of trying to get to first few thousand tons per year or tens of thousands tons per year, and then meanwhile, the broader macroeconomic environment has changed, the buyer pool has changed, as you said. Is this going to be a boom time for direct air capture broadly? Do you think there'll be a shakeout? What do you expect to happen?

Andreas Aepli: I think honestly, maybe a little bit of both. I think the direct air capture industry still lives off a lot of promise. We are on the one hand, fortunate, on the other hand, also a little bit suffering that today we're the only one with a commercial facility in the field. We are actually very much looking forward to some of the other players starting to deploy the commercial facility, going through the learning curve as we have. I think that will bring an important dose of reality into the market. People see what can we actually deliver and what is necessary for the next step. I think at the moment there might be a little bit too many unrealistic promises in the market, and that might also mean that some of the companies will not make it to that next stage. However, we think it's exciting that we can potentially benefit also from some of these shared learnings, don't have to educate the market ourselves.

I think in terms ... If you look at the market, we think it's quite likely that we'll see more industries come into this market, especially when there's more reasons to do so, from institutes like SBTI. The SBTI guidance hopefully will include much more concrete steps on short-term targets for carbon removals. And we see the first beginnings of a compliance market evolving for example, in Japan, in the UK. There's really good developments, and our expectation is that more companies will see that and will start to invest a portion of their portfolio into these high-quality solutions because it's almost a hedge or an on having access to these much larger volumes when regulation kicks in more and when there's more demand. Because what's also clear is that as we move towards 2030, there will be a moment where the market will be really heavily supply constrained as the market switches and as suppliers like us then start to deploy capacity much more faster.

Shayle Kann: Do you think the market will be more supply constrained in 2030? Because I guess, right now it's clearly supply constrained. As you said, you're the only one with a commercial operating project. There is more demand than there is supply at the moment. What I've wondered is as Climeworks and maybe some select group of others really start to scale up, does demand always outpace supply in this market or is there a point where it actually flips in the other direction?

Andreas Aepli: I think at the moment it's a little an interesting situation because the supply is very little but the demand that is required to deploy these large plants, and I think we all agree that we need plants in the size of 200,000 to 500,000 tons or even larger, and if you want to fill those plants it means you need to sell millions of tons. The whole market today, 5.7 million tons. If you think about building a million ton facility, you would probably rather want 10 to 15 million tons just for that facility alone. We don't yet see the market be at the scale where all the off take contracts in order to deploy as fast as possible are there, but we think that we'll switch. I'm not talking about the 2024 or '25 volumes because there were very few of those, or even the '27, '28 volumes, but if people are trying to secure the volumes for 2030 or 2035 when they potentially want to actually fulfill their net zero ambitions, then I clearly see this will become more and more supply constrained.

Shayle Kann: All right, Andreas. Thank you so much for the time, this is really valuable. And I'll just state it again, I appreciate the transparency that Climeworks has offered as you've gotten into the real meat of deployment, I think that it is too rarely the case so thanks for that and thanks for the time.

Andreas Aepli: Thanks a lot, appreciate it. This was fun.

Shayle Kann: Andreas Aepli is the CFO of Climeworks. This show is a production of Latitude Media. You can head over to latitudemedia.com for links to today's topics. Latitude is supported by Prelude Ventures, Prelude backs visionaries accelerating climate innovation that will reshape the global economy for the betterment of people and planet. Learn more at preludeventures.com. This episode is produced by Daniel Woldorff, mixing and theme song by Sean Marquand. I'm Shayle Kann, and this is Catalyst.