Shopify’s head of sustainability on the realities of the carbon removal market

The carbon removal market could reach $400 billion to $1.6 trillion by 2050, according to McKinsey. But it’s got a long way to go. Right now the market is wild, unexplored territory filled with unproven technologies, murky cost curves, and a motley mix of price points and standards. The hope is that one day it becomes a standardized commodity market of high-quality, durable removals.

But for now, brave buyers have to wade into the wilds and see what works. So what does that look like — and what have they learned so far?

In this episode, Shayle talks to Stacy Kauk, head of sustainability at Shopify, which paid $55 million for 85,000 tons of removal in 2023. Kauk says that very few of those credits have been delivered yet, but the company, along with a few other early entrants like Stripe, H&M, and Microsoft, are investing in a varied field of technologies to develop the market.

Stacy thinks of Shopify’s approach like a venture capitalist’s portfolio, with some companies succeeding and others failing. Stacy and Shayle walk through the practical realities of building that portfolio, covering topics like:

• Using forward purchases, flexible contracts, and Shopify’s internal credit standards
• The challenges that slow down ambitious startups, like permitting delays and the complicated work of measuring, reporting, and verifying credits
• Which technologies are hot and which are not, ranging from biomass burial and wastewater treatment to enhanced weathering and ocean alkalinity enhancement
• Comparing the lower energy requirements of enhancing natural systems with the potentially clearer cost curves of engineered systems
• Building a diverse portfolio across technologies and maturities
• What determines the prices Shopify pays for different credits

Recommended resources

• Bloomberg: Stripe, Alphabet and Others to Spend Nearly $1 Billion on Carbon Removal
• Carbon Dioxide Removal Primer
• Latitude: Fixing the messy voluntary carbon markets

Catalyst is supported by Antenna Group. For 25 years, Antenna has partnered with leading clean-economy innovators to build their brands and accelerate business growth. If you’re a startup, investor, enterprise or innovation ecosystem that’s creating positive change, Antenna is ready to power your impact. Visit antennagroup.com to learn more.

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Transcript

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

Stacy Kauk: We meet with a lot of companies and I hear from them and they're like, "Oh yeah, we're going to be delivering credits in a year." They haven't built anything, they haven't commissioned anything. They haven't put it together. It's not yet done. And I hate to be the party pooper all the time, but I'm like, "we need to have a flexible contract because that's probably not going to be the reality."

Shayle Kann: This week. The practical realities of being one of the pioneering purchasers of carbon removal.

I'm Shayle Kann. I invest in revolutionary climate technologies at Energy Impact Partners. Welcome. So I think that the carbon removal or CDR market is super interesting and pretty weird to be honest. It's like three, four years old. It's really not that old, right? The first procurements, besides some really small individual ones for some of the early days of DAC, but the first procurements of this new emergent market that is focused on durable carbon removal really only showed up in, call it 2020, 2019, 2020. So it's a new market. The other thing that I find interesting about it is that though there is a growing buyer pool, it's really still predominantly dominated by a small number of companies that are procuring in part, not just for their own benefit, but trying to foster an ecosystem and support the development of the industry, right? So the names here that everybody knows are Stripe.

We're now Frontier, which is the program that Stripe created with a bunch of other corporates, Microsoft and Shopify. And each of them are building these fairly broad portfolios of procurements from technologies and companies that are pursuing different pathways to carbon removal and they sign lots of additional procurements. As time goes on, more companies show up. We've got hundreds of carbon removal companies now where we had, I don't know, probably a dozen or less back before all of them started. And so it's this interesting dynamic in the market where there's this explosion of possibilities, but also rapidly changing procurement guidelines and how the buyers of which they're still very small number, think about what is good, what is bad, what's a good fit for them.

So it's interesting to talk about this market from a theoretical perspective and the different pathways, but I also think it's interesting to just talk to one of those buyers and see how they are thinking about practically speaking, both buying and receiving delivery of carbon removal tons as they are just starting to show up in the market. So who better to talk to than Stacy Kauk, who is the head of sustainability at Shopify and represents, as I said, one of what I think of as the sort of three big buyers of durable carbon removal, or at least three initial big buyers of carbon removal. So Stacy has all the sort of early battle scars of this industry and is in a unique perch to talk about what is working and what isn't, what's hot and what's not, and what we expect to see next. Here's Stacy. Stacy, welcome.

Stacy Kauk: Thanks so much for having me.

Shayle Kann: So we're talking about carbon dioxide removal and the market for it, which you're a big part of. So actually guess starting with... When did you make your first procurement at Shopify for CDR, and then how much have you pre-purchased or purchased so far?

Stacy Kauk: So we made our first purchase in 2020. I think we signed our first contract, it would've been in June of 2020. We made a batch announcement in September 2020 where we made I believe eight purchases. So that's where we got started and we had a good range. We had a couple of DAC companies, we had some ocean companies, ocean alkalinity enhancement as well as biomass thinking. We had some biochar in there, some Charm Industrial for some Becks. So we had a good range in our first portfolio. So we've been at it, I guess we're in year five now.

Shayle Kann: And how much have you purchased in total now in tons.

Stacy Kauk: So we're just under 85,000 tons, and that's durable carbon removal, so it doesn't include things with less than an estimated a hundred-year permanence.

Shayle Kann: Okay. And so you mentioned a bunch of the categories, and I want to talk through some of those and talk about how you think about building a portfolio, but starting with one of the fundamental questions in CDR, which is that a lot of the purchases that have happened so far, including I think most of the ones that you've made, they're all forward market commitments. They're all purchases for future delivery of carbon removal. So now that you're three years in change into your procurement, can you talk a little bit about how much has been delivered versus what you've purchased and how you expect that to trend over the next few years?

Stacy Kauk: So a lot of it is forward purchases... And since we're entering year five, if we talk about what happened in 2023, other than Charm Industrial, a large portion of our portfolio credits, reforestation, soil, carbon storage and biochar, things have started to change in the back half of 2023 where we got our first ocean deliveries from Running Tide and then our first DAC credit delivery from ClimeWorks, which is the first batch of credits we've received from them, from the contract that we signed in 2020. So we're starting to see some things change in terms of the look and feel of what's being delivered, but it's a slow start for sure.

Shayle Kann: Can you talk about volumes at all there? Like how much or another way to put it, I don't know if you have this number offhand, but of that first batch, that batch that you procured in late 2020, how much of that has been delivered?

Stacy Kauk: So I don't have the numbers offhand, but a lot of these contracts, we did them as five-year deals with extensions. And so each contract was around... It depended on the technology, but say if we take a DAC contract, we're talking a maximum of a hundred tons a year being delivered is what we're looking for. So it's starting to trickle in what's happening. And then how we designed these contracts was to have follow-on purchases where as things got proven out and we understood pricing and economics and all of that, then we would have rights to add on additional purchases from future deployments and things like that. So these are really credits that are coming in from pilot facilities.

Shayle Kann: And to some extent that makes sense, right? You're doing first of a kind stuff and so it takes time to build and the whole point is that you're procuring this before it is built... So that it is able to get built, right? Allows the companies to raise the capital that they need to build the pilots and so on. So that is a roughly three year sort of time between original purchase and first deliveries in the hundreds of tons scale. Have you seen that expectation moving in either direction since then? Are there new procurements that you're signing today? Are you expecting roughly three years before they'll start to be delivered? Are you expecting it to be faster? Are you realizing things take longer and it's going to take more time? I just think it's an interesting dynamic in this market because everything is forward purchase commitments.

Stacy Kauk: Yeah. No, and it's frothy, right? It's not straightforward. And some of our credit deliveries are on time. Maybe they're six months late, maybe they're 12 months late, they're not that far off. But we are seeing some that have massive delays because there's huge pivots happening by these companies where they try their pilot and they're like, "Oh, this absolutely doesn't work. And there's a big redesign that has to happen, and then you get those delays, right? Or what we also are seeing are permitting delays, things that companies take for granted sometimes. And that government permitting process can take a lot longer where you're going to put the carbon that you capture, you need a Class VI well, in the US, that's going to take some time too. So I think as a buyer... And that's the unique perspective that I can bring, right? As a buyer, we meet with a lot of companies and I hear from them and they're like, "Oh, yeah, we're going to be delivering credits in a year."

They haven't built anything, they haven't commissioned anything. They haven't put it together. It's not yet done. And I hate to be the party pooper all the time, but I'm like, "We need to have a flexible contract because that's probably not going to be the reality." And that's what we're seeing play out is it is about three years before you can get those deliveries because when we're making those purchase decisions, often we don't have full visibility and neither does the company, they're building the plane while they're flying it, they need to do MRV, they need to look at third party verification.

There's a lot that goes into shipping those first credits in addition to actually getting the technology itself to work, you've got to actually do that whole carbon accounting and verification process as well, which for a lot of these companies, there's not even a methodology yet. So there's a lot that goes into as a buyer being able to accept that delivery. And that takes quite a bit of time. And I think there's a lot of companies out there who want to be ambitious. You got to prove to investors, you got to get financing, so you have to have good timelines, but when it comes down to it, everything takes longer. That's the observation I would say.

Shayle Kann: Right. Which is I think is true across lots of new technology categories. But it is interesting in this space just because we're at the front end, there's all this new procurement now and the deliveries are just starting to happen, as you described for most of these. You mentioned in the original procurement that you made when it was a batch and there were a bunch of different solutions, some of those names. I'm interested in what you've been seeing since then. So in the three and a half years that you've been sort of publicly in the market, what are the trends that you've noticed in terms of categories of CDR, what is hot and you're getting lots of folks banging down your door trying to sell you credits. Where are you seeing the market languish? Because there are so many different ways and more ways every day to do carbon removal. I'm curious what you think is hot and not, so to speak.

Stacy Kauk: Yeah. And I guess it's everybody's personal definition of what's hot, right? And what you're into. So those first purchases, yeah, they were predictable. They were known quantities. We knew who they were, we knew what they were doing. They'd been at it for a little bit of time, but there has been an emergence of new technologies. I think we're seeing a lot of activity in the enhanced rock weathering space because that's very quick to deploy. I think when a lot of the purchases started happening in the early days in 2020, 2021, there was that a hundred dollars per ton price target at scale that was put out there. And whether or not that's achievable is one thing, but that's something that you can use in order to have a baseline comparison point across different technologies and approaches. And I think what we're seeing is the market has taken that and kind of internalized it, and we're seeing an emergence of new types of approaches and carbon removal that are really focused in on trying to do it at a low price so that we're using wastes, we're doing it with existing infrastructure.

Examples of that are crew carbon, which is doing carbon removal through wastewater treatment plant, sludge and outfalls, and optimizing that process. We're seeing interesting companies like graphite come out of stealth where they're basically bailing hay and putting it underground, right? And then we've got other companies that are doing biomass burial, which to me is the weird one that's coming out of the initial market signals. It's like, we want it to be cheap, we want it to be permanent, we want it to be non-competing. And so a lot of these performance criteria, because it was always performance criteria, it wasn't prescriptive of technology. It was like, here's what we like in terms of CDR. So we've got a lot of different approaches coming out that are hitting those performance criteria. And then I kind of stepped back and I'm like, "Do we really want to be doing that? Do we really want to be taking waste, bailing it up, coating it in plastic and bearing it underground, or do we really want to be..."

It just kind of goes on and on and on. There's all these different ideas really around waste biomass, which I think has its own bag of problems, and you've had an entire podcast about that, so I won't get into it. But for me, in terms of what's hot, what's not, I really like carbon removal that enhances natural systems because they use less energy, which makes them more cost-effective. Whether or not we're going to be able to optimize them to a point that makes the economics and the business case works, I think is yet to be seen, but that's hot for me or things like that.

Shayle Kann: So that's like ocean alkalinity enhancement and that kind of thing?

Stacy Kauk: Yeah, ocean alkalinity enhancement, ACA, who's using mine tailings and treating those in a certain way to turn them into a carbon sink. There's a company out there that has figured out a way to do the aggregate and the coating of roads so that those roads harden and calcify and become a carbon sink in and of themselves. There's all sorts of neat things that are passive in terms of the reactivity. When we stack those up against what I was talking about in 2020 was DAC all the time. It was always direct air capture and it was, "I got to find the one that's going to do this with the least amount of energy inputs." And now everything that's sprung up, I think is kind of a swing response to that, right?

Shayle Kann: Yeah. I mean I think part of the challenge, the reason the DAC is to some people intuitively attractive is that it's an engineered system, in theory if you're not constrained by energy, which you are, but if you're not constrained by energy, you can put it anywhere. So it's sort of theoretically infinitely scalable. And because it's an engineered system, you can imagine a cost curve. So start on the cost curve and then ride down the cost curve and then eventually you hit some promised land. And so that sort of seems intuitively appealing about DAC. Of course, it runs into the constraint of that cost curve may be illusory, it may or may not be there, or if it's there, it may be harder than we think. Energy is a constraint. It's not not a constraint. It's very capital intensive, very energy intensive. So then you start thinking about these other things that you're describing, enhancing natural systems or the biomass burial stuff and all those things relative to DAC are going to be lower energy intensity for sure.

And generally speaking, lower cost on day one, right? If you're doing a first of any of those versus a first of a kind DAC, right? It's always going to be more expensive to do DAC. But the question with those of course is usually some combination of scalability. So do you have enough mine tailings? Do you have enough waste biomass, whatever it might be? And the cost curve being less obvious. And so there's this sort of interesting dynamic of like, if you're going to do one of them... You're probably going to do both. But if you're going to do one of them, do you bet on the sort of starts better, but maybe trickier to scale or starts worse. But in theory over the long term scales really well question. I'm curious how you think about that from a procurement standpoint. Is your goal just to seed all the promising ideas with your buying power or are you sort of picking the pathways that you think are going to be best either for Shopify specifically or just for everybody?

Stacy Kauk: So it started out with all of the things' portfolio approach, and I actually would say we're still there because we don't know actually what's going to play out and what's going to work out. And the reason we have decided... We've got 40 companies in our portfolio now across a multitude of pathways, and it's really about trying to give the best companies a chance to go out and build something and prove that it works, hopefully. And if not, they've at least gathered and generated some data that shows us this is not going to work or this is the first iteration and we're going to have to start again. But we learned a lot. And so right now we're still in that searching for what are the things that are going to work because all of these things have research behind them and academic studies and on paper looks like it should work.

But in practicality, we have to actually go from zero to one and operate the project as it's been designed and have that learning experience. So we're still in the picking across all the verticals because we're not clear what's going to scale. And the reason we're doing that is because we want to... So there's two pieces. One is to learn and to help the field advance, but the second is because we want to have a diverse tech stack within each vertical. So we don't just have one or two DAC companies, we have seven. We don't just have one or two biomass based solutions, we're going to have five or six. And the reason behind that is because we try to pick companies that are doing it differently and that are taking a different angle on solving the same problem using a very similar approach. However, they've got some kind of innovation that differentiates them from the rest of the field.

And so we're picking that diverse stack because we're not sure which ones are going to prevail because they haven't actually operated at a significant enough scale from an engineering perspective for us to really know how much they're going to cost. And I think that that is part of the factor in having that diverse tech stack within the verticals. And the rationale from a corporate buyer perspective is we try to do a lot of these in a way that gives us access to future projects so that if it works out, yes, we were a first buyer, first off taker, and we have some risk, because sometimes we'll actually make prepayments as well so that there's non-dilutive capital coming in at an early stage that does a lot of catalytic things from a financing perspective for these startups. And so because we've taken on that risk, we do want to share on the upside.

And the upside for us is access to those hopefully high quality carbon removal credits down the road from future projects that are operating at a better cost per ton. And so that's what we're hoping for, and that's like a 10-year line of sight for us. It's not something that we're looking to cash in on today. And from a buyer perspective, it's important for us to have a variety on that list because there's a lot of unknowns and developments happening in the voluntary carbon market. There's a lot of developments happening in the regulatory landscape. We're a publicly traded company. We're going to be doing climate related disclosures, we're going to have all sorts of things coming at us when we get to 2030, 2035. And so having that diverse approach gives us the flexibility I think we're going to need as a corporate climate aware regulated company likely in the long term.

Shayle Kann: So is the way that you think about portfolio building... Like if you look at your portfolio periodically as I suspect you do, do you look at it and say, "Okay, now we're maybe a little bit overweight on DAC, or we're overweight on biomass burial and so now we're going to try to rebalance." Is it that type of a portfolio balancing thing? Or how do you think about what is the right type of portfolio to construct?

Stacy Kauk: So we look at it from that perspective of tech diversification, but we also try to have a range of maturity of the technology and of the company looking to implement the solution. So we look at two things. We want to be balanced from a tech perspective, but we also want to be balanced in terms of low TRL levels versus some solution that's ready to be fully commercialized, like a Climeworks, for example. And so we need to have some of those safer bets because we do need those credits coming in because we retire them against our footprint so that we can maintain that carbon-neutral commitment. So we turn the dials and how we do that is we monitor our existing portfolio companies very similar to how a VC fund would monitor the performance of their companies. We look at things like runway and cash burn and the financial viability of the companies.

We look at the progress they're making from a technology development standpoint, are other players in the market starting to support them? And so we do a health check and we do that health check every six months. And on an annual basis, we'll identify companies that we have concerns about and then we look at, okay, well, they're in this vertical, they're doing this technology. We probably want to get a deal with a startup who's coming into that space so that we have a backup plan if we have concerns about the performance of our existing companies. That's just starting to happen now because like as you said at the beginning of this, we're three years in, we're just starting to have enough dots on that plot to see if it's going in the right direction or not for these companies. So we're getting to that point where I think you're going to see more portfolio adjustment from us as we go forward, as companies prove and scale or prove that they're not going to scale.

Shayle Kann: What about pricing? Obviously this market is a funny one with regard to pricing. In theory, right? You're buying a commodity, you're buying a dollar of ton removed, and so in theory, you would've commodity pricing, but of course it's not that way. The market is all over the place. I mean, you're just doing durable a hundred-year plus, so you're not probably buying anything that costs $30 a ton, but you could be buying something that costs a hundred bucks or 200 bucks a ton. You could also be buying something that costs thousands of dollars a ton. So one, how do you think about what is your willingness to pay for a given solution? What determines viable pricing to you? And two, in your portfolio construction, is that a factor? Are you saying, "Okay, let's make buckets of credits based on their pricing and make sure that we're exposed to all those different types?"

Stacy Kauk: So there's a lot in there. So the first place to start when it comes to pricing, you're talking about a commodity. That's not how I think about it at all. Because they're not fungible, they're not comparable, they're not the same. Everything is different and-

Shayle Kann: But do you agree that at some point they should be? I get that they're not today, but down the line, 10 years, 20 years from now, there will be differences, and I guess you could pay more for 10,000 years of durability versus a thousand years of durability, but basically, shouldn't this ultimately be a commodity market?

Stacy Kauk: A hundred percent. I totally agree with that. And I think it has to be, in order to function properly, we need to end up in a place where a ton is a ton, is a ton. And there's two reasons for that. One, it provides that level playing field on the side of the suppliers, but it also provides a level requirement across companies or whoever, could be governments at that point, who are retiring these credits. They have to be equivalent, tradable, interchangeable, re-sellable and functioning. Otherwise, we haven't done, our job is going to take 20, 30 years, but if we haven't done our job well today because that's where we need this to be in order for it to work properly. And a lot of folks make choices today to buy credits that, oh, they like the sound of that technology or that project or, oh, that's interesting.

It's based on an agricultural process and my company's in the ag business. That's what I want to buy. It just makes it difficult for cashflow and credit sales and for companies to perform. So it would be very good if we ended up in that space in the long run where it's irrelevant and here's the market price. But to go back to price, I think there's something to be clear on, like what is the cost to actually capture and store that ton? What does it actually cost? Because that's different from price, because what I see as a buyer is we've got two kinds of companies. One, they're going to charge the cost, their price is equal to the cost. And then there are other companies that their price is less than the cost and they're taking a loss because they want to come out and they have a different business strategy where they want to have a lower price than somebody else doing something similar.

Or they want to have a signal that this kind of technology is going to cost less and maybe it will in the long run, but it's not today. But that's what they want to be as their market signal. So I think we're getting a lot of misinformation in terms of pricing that's out based on what you've actually paid. So as a buyer, we look at the cost to do a ton, and then we can talk about price because it's important for us to understand the OpEx and the CapEx that goes into a credit.

Shayle Kann: To make a purchase, do you need to believe that the cost of that pathway or that technology can ultimately be the lowest cost in the market for equivalent tonnage, right? Do you need to be able to believe a certain cost curve or would you say it is still worthwhile to buy something, which is always going to come at a premium to everything else that looks pretty similar?

Stacy Kauk: I mean, the cost curve's critical. We don't want to be buying something that's going to stay flat because that's not pushing innovation then that's not going to be an offering that's viable in the market of the future, right? We have to be seeing that cost curve, and we should see that cost curve. When you're doing something in a lab or a bench scale where you're doing 10 tons a year, the cost to do that in more of a engineered solution is way higher than the cost at scale, because you're running that plant for 30 years, for example. Your amortization brings that cost down, but what's important to see in that cost curve, and this is what we ask to see as a buyer, because we're not buying that commodity because we're placing bets and we're actually spending way more than we need to today because we're hoping we'll have access to great credits in the future.

We're taking that risk and that ROI. And so that's why we want to understand the cost curve, and we actually ask companies to tell us everything that happens to bring them down. It's not just, "Oh, here's our cost curve." It's like, "Okay, what are those step changes and why? And actually what are the likelihood that that's actually going to hold true? What are the risks that are going to make that not true?" And that's where we find a big difference in the companies, because some companies have thought this all through and have answered it and really can be like, "Yeah, we don't know. It's 50/50, if this is going to actually pan out for this price reduction that we expect."

And then others, "Oh, yes, it's fine." And then we know the difference. It's like when you're trying to get to know a founder and a leadership team for a startup, when you're going to do an equity investment, it's very much a similar thing. You have to have that trust and you have to understand that they know their business and they've thought about this because we're not just buying a credit. It's really not buying a credit. That's not the mentality. It's the return on our investment, especially in most of our contracts. Where do prepayment, the ROI is maybe we'll get a credit someday. And so we've got a lot of contracts signed because we don't expect them to deliver credits.

Shayle Kann: The other thing I wonder about, I thought a little bit about this, I think there should be a different incentive from you a buyer versus either a company that could be a supplier or an investor in said company, which has to do with scalability, right? Because if I'm Shopify and I see a solution I could procure credits from, it looks like actually maybe this is going to be... It's going to check all the boxes. It's going to be durable, it's going to be measurable and verifiable, no side effects. And the cost could be lower than everything else in the market, let's say. But it scales up to some ceiling. And that ceiling is... I don't know, let's just call it a hundred megatons and globally.

And then there's another solution cost structure fundamentally higher, or it has some other sort of challenges associated with it, but far more scalable and could do a gigaton of the thing. If I'm Shopify, I think I'm fine procuring from the smaller thing potentially, right? It has to be some minimum scale because you want it to be able to deliver meaningful benefit to you as a buyer and to the industry in general. But I wouldn't think you need to only bet on things that can scale to gigaton, whereas the company and the investors in the company probably want things that have a bigger tam. So I wonder whether you see that divide at all. It's obviously relevant to things that leverage waste biomass, for example.

Stacy Kauk: Yeah, totally. I definitely see the difference there and deciding to go, I don't think it should be an either or. We've got contracts that fit in both of the two buckets that you just described, but the lower scalability, that's the reality. And that's going to be the reality for quite a few carbon removal solutions. And I like to think about it is I want carbon removal everywhere. I want every system and every process and every good that we manufacture to be a negative supply chain, right? And if I want that to be the truth of the future, then we need to support these smaller scalable items because they're actually analogous.

You're going to learn something, you're going to learn a model, you're going to use some infrastructure that exists. You're going to do something that's then transferable to another sector. So I don't think it has to be gigaton scale in and of itself, but contributing to that whole net negative future because it's something that from a systems' perspective, we're going to be able to learn how to apply it elsewhere. So that kind of shift in understanding is important. And some of the things that we thought in 2020 were gigaton scale, for a variety of reasons may not be. And so you have to take that bet. You have to try first to get more information in order to actually determine if that scale up plan is actually feasible. And I think that's true for a lot of these.

Shayle Kann: Yeah, I think that's right. I mean, it's very interesting. I guess the other question that's sort of related to that, presumably most of the companies that you are procuring from today are venture backed. Is that true generally?

Stacy Kauk: Yeah. Yeah, some are venture backed. Yeah.

Shayle Kann: Some but not all? Because I guess the question that I have is there's a bunch of things that I think we should do, carbon removal solutions that we should do as a world, but are not necessarily going to be like venture backable companies, maybe because of scalability. This is smaller stuff even than waste, biomass driven things. And I don't know that there's much of a... I don't know exactly how you build the company otherwise, but there are other pathways to scaling companies in venture capital. And I sort wonder whether we've really shoved carbon removal, this whole market into a pure VC context where not everything is necessarily going to fit that. And I wonder how you think about ecosystem building outside of that world.

Stacy Kauk: Yeah, I think we're in... The reality is that carbon removal's in the VC world right now, because there's no funding from elsewhere. And I don't see this being a long-term financing solution because carbon removal is waste management. It's just cleaning the air. We clean our water, we do garbage removal. These are not things that tend to make money for anybody. So in the longer term, I think this is going to be more of a public requirement than it is going to be something that's got to achieve gigaton scale and make the ROI that the VC funds are looking for. Because without a requirement to buy the carbon removal, which we don't have, it's all voluntary.

It's not a solid structure for a new industry to be built on. And I think because it's being pushed through the voluntary market and through venture funding, I think we're going to get proof of concept with this setup. And then in the long run, my hope is that this becomes more of, yes, the commodities come out, but in order to generate a commodity that you can trade without any friction, and there's no real other definition than it's a ton. It's a ton. In order for that to take place, you have to have regulation, you have to have rules of the game on both sides of the buying and selling equation.

And when you have rules on the supply side, then we're talking about the projects. And then if you put the rules in place, are they going to be making money? Maybe, maybe not. And should it not be something that's publicly funded through governments or not? And I think it's going to be interesting in about 10, 15 years when we have a good shopping list of carbon rules, solutions that have been proven. Well, who should pay because we're going to have to deploy them at a very fast rate compared to what's the projection today?

Shayle Kann: I guess final question for you is on how you think about the evolving world of certification and standards. There are many, many, many different certifications and standards that carbon removal companies can go through to get qualified for whatever. Do you rely upon those? Do you trust those? Do you have your own, just how do you think about that whole universe?

Stacy Kauk: So when we started, we began... We didn't trust a credit that came out against an established protocol on a existing registry. We reviewed everything and went through it and set ourselves a new internal standard for what we would buy. So no, we do that rigorous review ourselves, and we get support from industry experts depending on what kind of technology or solution we're talking about. But when it comes to a lot of the credits that are going to be delivered to us in the next year or so, these are the first credits from the first time something's being done at a meaningful scale to generate a credit, like take ocean alkalinity enhancement or biomass sinking or enhanced rock weathering at scale. These things are all going to be coming through in the next 6, 12, 18 months. And they're also writing the methodology just in advance of doing the deployments.

And so the results of the deployment are going to test those methodologies. And so we're going to see updates happening. And I think this is the biggest holdback, I think, to getting more buyers into the carbon removal market is the infancy of the MRV for these new approaches. There's a lot of credit buyers out there who's sitting on the sidelines waiting for these MRV approaches to get tested, proven, increased data sets so that things are statistically significant. And then they're going to be like, "Okay, well, the risk is gone. I can now buy that." So we're five years out, I think from that happening. And MRV a hundred percent is the key. And so as an early buyer, we take it very seriously to review everything and get input from scientific and industry experts to make sure that the methodologies are robust and that we're setting that precedent by accepting those first credits. Should we be accepting them? Is this the right amount? And we don't want to take a misstep because MRV has to be trusted, and I see it as the critical key to unlocking more buyers joining the carbon removal market.

Shayle Kann:

So before we wrap up, given that you've been in this market as long as anybody and seen how it's progressed so far, what are your key takeaways? What's your overall view of the carbon removal space as it exists today and what you expect to see over the next year?

Stacy Kauk: One of the things that I kind of expected would bubble up that we never really got to. And you kind of touched on it when it was... Buyers are picking different projects based on different attributes that it resonates with them. And I think one of the things that's popping out quite a bit right now, it's like we will say, "Oh, we got our first credits delivered from Running Tide," that happened back in August, September. And people will be like, "Oh, that's not a good carbon removal solution. You should have done X or you should have done Y." And there's a lot of... Everyone's picking their favorite solutions, and I would argue it's really important to pick ones that are not your favorite, to learn about those too and to push the field forward by having that all of the things' portfolio approach.

And I think any step towards pushing a technology through the development process is an important step to take. And we're going to see things that don't work out in the next little while, and there's going to be stories about carbon removal projects that failed. And I don't think that these should be held up as a reason not to do carbon removal. They should be held up as progress and viewed as a successful discovery of something that did not work and put us back on a better path to build the carbon removal ecosystem at large. And I think it's going to be an interesting time coming up, so it's going to be fun to watch.

Shayle Kann: All right, Stacy, thank you so much for doing this. Really appreciate you taking the time.

Stacy Kauk: No problem. Thanks for having me.

Shayle Kann: Stacy Kauk is the head of sustainability at Shopify. 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 was produced by Daniel Woldorff, mixing by Roy Campanella and Sean Marquand, theme song by Sean Marquand. I'm Shayle Kann, and this is Catalyst.