For Heirloom, DOE’s procurement pilot isn’t about the cash

The Department of Energy is doling out cash for carbon dioxide removal, and this week 24 companies were named semifinalists in its first ever procurement of removal credits. 

Among them is the direct air capture startup Heirloom, which was also selected for $600 million in DOE funding for a Louisiana DAC hub.

• The top line: The government’s $35 million procurement pilot is dwarfed by the scale of many private sector deals — at this early stage, each winner has received $50,000 apiece. But for companies like Heirloom that are looking to increase removal capacity and bring down costs, more important than the dollar amount is the potential to use DOE-driven commercial terms as leverage with private investors and financiers.
• The nuts and bolts: Dubbed the Carbon Dioxide Removal Purchase Pilot Prize, the program marks the federal government’s first purchase of removal services, funded by the 2021 infrastructure law. Semifinalists, announced this week, span removal pathways including direct air capture, biomass, and enhanced geological weathering. Those companies will now progress to phase 2 — where $3.7 million is up for grabs — in which they will submit a binding purchase offer to DOE.
• The current take: The purchase amount itself may be small, but DOE’s move serves to “expand the total addressable market for carbon removal,” Heirloom’s head of public policy Vikrum Aiyer told Latitude Media. Adding that new customer category, he said, is a boon as Heirloom looks to get funding from project financiers and venture investors, in part because it can provide more structure to those deals. “It’s going to create general guardrails and a convergence on the commercial standards of improving bankability,” Aiyer added.

Many in the CDR industry have been calling for government procurement as a means to boost the demand side of the nascent market, which to date has been propped up by major purchases from Big Tech. Heirloom, for instance, signed a $200 million deal with Microsoft late in 2023 to remove more than 300,000 tons of carbon dioxide.

And indeed, one of the touted benefits of government procurement is a boost to private sector purchases.

As Carbon Direct director Julio Friedmann said at a San Francisco Climate Week event last month, government procurement can help to create a “buyer’s floor.” He pointed to Google’s pledge, made earlier this spring, to match the $35 million federal procurement pool with its own purchases.

“They said ‘Hey, the government of the United States is putting in $35 million, we’ve got that in the couch at Google,’” Friedmann said. “As more companies are coming forward it’s crowding in private capital, which is a good outcome.”

DOE’s delta

Giana Amador, who leads the Carbon Removal Alliance, said its members are “super excited” about the potential of the program to boost other types of funding; a number of those members were among those selected as semifinalists for the DOE’s prize.

Of course, Amador added, they hope the program will grow over time. 

“If the government can become a primary purchaser of carbon removal — lowering costs, driving out risk, raising the bar for quality — then private sector buyers become a bonafide revenue source for carbon removal companies,” she said. “Combined, the market becomes large enough to sustain a gigaton scale.” 

But the program has an immediate impact nonetheless, despite its relatively small scale, Amador added: the mere existence of the prize “helps companies not only get that direct revenue, but also supports things like raising private sector R&D funding or getting a loan to build a project,” she told Latitude Media. “Even the potential of revenue is really impactful.”

That potential for increasing access to capital is a takeaway that Aiyer echoed.

There’s definitely a “delta between the cost of money with DOE procurement and private sector purchasing,” he said. But Heirloom is focused less on the dollar amount DOE is handing out — Heirloom’s proposal would remove around 3,000 credits worth of carbon, a tiny fraction of its agreements with tech offtakers — and more on the opportunity for the government to outline standards for “bankable commercial contracts.”

The market can’t rely on “the do-goodery of a couple of Fortune 100 companies,” he said. 

So access to other types of capital will be crucial. Standards that DOE forms through the purchase program — which Heirloom hopes will include principles for flexibility, risk-sharing, transparency, and objectivity — will ultimately help removal companies to unlock more capital with investors and project financiers, he added.