Cognitive Dissonance Must not Derail Good Investment Strategies

Adoption of the Paris Climate Agreement in December 2015 brought a wave of euphoria, a sense that we’d beaten the bureaucratic odds and actually gotten something done.

Then came some sobering math. The stark realization of what needs to be done has been a galvanizing force that’s returned investment to new technologies focused on re-balancing our carbon budget. In 2017, we acknowledged the increased focus specifically in carbon-to-value technologies that put captured carbon to work as a feedstock rather than piping it underground.

So far in 2018 more of what we’re hearing from the market is dissonance around so called “negative emissions” strategies. Such techniques target the carbon we’ve already emitted rather than future emissions.

Indeed, the IPCC’s 2014 and 2015 consensus acknowledged a need for both. Its own models generally incorporated bioenergy with carbon capture and storage (BECCs) as the primary strategy for achieving negative emissions, leading the internet to explode with reasons BECCs must be a red herring.

October 2017 saw Climeworks‘ partnership with an Icelandic energy company for the first ever negative emissions power plant using direct-air-capture. Then came Bill Gates and his investee company, Carbon Engineering, with its bizarre looking array of fans and its aim, along with partner Greyrock Energy, to leverage direct-air-capture to produce synthetic fuels from carbon. They call the process air-to-fuels (A2F). Global Thermostat is another venture backed company pursuing direct-air-capture for carbon-based products.

Add the Trump administration’s political bone throwing to coal constituents with its planned tax credit for carbon capture and the dissonance only increased. But good technologies from companies like NET Power and LP Amina could actually benefit and move the needle as a result. And movement on America’s right can only be a good thing.

One thing that most seem to agree on is that an “all of the above” approach is our best bet, which either betrays uncertainty or a bunch of individuals with their heads down, working away at one or the other promising approach, too busy to pay much mind to the noise.

To our minds, the portfolio of negative emissions technologies are more likely to fall into a category along with geoengineering and aforestation (the mass planting of trees where there previously were none), requiring massive public sector investments.

Meanwhile, as many plans still seem to hinge on enhanced oil recovery (EOR) for “where to put the carbon,” I can’t get the words of NRG spokesperson David Knox out of my head.

When I asked in 2017 whether his company would consider another project like its Petra Nova power plant with carbon capture for EOR in Texas, he told me, “Even with assumed cost efficiencies of 20-30% [compared with Petra Nova’s construction], a lot would need to change before we’d would consider another Petra Nova among any of the rest of our fleet… The key now is to decouple cost recovery [for carbon capture] from the oil price.”

Carbon-based products like plastics and chemicals are thought to be the best way to achieve that decoupling, as oil companies’ own increasing forecasts of EV adoption suggest we have a real shot at driving a wedge into oil demand in an already volatile oil price environment.

Our bet for where corporate and institutional venture capital should focus therefore remains with carbon-to-value technologies that are changing the economics of point-of-emission carbon capture. The incumbents who operate the steel mills and concrete manufacturing facilities that emit carbon were already important stakeholders. They also happen to be best situated to capture the value of carbon as a feedstock into their or others’ industrial processes. That means they’re market makers for niche applications to which startups and venture capital are best suited.

Let’s not lose sight of the goal and start pulling out our hair as new solutions are proposed. Let’s dig in, and specialize according to our risk-return profiles so that we can all do well while doing good.