Planetary Health

Cracking the Carbon Conundrum

The Four R’s of Carbon, for our collective consideration

Andrew Beebe | 09/21/2021

Earlier in the year, I spelled out a broad view of the Climate Decade ahead. In this ten year period, businesses, governments, and citizens the world over will come together to bring us back from the brink. We’ll leave it with a cleaner, safer, more stable planet and society.

Central to these impending improvements is the CO2 molecule. Ubiquitous (and often helpful), we’ve got a little too much of it in the atmosphere today, and we’re continuing to spew way too much on a daily basis. Many of the startups and innovative tech tackling climate change will need to focus on CO2 or CO2 equivalents (for short: carbon) in some form or another.

At Obvious, we’ve been working with climate tech entrepreneurs since before our inception. Today, we’re digging deep more specifically on those offering transformative products or services in three carbon categories: recording, reducing, and removing. In each of these parts of the carbon stack, we believe we’ll see massive companies built in the next decade.

Recording Carbon

First things first. Collectively, as a planet, we need to more accurately measure our carbon impact if we’re going to bring things back in balance. For individuals, this may seem an insurmountable challenge (what’s the CO2 emission of my BBQ?). Luckily, most emissions start with companies and organizations.

The recording of, and accounting for, carbon emissions is effectively an enterprise problem. It’s also increasingly clear that the solution lies in software. As with financial accounting before it, carbon accounting is highly measurable once the right principles are applied. By analyzing SAP or other core enterprise data sets, companies like SINAI Technologies can help companies map out the sources of their carbon emissions, both in-house, and in their supply chain.

But consistent and standardized accounting is only one piece of the carbon recording effort. Once an enterprise knows where the carbon impacts are starting, it then needs to better quantify potential mitigation actions. Once those mitigations are clear, they need to be prioritized.

Practically speaking, much of that prioritization is being driven from a top down edict, most often in the form of a carbon neutrality goal. Once set, and once the accounting is complete, companies are able to internally price their carbon emissions. With this, they can more clearly put a value on various reduction and removal efforts.

It’s worth noting that the carbon recording industry today feels much like cybersecurity did a decade ago. Enterprise managers were just waking up to the unquantified risks of cyber and slowly putting resources against it. Now that cyberattack threats are clear and present, cybersecurity is nearly ubiquitous. Carbon recording software will follow a similar path for any public company, and likely for any large company, due to demands of regulators, shareholders, and customers.

The carbon recording industry today feels a lot like cybersecurity did a decade ago.

This belief that carbon recording tools will be a part of the enterprise SaaS fabric is what led us to our investment in SINAI Technologies, mentioned above. Led by force-of-nature Maria Carolina Fujihara, SINAI is leading the way in taking the complex internal forensics of carbon footprint quantification and making it as simple as plugging into your SAP data streams and managing it against your neutrality goals. (If you want to learn more about Maria and her mission, check out this profile.)

Reducing Carbon

Once carbon footprints at the enterprise level are accurately recorded and quantified in terms of costs and opportunities, large corporations around the world can, in earnest, set about reducing their carbon impact. Most of the Fortune 500 have made specific, time-bound commitments to achieving carbon neutrality. While no two pledges look alike, they generally involve a timeframe by which it will reduce their actual carbon output, and additionally offset their harder-to-reduce outputs.

Reducing carbon has been one of the more popular investment categories over the last decade. The “decarbonization” efforts across industries is an easy target for improvement, since these solutions are almost always improving the underlying offering while they decarbonize a given industry.

Solar and wind power, for example, are much less polluting than coal and natural gas. They also happen to be much less carbon intensive. Because of the scale-up of these industries over the last two decades, they are also now often the cheaper solution. These win-win solutions mitigate planetary warming while offering a better product.

These solutions are almost always improving the underlying offering while they decarbonize a given industry.

The decarbonization of the mobility space is another incredible transformation in the reducing category. Every form of mobility, from cool cars to cargo ships, is being decarbonized. While this has demonstrable reduction potential on CO2, it’s also creating better products across the board (just ask MotorTrend). Because we’re in early innings in the mobility space, we believe there are myriad opportunities for venture scale innovations here. We’ve invested in Proterra, Lilium, Amply, and Lightship in this space, and are eager for more.

Beyond these largely terrestrial modes of transportation, we see big opportunities elsewhere (e.g., electrified marine mobility of all kinds) and pretty much anything burning fuel, from construction to home heating.

Beyond energy generation and electrification of anything with a combustion engine, all of our industrial processes will need to decarbonize as much as possible as well. Great work is being done around carbon offenders such as fertilizer, cement, and steel production. Once again, we believe the near-term winners here will be those creating superior product while also radically decarbonizing.

Removing Carbon

Despite its threats to the climate, CO2 does a great job spreading itself out in our atmosphere. Artificially capturing it and sequestering it, once it’s in the air, is exceptionally challenging at scale. However, given the damage we’ve done to date, as well as the damage still scheduled in the near-term, we have no choice but to find methods that will work. Luckily, nature has been capturing CO2 at scale for some time (i.e. forever), giving entrepreneurs some pointers.

Today, we break the start-up landscape of carbon removal broadly into two categories: natural and artificial. The natural approach is appealing because we know it works and we can mimic or leverage natural tools at scale. Artificial capture has the potential advantage of being able to scale on our timeframe, but it is challenged by exceptionally high costs.

Startups who can help make natural solutions scale with certainty appear to have the most near-term potential for meaningful value creation. This includes companies building carbon markets, natural carbon solutions, and consumer engagement platforms. Those that are carbon removal solutions that also create primary value in another category hold even more promise, as they offer dual revenue streams. Companies such as Blue Ocean Barns, Symbrosia and Volta are examples of value creation (healthier, more climate friendly cows) while also reducing carbon (by growing CO2-sucking seaweed as their input).

Direct air capture and other artificial carbon removal solutions appear more challenging in the short term. While this opinion is decreasingly popular of late, it seems that man-made solutions will struggle to get below $100/ton—a level below which some experts believe the solution will find many more buyers than today.

Meanwhile, solutions such as Kula Bio, Nitricity, and other enhancements in fertilizer and soil health may again display both industrial benefit (more fertile soil with less runoff and pollution) while also creating more regenerative and thus carbon sinking soil.

The Fourth R—Regulating Carbon

I would be remiss without discussing the final R in the Four Rs of Carbon—and for most, this is a dirty word: Regulation.

There, I said it.

All major industries—health care, agriculture, commercial aviation, shipping, and more—are heavily regulated. Industry-wide action for carbon removal can help prevent the tragedy of the commons we now face. From shipping to flight, industry groups are attempting to self-regulate before governments inevitably step in.

As we see industry after industry (even some of the worst resistors) lining up to get ahead of regulators, the message is clear to the enterprise: get on board as a team—or you will be onboarded by your government.

There’s lots to be done across all of these carbon categories. But what’s most clear is that innovation and technology have an outsized role to play, and if done correctly, that innovation can help to create massive businesses.

For us, “correctly” is likely to mean companies and solutions which are helping to serve a dual purpose. These are “carbon and ­___” companies. They record carbon and give companies a clear roadmap to a future-proof product line. They reduce carbon and create cleaner air. They remove carbon improve soil health and food quality.

If you’re building these “carbon and ____” companies, drop us a line.