In this episode, Nan Ransohoff, head of carbon at Stripe, discusses the company's new spinoff, Frontier, which will pool money from partners and make it available to early contenders in the carbon dioxide removal (CDR) market. We chat about that market, the technologies that show promise in it, in the role of private industry in accelerating it.
Full transcript of Volts podcast featuring Nan Ransohoff, April 29, 2022
David Roberts:
In 2019, the payments company Stripe announced that it would spend at least $1 million a year on verified, permanent carbon dioxide removal (CDR). The response was intense, not only from those working on CDR, but from customers, organizations, and companies that wanted to follow suit.
There’s a lot of money and good will floating around these days that isn’t quite sure how to have the biggest climate impact. Stripe had assembled a group of experts to scrutinize CDR technologies and companies. Why not just let Stripe invest the money?
Fast-forward a few years: Stripe has now unveiled a nearly billion-dollar pot of CDR money ($925 million, to be exact). A new Stripe-owned company called Frontier will pool money from Stripe, partners like Alphabet, Meta, and Shopify, and thousands of Stripe customers who donate a small portion of their transaction costs and make it available to CDR contenders.
Frontier is offering what’s called an “advance market commitment,” a guarantee that if companies can figure out ways to verifiably and permanently draw down carbon, no matter the initial price, there will be buyers. This enables companies to get financing and start deploying projects.
Stripe’s head of carbon, Nan Ransohoff, told The Atlantic’s Rob Meyer that a billion is “roughly 30 times the carbon-removal market that existed in 2021. But it’s still 1,000 times short of the market we need by 2050.”
I thought I would get in touch with Ransohoff to ask her how far she thinks private companies can push CDR in the absence of policy, which technologies are showing promise, and whether Stripe is pushing governments to get involved.
With no further ado, Nan Ransohoff of Stripe, welcome to Volts. Thank you so much for coming.
Nan Ransohoff:
Thanks so much for having me.
David Roberts:
Tell us a little bit about your history with Stripe and Stripe’s history with the area of carbon dioxide removal. Why is Stripe so into it?
Nan Ransohoff:
For context, at Stripe we build economic infrastructure for the internet. It's everything from payments to invoicing to banking as a service. There are lots of different tools that we build for now more than 2 million businesses all over the world.
Our foray into carbon removal started as an experiment back in 2019, when we made a $1 million pledge to buy permanent carbon removal. This was grounded in climate science, but essentially, it started as a small corporate commitment. After we made our purchases, we heard from a lot of Stripe users basically saying, “Hey, we’ve wanted to do something for a while on climate but we haven't because it's hard to figure out what to do. If we send you some money, could you go figure out what to do with it?”
It was that piece – in conjunction with the fact that the carbon removal community had a weirdly positive reaction to $1 million, because it's not that much money – that said to us that this field has been really starved for capital and for customers. What if we, instead of just putting our own money to this, could pull money from the many businesses using Stripe through something like Stripe Climate?
When we started, we didn't think this is exactly where we would be, but new doors opened as we continued to build stuff.
David Roberts:
To be clear, your interest in it, and these other companies’ interest in it, is like an ESG thing. Your investors and shareholders want to know that you're taking some action on climate, and this is a way to do that.
Nan Ransohoff:
Stripe doesn't make any money from this. We would view this in the really long run as in line with our macro goal of economic enablement. Climate is perhaps the biggest inhibitor or threat to economic enablement, so if you take the long view – and we are an infrastructure company, we do take the long view – we think that it is in line with that.
In the short term, we're not making any money off of this, and you're right to say that this is a little bit more philanthropic in nature.
David Roberts:
So you offered this $1 million to purchase buried carbon; not an investment in a company, but you pay for carbon dioxide removal.
Nan Ransohoff:
Yes, that is a very important distinction.
To level set from a climate perspective, the world emits about 50 gigatons of emissions every year. We're going to have to get that down to net zero emissions as fast as possible, ideally at or before 2050. To do that, there are two main things we can do: we can stop emitting, or we can pull out carbon dioxide already in the atmosphere and ocean and store it permanently. The world has to do a lot of both, but we are newly realizing that we are going to have to do a huge amount of carbon removal, in part because we've done such a bad job with emissions reduction.
When it comes to carbon removal, there have not been customers to date. With energy, there's the intrinsic value of the thing – humans use energy and get value out of it. If you're pulling carbon dioxide out of the sky and storing it somewhere, in most cases, that is not useful, so there haven't been customers.
The other problem is that of the very few companies that have gotten started, they're really early, and they're really expensive. Tesla was expensive at the beginning with the Roadster; solar panels, phones, hard drives, TVs are expensive at the beginning. Over time, as they scale, costs come down and they get cheaper. But because prices are expensive right now, companies don't want to buy them; they would rather go after low-cost alternatives. As a result, this field has had no customers, which is, to go back to our initial $1 million, why this raised a lot of eyebrows.
So we're not making an equity investment in these companies. We are literally buying the tons of carbon that they are removing.
David Roberts:
The IPCC says we need to stop emitting, which is a huge thing that we're not on track to do, and then even after we’ve stopped emitting, we have to pull down a bunch of atmospheric carbon because there's already too much up there right now.
If you're Stripe, and you're concerned about climate, and you want to do something in line with your values, why focus on the latter side rather than the former? The latter is, in some sense, futile if we don't do the former. No model shows us being able to remove enough to cover continued emissions. It seems, intuitively, that the stop-emitting part is a more urgent priority. So why go with the latter?
Nan Ransohoff:
I’ll underscore what you said: there's no world in which we mitigate climate change without radical emissions reduction. That should remain the top priority.
The reason that we started going after carbon removal was not because we don't think that that's critically important, but because we were hunting for high-leverage areas where there was a big gap between the need and the focus on it to date. And for better or for worse, the focus on carbon removal until very recently was closer to zero than any other number.
We’re hopefully moving beyond the either-or to the yes-and; in the portfolio of climate solutions that we're going to need, carbon removal is one of them, but it is by no stretch of the imagination a silver bullet.
David Roberts:
If you’re trying to stand up, say, a solar market – solar is offering electricity, electricity is valuable, you're basically trying to get the companies to scale and then the market will take over because the demand is there.
But when you're talking about carbon removal, insofar as there's ever going to be demand, it'll be a compliance thing. Companies will do it to comply with their ESG or government requirements. Even if you stand it up, there's no market to hand it off to; governments have to take it from there, because they are ultimately going to be paying for this stuff.
Nan Ransohoff:
That's right. Think about the scale that this market is going to need to be. Zoom out to 2050, call it 10 gigatons a year at $100, or even best case scenario we get it down to $10 a ton – that's a $100 billion to $1 trillion per year market for buying carbon removal. Global GDP is around $100 trillion. It's very difficult to imagine the voluntary market, like what we're doing today with Frontier, getting us there. Policy has to take over.
We generally think about the voluntary market as a great way to help these solutions get to first base and to help the market get to first base. We want to make sure that there are enough solutions ready for purchase when policy catches up, but policy does have to catch up. Without that, you're exactly right, the market is very likely to be capped at a pretty low number.
David Roberts:
It's not quite a market. Julio Friedmann, who’s big into CDR, compares it to sanitation, cities dealing with sewage. In theory, the government could have an auction and have companies compete to have the lowest cost sewage removal, but we don't really think of it that way. What do we get out of thinking of this in the context of a market?
Nan Ransohoff:
The sanitation model is an interesting one, but it’s one of a few futures that we could end up in. One is the future where the government is doing federal procurement, where the government is essentially the buyer of all of the CDR using tax dollars etc. – which is the sanitation model that you outlined.
The other world that we could land in is one that looks a little bit more like parts of Europe, where the role that the government is playing is essentially pricing the negative externality of a ton of emissions and pushing that onto different entities – in this case, corporate players. I'm not a policy expert so will not pretend to design a policy in this conversation, but basically, it’s fixing the market inefficiency by putting a price on a ton of emissions, but that market then does manifest as companies buying the carbon removal rather than just the government.
David Roberts:
So you toss out this $1 million, you find a pathetically eager set of market participants, and you think, well, we could do a lot more of this. Other companies jump in, soon you're juggling a bunch of money, and out of this comes Frontier. What is the transition from Stripe’s initial foray into the more structured Frontier?
Nan Ransohoff:
Last summer, about a year and a half into Stripe Climate, we had tens of thousands of users contributing a fraction of their revenue. Our team got in a room and said okay, on the one hand, this field has made a ton of progress, and over the past couple of years we have more buyers purchasing carbon removal and the general awareness of carbon removal has gone up. At the same time, we are still nowhere near on track to actually get carbon removal to gigaton scale in the timeframe that we need.
So we went through this exercise: if we just wanted to get carbon removal on its best possible trajectory, what would we do? We came up with a bunch of ideas, we killed a bunch of ideas, and one of the ideas that we couldn't kill was this idea of an advanced market commitment.
The idea of an advanced market commitment is borrowed from vaccine development. If you want, say, a malaria vaccine, Big Pharma, like Glaxo and Pfizer, are like, “Why would I spend the resources creating this and deploying this? These are poor countries that aren't actually going to be able to pay for these doses.” So back in the mid-2000s, governments and philanthropists would pull money together into a pot and basically say “if somebody can build this vaccine to spec, we will buy X doses at Y price.” That was what they called an advanced market commitment. They used this on the pneumococcal vaccine and it worked, estimating to save nearly a million lives.
We're essentially taking the same concept and applying it to carbon removal.
David Roberts:
The pharmaceutical companies make a calculation about how much they want to invest in R&D, and the idea is to put a pot of gold at the end of that rainbow so that there’s certain money if they succeed.
Nan Ransohoff:
Exactly. It's basically saying that we are going to guarantee that there will be a certain number of customers or a certain amount of revenue for you if you can build something that looks like whatever the specs are. It's essentially a way to guarantee that there will be a market, to compel suppliers to start building now.
David Roberts:
I read a Harvard economist’s roundup of advanced market commitments and how they work, and there's a distinction between how you structure one for products that are close to development vs. a distant technology target where you don't even know what the genres of solutions are going to be. How do you apply that distinction to the carbon removal space?
Nan Ransohoff:
There are a couple of differences between the PVC AMC and Frontier. At a very high level, I would generally categorize carbon removal as more technologically distant than vaccines. We've made vaccines before; we know generally how to do it. That doesn't guarantee of course that it will happen, but it's a more known process. Whereas carbon removal, we're not totally sure what technologies will even be in the portfolio, let alone which are the ones that are going to scale.
David Roberts:
There are still brand new ones popping up here and there, so we don't even know if we've covered the waterfront of possibilities yet.
Nan Ransohoff:
Exactly. There are a lot that we haven't even seen get to the starting line yet. So that's one big difference between the two.
Another big difference is, in the case of the PVC vaccine, $1.5 billion was enough to be the market. That by itself was enough to make this an attractive business endeavor for the pharma companies. In the case of carbon removal, $1 billion is not the whole market. It is a tiny step – it is a big and tiny step, depending on how you look at it – in the right direction.
The third difference, and this is a really important one, is that in the case of pharma companies, the suppliers are large incumbents that have big balance sheets and access to financing because they've already successfully built other products. They’re big businesses. In the case of carbon removal today, most companies are just getting started. They don't have access to capital.
As a result, the way that we ended up structuring this is a bit different than the vaccine AMC. One important distinction is that Frontier is going to be entering into offtake agreements with carbon removal suppliers. This is a concept that we borrowed from energy development – alternatively known as PPAs, power purchase agreements. These are essentially a way for suppliers to go and get financing.
Let's take Charm as an example of a company in our portfolio that is pyrolyzing waste biomass and injecting it underground as bio-oil. Let's say Peter, the CEO, wants to go get financing for his next batch of pyrolyzers. He goes to the bank, the bank says, “Why would I give you money for this? Nobody's going to pay for this.” With an offtake agreement, which is basically a promise that Frontier will purchase the tons that Peter delivers, he can go back to the bank and get financing because he can say, “I have a customer for this. They've promised to buy this.” This is not necessary in the case of vaccines, but it is necessary in the case of carbon removal, because he doesn't have an alternately large business that he can use to finance it.
That gives you a little bit of a taste of the kinds of differences. One other that I'll highlight is, we are trying to define the target criteria for Frontier in a way to be technology neutral. We want to make sure that we are inviting a lot of different kinds of companies to try and build at scale here, because we are basically at the starting line. We don't know what's going to win.
David Roberts:
Is it just one pool and all companies have equal access? Or is there a difference in the way companies are treated if they are, say, already semi-commercial, like some of the concrete sequestration companies are, vs. mucking around in a lab? Is there any difference in how you treat those?
Nan Ransohoff:
We have two tracks. The first track is pre-purchase agreements, and this is for really early stage companies that are just producing their first tons. Essentially, we will give them, say, $500,000 to buy a certain number of tons at a certain price, but we give it to them now before they've actually given us the tons back. It’s like a grant where we get something if they can produce it, but if they go out of business, or it doesn't work, we have no recourse. We don't get the money back.
For larger companies, where we're writing a much larger check, the second track is structured like an offtake agreement, where we only pay when the tons get delivered. This is a way to de-risk that for the buyer, because we don't have $50 million going out the door but getting nothing in return.
David Roberts:
One billion dollars is, as you say, not like the pharma case where it's the whole market – it's a drop in the bucket. I wonder, if/when these companies go to get financing, if there's eventually going to be a limit to the financing they can get because the pool of capital is limited and the lenders have no real way of knowing if, once that pool dries up, government is going to step forward. There's a finitude to the current market that could limit funding.
Nan Ransohoff:
You're absolutely right. And this initial $1 billion, our hope is that it's the initial $1 billion. How can we add a zero to this? How can we then add another zero? This is $1 billion over nine years, whereas we're going to need at least $100 billion per year by 2050. There's a very large gap between those two.
I'm very hopeful that there are some interesting public-private partnership models here of how we can use public capital to pull in more private capital to make this market. But you're right that $1 billion does not a market make. It is the beginning of a market, and we have a lot of work to do to give the rest of the ecosystem increased confidence that that pool of money isn't going to dry up.
David Roberts:
Based on the reaction you've seen from partners and customers, what's your sense of how big the purely private pool could get? Obviously, it could get bigger than a billion; equally obviously, it's probably going to fall short of the katrillions we need by 2050. Do you have any sense of what its ultimate potential is?
Nan Ransohoff:
That's a really good question. The short answer is, I don't have a specific number for you. But the reason that I think that it is meaningfully larger than where we are now is that very few companies have actually started putting money toward early-stage carbon removal. More and more companies are aligning around net zero, and the fundamental principles around net zero are one, measure your emissions; two, do as much as you can to reduce them; and three, deal with the rest. The how-you-deal-with-the-rest piece is pretty squishy right now for everybody, and my hope is that some of those funds, instead of going to traditional offsets that have questionable value, can come to help early-stage carbon removal develop more quickly. I have to believe that there's at least an order of magnitude, if not two orders of magnitude, more.
David Roberts:
I guess you’re going to pay more for this – more than those traditional offsets, some of which are cheap because they're worthless – but in exchange, you get a reputation. You're bulletproof. This is definitely removal, there's no fuzzy math. That's your promise, right? These are guaranteed, long-term removals.
Nan Ransohoff:
They’re guaranteed permanent removal. That is the crux, yep.
David Roberts:
Can you say a quick word about the criteria? Stripe says it has a panel of experts evaluating these companies and assessing them based on certain metrics. What boxes do people have to check to qualify to get in here?
Nan Ransohoff:
The spirit of the criteria is essentially to try and characterize the gap that we see in carbon removal solutions today. We're not looking for mature solutions that already exist, which is largely tree planting and soil carbon sequestration. We're instead looking to fill that gap.
We have a bunch of criteria, but I'll call out some of the pieces that make this a little bit different from other folks’ buying criteria. One, we're looking for more than 1,000 years of permanence. When you emit a ton, it is permanently emitted, so we want to take it out permanently as well.
Two, we're looking for solutions that don't compete for other sources of arable land. We are going to run out of acres to plant trees far before we hit that 6 gigaton a year number, so we want to find other ways to store it that won't compete for that land.
Three, we're looking for solutions that have the potential to be under $100 a ton. Four, we’re looking for solutions that have the potential to be more than half a gigaton a year. The spirit of those is, we’re okay if they're expensive and tiny today, so long as we can see a path to them being a relatively inexpensive and meaningfully large part of the carbon removal portfolio.
David Roberts:
To be clear, none of these solutions are attached to power plants pulling carbon out of waste streams.
Nan Ransohoff:
Exactly. The language in this field is so messy and we haven't figured out great things to call everything. But I would typically refer to that as carbon capture, where you're sticking a module on top of a steel plant and trying to capture the emissions coming out of that. This is not tied to steel or cement production. This is pulling it out of ambient air or oceans.
David Roberts:
Once your expert panel went out and started looking, what did you find? What types of removal are you funding so far?
Nan Ransohoff:
We are seeing solutions that run the gamut, and we want to see an even more diverse set of solutions, but I'll give you a couple of examples.
Direct air capture is like these giant fans that pull in air, find the 412 particles of carbon dioxide, separate them from the other million air particles, condense those, mix them with water (so essentially you have fizzy water), then inject that underground into basalt rock in Iceland, where it mineralizes.
There's another company called Charm Industrial that is taking waste biomass, so corn stover that gets grown in middle America, and they turn it into bio oil through a process called pyrolysis, which just heats it up to really high temperatures, then injects that underground.
There's another company called Running Tide that is seeding rope with kelp spores. Imagine a 100-foot rope that you seed with kelp spores; you drop it in the ocean, and over 6 to 9 months, it floats out into the middle and grows. You can imagine this like a column of biomass. When it gets to maturity, it sinks to the bottom of the ocean, because kelp is negatively buoyant, so it will sink and stay there forever once it gets below the thermocline.
That is one interesting solution that takes advantage of what nature does really well. Nature does photosynthesis for free and it self-replicates for free. The problem with nature is that it's usually not permanent and it takes up a lot of arable land that we might want to use for growing food, etc. Companies like Running Tide are trying to mash together the best of what nature does and mitigate its downsides by using storage on the floor of the ocean to store carbon dioxide. I think we're going to start to see some promising new solutions at the intersection of technology and nature.
David Roberts:
So the nature-based solutions are still in the game. They've gotten kind of a bad reputation lately.
Nan Ransohoff:
We're so bad at naming in this field because there's been this false bifurcation between nature and tech. Take enhanced weathering – rocks actually will capture carbon proportional to their surface area, and they've been doing this for hundreds of millions of years, they just do it really slowly. There are a bunch of “technologies” that are trying to make that process go faster. That is taking something that nature does and trying to speed it up.
There are a lot of promising ideas at the intersection of these two. The thing that we care about is the criteria that we laid out: Are they permanent? Do they take advantage of other carbon sinks that are not competing with arable land? But we are open to anything that could possibly meet those. We don't care what it's called.
David Roberts:
I confess to some skepticism about whether governments are going to take over and spend billions of dollars on this in the end, so I wonder if you've ever seen carbon removal that is a side effect or coexists with something that is of immediate market value? Like a solution that, in addition to getting paid for carbon dioxide removal, also produces something else for which there is a current market? So you might actually grow without relying on the philanthropic CDR?
Nan Ransohoff:
There's an industry term called CCU, carbon capture and utilization, and CCS, carbon capture and storage. There are interesting end uses of carbon removal. Cement is potentially a big carbon sink. We don't focus on those because there is a market for those, and we are doubtful that those solutions are going to be big enough to get to that 6+ gigaton a year number. Let's try those, but that's not the place where we can have the most leverage, because there already is a market for those solutions. So we don't need to double up there.
David Roberts:
I thought I saw a concrete company among your recipients. Is that not in your portfolio?
Nan Ransohoff:
Yes, that was part of our first round. We've since revised some of our thinking around how we can increase the leverage that we have. That's one of the edits that we've made.
David Roberts:
Now, at least, these companies have the promise of a $1 billion dollar pool that will theoretically grow over time that they're chasing, and after that, they are going basically on faith that at some point, the government will take over and they will be able to get to scale-scale. What is the path to that $10 a ton? Is anyone under $100 a ton yet? What's the price range we're looking at?
Nan Ransohoff:
We've purchased carbon removal at up to $2,000 a ton. I would say the general average is in the $200-$700 a ton range. We have a long way to go.
A fundamental truth about this field is that we are building this plane as we're flying it. We are sort of making this up as we go. But I don't really see what the alternative is. We know that carbon removal is an important climate tool to make the net zero math work, and there's a huge potential for more private companies to step up here. There's a huge potential for governments to play a critical role in building this new market and helping give all these different ecosystem players the confidence to double down and spend their time and resources on this.
But you're right – up until very recently, the total amount of money that had been actually spent on permanent carbon removal was $30 million cumulative, which is a joke. And $1 billion is huge in comparison to that. What gives me hope is that there's a lot of creative thinking that we can harness to figure out what the rest of the glide path looks like, but it will inevitably involve both the public sector and the private sector.
David Roberts:
I was more thinking about the expert panel and their attempt to judge whether companies have a pathway to $10 a ton. Obviously a lot of these companies and technologies are so early that you can't really model it out. So what does it mean for them to have a path to $10? I guess a lot of that is a judgment call.
Nan Ransohoff:
You can model the underlying unit economics for each company and say, here's what you have to believe for it to get to $100 or $50 or $10, then make a judgment call on whether you believe those things are possible. Those are assumptions, though, to your point. These are assumptions that we have to go out into the real world and validate, and some of them will turn out to be true, and some of them won't.
The way that we've tried to structure with Stripe Climate so far are purchases. We've done three rounds of purchases and have 14 companies; we're the first customer for 11 of them, so we're going super early, and we have 30+ experts that we work with to help us evaluate these companies. When we give them a purchase agreement, we give them the $500,000 upfront, then $1 million of a repurchase. But in order to get that $1 million, they have to meet a set of renewal criteria. The spirit of those criteria is to focus on de-risking the most risky parts of their business, so it will be different depending on the company and depending on what their underlying unit economics or risks actually are.
But you're right, this is largely theoretical at this point. Some of these companies are going to succeed, and some of them aren't. And that's okay; let's learn that now so that we know which solutions we should double down on in 2030.
David Roberts:
What is next? Is your door being beat down by other participants who want to jump on?
Nan Ransohoff:
The short answer is, we have so much work to do.
If the point of an AMC is to send a loud demand signal to researchers and investors and entrepreneurs, that demand signal only matters if those people hear it. So the first thing that we're focused on is making sure that this initial $1 billion gives as much confidence as possible to the folks who are on the cusp of wanting to do something.
Next phase is, how do we turn this $1 billion into a lot more money? To that point, yes, we are hoping to make this something that any company that wants to help meet their own net zero commitments or give to climate otherwise can do in a really robust and low-effort way. We will build the team and do the analysis so that you don't have to.
David Roberts:
They can come to you and say, “Our Scope 3 emissions are XYZ, how much do you want for XYZ?” That's about as simple as it gets, right?
Nan Ransohoff:
It's not exactly that simple, but that is the spirit. We're not setting a price target and we're not setting a ton target, so the companies contributing have to be a little bit open to meeting the field where it is. But yes, the spirit is, when money comes in, tons come out, and we will do our best to obsess over spending those dollars in the best way possible. Stripe is not making any money off of running Frontier; we're trying to make this as simple and cheap as possible for folks who want to participate.
The hard work is also on the deployment side – how do we structure these in a way that is going to be maximally catalytic for the companies? All of the AMC, all the investment that you're seeing coming into this space, has to be in service of helping these companies get started and scale up quickly, because at the end of the day, the only thing that matters is how many tons we actually removed. How do we essentially remove as many roadblocks as possible so that these companies can do the hard work of building so we actually have the solutions that we need to scale up?
David Roberts:
What is Stripe’s policy engagement? Are you on the ground in statehouses trying to get help for this effort?
Nan Ransohoff:
So far, it's been informal. Representative Peters and Representative Tonko are putting forth some really interesting CDR bills that we've had a number of conversations with them about. But the short answer is we are just starting to figure out what our plan and strategy is here. We just hired Jane Flegal, who was working in Gina McCarthy's office; she started today, actually. So there's a lot of work that we have to do on the policy side.
David Roberts:
Since you're acting as the coordinator and funnel through which a lot of other companies are doing this, you also theoretically could coordinate policy lobbying efforts by the selfsame companies. That could be part of the deal.
Nan Ransohoff:
We’ll add you to our team brainstorm.
David Roberts:
Well thanks so much, Nan, for coming on. This is really exciting. I almost said “you’re out on the frontier of things” which would have been a horrible accidental pun.
Nan Ransohoff:
Nailed it. Thanks so much for having me.
Volts podcast: Nan Ransohoff on how (and why) Stripe is kick-starting the carbon-removal market