Carbon removal reckons with a new problem: too many startups

The newest technology in the fight against climate change has suffered its biggest loss. Last month, carbon removal startup Running Tide announced it was shutting down after failing to secure further funding. It won’t be the last.

Founded in 2017, Running Tide aimed to grow macroalgae to capture carbon dioxide, then sink it deep in the ocean where it wouldn’t release that carbon for centuries. Scientific studies raised questions about whether such techniques could work at large scale. Last year, Running Tide claimed it delivered hundreds of tons of removal to Shopify, though it did so by sinking wood instead of seaweed.

Tackling climate change requires reducing planet-warming emissions first. But the lack of sufficient action means the world will have to draw down CO2 in the atmosphere. The urgency of doing so, combined with some clever ways to finance climate technologies, has now created more than 800 carbon removal startups . Most of them are likely to meet Running Tide’s fate.

“We expect more of this to happen in the coming months and years,” said Nan Ransohoff, head of climate at the payments company Stripe Inc. and lead of Frontier, a fund that aims to accelerate the development of carbon removal technologies. “That’s just a sign of what an early ecosystem looks like.”

The automobile industry is a good example of what healthy development can look like. The US had hundreds of small automakers in the early 20th century, but only three big ones remain. Similarly, China had more than 500 companies registered as makers of electric vehicles as recently as 2019. Today, there are only a few dozen.

But there’s a big difference. People want cars, but they don’t clamor in the same way for carbon removal. That’s partly because of the cost . Reducing emissions is cheaper than removing CO2 from the air. Within the carbon removal industry, there are a range of prices for different techniques, but it’s hard to tell which ones work as promised — and if the added cost of more verifiable methods is worth it.

“There are fundamental questions about carbon removal that society needs to answer,” said Eric Toone, chief technology officer of Breakthrough Energy. “Does society want to pay $500 a ton to be absolutely certain I captured carbon and know exactly where it is? Or does it want to pay 10 cents a ton and hope for the best?”

The vast majority of carbon for sale today is on the lower end of the scale and buyers are primarily paying to avoid emissions through reducing deforestation or deploying clean energy rather than removing CO2. Bloomberg Green investigations have found a number of fraudulent projects .

These tons of carbon are largely bought and sold on the voluntary market, where the ramifications of getting the accounting wrong aren’t very high. That incentivizes companies to seek out the cheapest price per ton possible, not the most permanent or verifiable removals, which are often the most costly.

“The problem is the voluntary carbon market is voluntary,” Marty Odlin, founder of Running Tide, wrote in a LinkedIn post announcing it was shuttering. “There simply isn’t the demand needed to support large scale carbon removal.”

That lack of demand is why there were hardly any startups in the space a few years ago. In 2019, that started to change when Stripe decided to drive the creation of a high-quality carbon removal market. At first, it meant spending millions of dollars of its own money buying carbon removal credits from companies at whatever cost they would sell. Stripe did so knowing some companies wouldn’t be able to deliver. Ransohoff said Running Tide got one such deal from Stripe worth $500,000 (of which $150,000 was for 600 tons of removal and the rest for research).

Once that spurred the creation of some startups, Stripe led the creation of Frontier. The platform secured more than $900 million from companies like Alphabet Inc. and Meta Platforms Inc. to make advanced-purchase commitments that only pay startups once they deliver verifiable carbon removal tons. (Frontier also has a pre-purchase track for smaller orders from younger companies.)

“The world needs about 5 billion tons of carbon removal per year by 2050 as part of its net-zero strategy,” said Ransohoff. “If you then pull that back, the world needs between 50 and 100 million tons each year by 2030. That is a $20 billion market at $200 per ton.”

But now that there are hundreds of startups, Ransohoff said the market is likely to face a new problem: too much supply and not enough buyers. Some founders and investors argue that this overabundance is not a glitch in the system, but the way the industry was built by design: Throw everything against the wall and see what sticks.

But Stripe is also working to grow demand. It has created a new fellowship program that will fund people committed to finding new buyers. And some governments are also stepping in to buy removal services, which is the kind of policy that helped cut the price of solar panels and lithium-ion batteries.

Toone thinks there’s always room for startups that can offer cheaper technologies. He believes that, if the cost of removal can be brought down to $100 a ton, then there’s a market for using it as feedstock to make products, such as synthetic gasoline. “One-hundred dollars a ton is the equivalent of 85 cents a gallon to the cost of gasoline,” he said. “So I would be very interested in that.” That’s likely to mean more Running Tide-type failures for startups that can’t lower removal costs.

Akshat Rathi writes the Zero newsletter, which examines the world’s race to cut planet-warming emissions. He charts the history of carbon removal in one of the chapters of his book Climate Capitalism .