CDR Innovator Interview - Phoenix Energy and Carbon Crusher

'Unbound Showcase' is a globe-spanning series of interviews with pioneers of carbon dioxide removal (CDR). We’re questioning innovators, business leaders, policymakers, academics, buyers and investors taking on the challenge of our lifetime - gigaton-scale carbon removal from the earth's atmosphere.

Today’s interview is with the founder and CEO of Phoenix Energy , Greg Stangl and the team at Carbon Crusher : Tonje Norheim , Vice President of Product and Preben Sander , Senior Vice President of Communication. Phoenix Energy has recently partnered with Carbon Crusher to create a cutting-edge carbon-negative road at Phoenix’s Blue Mountain Company Electric (BMEC) site. The innovative road will use biochar as a binding agent, exemplifying the circular economy, reusing trees from fire mitigation for sustainable development, and sequestering more than 100 tonnes of CO2.

"Tell us about Phoenix Energy and Carbon Crusher.”

Greg Stangl - Phoenix Energy is California's largest owner-operator of community-scale carbon removal facilities. So, we were one of the people “dumb” enough to get started quite early and have, therefore, been around for a while. We've been in the space since 1999 and built our first gasification plant in Europe in 2003. Phoenix was set up in the United States in 2007; our first plant there came online in 2010, and our second opened in 2012. At this point, the government said, “We like what you're doing. We'd like you to help here in the forest, and we will give you this brand new programme to take on.” So, in 2023, we brought our third plant online, our first forestry project. We have a two-megawatt plant coming on right now that is using forestry residue, which we get from the forest service, Cal Fire, and the highway department.

The next project where we have this incredible collaboration with Carbon Crusher is the same thing. It's a town about a hundred miles due north on the same Western Slope of the Sierra? Nevadas. The goal is the reduction of catastrophic wildfire risk. The wildfires occur because of massive tree die-offs; depending on which political party you vote for, this is either caused by the Western Bark Beetle or climate change. And so we're excited about demonstrating more markets for the Carbon biochar we produce.

Tonje Norheim - Carbon Crusher is a Green Road tech company. We're storing carbon in the ground while improving roads. So we do two things: crush and recycle all the material of the existing roads; we typically don't bring in new materials such as new aggregates. We deliberately just work with what is there. Then, we bind this crushed material with a bio binder made from biomass (so it has embedded carbon), making the final road surface much stronger. In our most recent collaboration with Phoenix Energy, we use biochar in the road, increasing carbon absorption by 5 to 10 times. This new process has a massive impact on our carbon storage and improves the quality of the road. We deliver better roads at a competitive price with an inbuilt carbon storage solution.?

Preben Sander - We built our first road 17 years ago, made from modified forest mulcher; we started looking at these bio binders from the forestry industry and how we could repurpose the mass already there. What is interesting is thinking about durability and the fact that we have excellent roads that are 17 years old in forest areas subject to rough use, including floods. Ours is a product that lasts.?

We have known that carbon sequesters for a long time in our product, and we know that the collaboration with Phoenix Energy improves our products on the carbon and performance sides. We're doing tests around that now, and it is looking excellent. So the benefits to this are not only anecdotal, but we have robust roads in constant use that are a testament to our construction ethos.? And all of this construction was, of course, long before anyone knew what a carbon credit was!

“Tell us about your current partnership.”

Greg Stangl - I saw many parallels in our business when I reached out to Carbon Crusher a long time ago. We're both operating in the forest. We can operate elsewhere, but we're both primarily focused on the forest. We both are companies with a long track record. We're not out there trying new crazy things. We also have a circular nature; we want to use what's there and make it better.

So philosophically, our two companies lined up, and we both had a need. Carbon Crusher was looking at ways to reduce its emissions footprint, not that it needed to. It's already great, but they are always trying to improve. Phoenix was looking at developing biochar usage; where can we put biochar, and what are some unique ways we can find markets for biochar? Even though the anchor of this partnership is small, it's a great fit. We're super excited to find Carbon Crusher, and they're also looking to expand in the US, so we're pleased that we're giving them visibility in the California forest and hope that we can work with them on more projects.

Preben Sander - And Phoenix Energy’s product improves our products. Once we increase market share and scale this technology, the scope is massive, and we can use as much biochar as possible. There are some challenges with applying biochar in other situations, but the road system's scale means that those don’t apply to us.?

"What was the inspiration that led to your carbon removal business?"

Greg Stangl - It all started with the environment; the air quality in Central Europe was miserable. You could wash your car, go out the next morning and write your initials on the coal dust that had settled on the car overnight. And so all these countries that were trying to get into the EU were going to have to do something about their air, and that's where we got into the distributed energy business, taking out thermal coal for Critical National Infrastructure (CNI) applications and replacing it with something much cleaner. So, our initial projects were in distributed modular natural gas fuel plants when the Russians threatened to shut off the gas the first time; that was when we got into biomass and gasification. One of our customers was the Polish Air Force, and they were concerned about the Russians shutting off the gas, which they had never did at that time, they just threatened to. That was when we got into gasification, and we built our first gasifier in 2003.

California, it was more about love, my wife, bless her heart was not excited about the prospect of living in Poland. Eventually, we moved the company back to the United States. California was a fabulous place to do this because our model was to achieve a financially feasible solution. We can deploy irrespective of our position in the environment if we want to make a difference, so it was always about what we needed to be profitable on Day Zero. How do we do that? It’s all about the energy component, and California is one of the unique places in the United States — a place where we pay crazy European prices for energy. And so the maths worked here in California, the pre-COVID maths worked here in California, where we can make it work on energy alone, and the environmental benefit was, “Hey, you got that for free.”?

COVID made that quite a bit more complex; the average cost of our installations has gone up 40 to 50 per cent from what it was just several years ago. Luckily, the CDR revolution emerged. It's ironic because it's been in our business model since we started here in California. Every time we put a financial package in front of a bank it had this line item that says carbon credits, and it always had a zero. But thankfully, carbon credits have come out in the last few years to save the day.

"Can you share that 'aha' breakthrough in your businesses' journeys that excited you, especially about their potential?"

Greg Stangl - We've been doing the same thing for a long time. You had to hide the environmental angle. As I indicated, we wanted to improve the environment, irrespective of your position on whether the climate needed betterment, and so talking about that was almost a disadvantage for us what made it work was. Hey, It's a 12% unlevered rate of return. What more do you want to sign the papers, please? That was what allowed us to start building plants. What's making the magic work right now is that we have an environmental story to tell, just like Carbon Crusher. We don't have to hide that anymore. And so, you can blame me for the fact that people didn't want to hear about environmentalism ten years ago. And so we went out of our way to keep our mouths shut about that.

The aha moment was like, my gosh, that will help us scale by telling the story.

"What have you found the best way of garnering investor or buyer attention?"

Greg Stangl -? We have found investment in the tremendous amount of government support because we are providing an environmental solution, especially to the California government with wildfire prevention. We found the equity through Cal Fire, the United States Forest Service, the United States Department of Agriculture, and the California Energy Commission, the California Pollution Control Finance Authority, the California Advanced Energy and Transportation Finance Authority, the Sierra Nevada Conservancy. God, if I leave somebody out, we're doomed, but just about anybody with a budget could see that the value here is the amazing fire prevention opportunity. We have to stop getting cell phone videos of people driving through the tunnel of flame as they escape from a forest fire. And so, look, the best day that ever happened to us was when Oprah lost her house in the Montecito mudslide because of post-fire; look, you don't mess with Oprah, right? When wineries burn down, that's when people pay attention. When the fire got to places like Santa Rosa and Napa, we've been working on projects in the Napa Valley for ten years because people who know biomass get that biomass needs a solution right. 11 per cent of your landfills is chipped up shipping pallets like organic residue needs a solution. But nobody was talking about fire in the Napa Valley 11 years ago, if you look at the fire maps, they're all red for ultra-high danger - Napa's been on fire every year, not just in the last ten years. That's an incredibly fast-moving turn of events. And that changed our solution from vitamins when we started into something that's passing the aspirin stage and moving towards penicillin or steroids!?

And again, taking this back to Carbon Crusher, the whole circularity makes this a more beautiful solution: we can keep taking the waste product from one industry and turn it into the input. Taking those solutions and turning them around, we have these other awesome projects where we're co-located with the Calaveras County Water Agency, an unbelievably forward-thinking agency, where not only will we be able to run this plant with dead trees and burnt trees coming out of the forest, but wastewater coming out of the back end of the water treatment plant. Nobody wants to think about how much fresh water is used in power production. Well, we won't be using any! This is monumental for California because we have such a water issue, so we're trying to focus as hard as we can on finding environmentally beneficial solutions. There are also selfish motivations for us: the wastewater is more accessible than fresh water in this location because you would have to truck up fresh water. You must also pay for it; freshwater might only be available sometimes. So, we focus on ‘how do we improve the economics?’

We want to keep our footprint as low as possible, much like Carbon Crusher looks at its footprint. So, we only get biomass/wood from within a 30-mile radius of the plant to avoid trucking fuel from long distances. And then, there is this plant with the water coming just right on the site. So, where does your asphalt come from? Through our partnership with Carbon Crusher, we’re able to get a superior product. It's not just a more environmentally friendly product. It is an excellent product.?

We don't want to have to depend on how much you care about the environment to have a raison d'etre. We want that to be independent, and so here again, we're able to take one of our co-products, in this case, the carbon, and apply that to the road, avoid the need to bring up asphalt from the Central Valley and prevent the need to bring up petrochemical products from the Bakersfield area. We get a better road than we would otherwise be able to do. So It's just one piece of the puzzle, but they're necessary in that we've got to if we need help getting the economics of making the whole thing circular - we're just going to lose to fossil fuels.

"How are you approaching scalability, and what tools or strategies have proven most effective in levelling up your solution?"

Greg Stangl - It's all about developing a tight Geographic network of distributed assets. 2-megawatt or 3-megawatt power station cannot afford to hire a $180,000 salaried power plant engineer who can sniff the air and tell you what needs to be done this year. And so, for us to get better, we have to graft the economies of scale of a large plant, like a two-gigawatt combined cycle natural gas plant. How do we get those same economies onto community-scale plants in the middle of the woods? That, more than anything else, is about geography and technology.?

So technology is pulling all that data and information together in a networked operations centre so that we're doing next-level maintenance where we're looking at the vibration sensors to tell us when to change a packing gland instead of doing it because the book says to do it at 500 hours - and the book was written by the same guy who sells you the packing glands. So, getting those things together in a networked operations centre and being able to share resources across a network of community-scale plants is how we're scaling. That's easier for us to do because we are effectively technology agnostic. We start with hydrogen, but what the end use is to us is just not relevant. We’re able to follow the market. And so we find people who are promoting their own technology are a little more apt to have one plant in New England, one in the Midwest, and one in the Western United States. Let me tell you, anytime you need to put somebody on an aeroplane to maintain a plant this size, you are bleeding revenue badly, so that's our scalable story.?

We're trying to replicate that on the finance side where we have these partnerships, so we're using a Southwest Airlines or a McDonald's vendor management model. We have that on the technology side. We still need to get it on the financial side where every plant we've ever built has been financed with different people, banks, programs, tax-exempt bonds, commercial debt or government debt. Replicating that consistency in execution on the financial side as well - that is gosh darn going to happen in 2024.?

I am also looking at growth; we’re technology agnostic, which means how we think about our output is also agnostic. So, we're positioning ourselves for growth. We don't care what we do with the hydrogen, so we could start looking at Green hydrogen, for example, and again, that's another revenue stream. But really, we want to do is grow and keep current with where the market is going.?

@Preben Sander - For Carbon Crusher, no other infrastructure in the world is more spread out and dominant than roads. We know that in a ten and 20-year cycle, every road on the planet needs upgrading, resurfacing or improvement. So our market is more significant than we can chew. There are some regulatory issues and market penetration when new technology is introduced, but our strategy is to provide scale through a unique business model. We can build roads via partners and do it ourselves, but our route to supercharged scaling will be a ‘crushing as a service’ model.

@Tonje Norheim - Our ‘crushing as a service’ model consists of four things: We have the carbon storage material, i.e. the bio-binders and other biomaterials. Historically, for the last 17 years, we've been working with a bio-binder to make roads stronger, and now we're expanding the product portfolio. Hence, this collaboration with Phoenix Energy is part of a suite of sustainable carbon-storing materials that will enhance the properties of the road. We provide the crusher machine, which recycles and mixes materials on the road. It is a more advanced machine than others on the market, which can crush up quite hard materials where necessary. We have Skyroads, a road management system that will detect damage to the road, surveil the streets for the owners, and also help as a tool to manage the roads. Lastly, we provide the expertise to do this process and mix it correctly to provide unparalleled quality. We deliver these four things in a crushing-as-a-service model where we work with regional road companies with a customer network and already have some of the more standardised machines required locally. This means we don't need machines and employees everywhere - but we provide the technology and know-how to drive scale through local road companies.

“What's the biggest challenge your business is facing in 2024, and what do you think is required to solve it?”

@ Preben Sander - Our supply chain is looking pretty good. Our ability to scale through partners and to build trust in our products, in our process, in a way that will aid swift market adoption is our biggest hurdle right now. So that is the headache, getting people into meetings, building trust in our product and its performance. Of course, everyone wants a high-performing road in their backyard before they really can believe it. So we need a way to work with people like Greg, who are early adopters working at the edge of the green revolution. We want to work with more pioneers like Phoenix. We’re looking for more Gregs who don't just do it because it’s a better road that is price competitive but because it's the right thing to do.?

@Gregory Stangl - The big challenge for us is that right now we are entirely dependent on tax credits and grants. And that is just a freaking dangerous place to be. We have been removing carbon in California since 2009 and selling electricity since 2010. For every asset we build, we finance these assets with 100% debt. That's just a dangerous place to be because every time you were successful in creating a new plant, you were successful in borrowing a lot more money. And so we've borrowed a lot more money four times now; it's pretty scary, and if we figure out how to bring equity investors into this mix soon, there could be issues. Tax credits will only last for a while. When we started, the grants were in the $5m category, which doesn't build a $40m power plant but is a big shot in the arm. Now, grants are in the $1m category. So grants, as they should over time, are winding down. We have to solve that problem, and I think again, with some hubris, I thought, “I built one of these in Poland that should satisfy everybody.” It turns out that telling American investors you built a high-tech power station in Poland is not the selling point I thought it would be.?

So, for us, building one is luck, two is a trend, and five is a business. So we’ve got to get to five commercial installations as fast as humanly possible before this starts to be something that doesn't require a super new AG investment person. When I was in the private equity world, I was always trained to say the minute somebody tells you their problem is access to capital, that's not their problem, and yet that's precisely what I feel is our problem.

Unbound Summits’ mission focuses on unrivalled connections, new insights and unbound CDR opportunities. You can learn more about Phoenix Energy and Carbon Crusher’s revolutionary partnership here.

Visit the Phoenix Energy website to find out more about Earthworks Biochar and Carbon Crusher’s ‘crushing as a service model' on their website.