How an advance market commitment accelerates the carbon removal market

Key takeaways:

The level of investment in carbon removal technologies has taken a historic leap forward with the launch of the Frontier fund, which mobilizes USD 925 million for carbon removal through an advance market commitment (AMC)
Climeworks' Chief Marketing Officer Julie Gosalvez sat down with Stripe’s Head of Climate Nan Ransohoff, who leads Frontier, to discuss the origins and objectives of the AMC
By guaranteeing demand for carbon removal in the form of pre-purchase and offtake agreements, Frontier aims to catalyze the supply of high-quality carbon removal solutions

Catalyzing supply by guaranteeing demand

Despite growing momentum, the carbon removal industry is not yet on track to get to the gigaton scale of CO₂ removal that is needed to help mitigate climate change. According to Nan, the supply is currently limited because it takes time for entrepreneurs to develop new technologies, but also because, historically, there just haven’t been any buyers for carbon removal. Essentially, entrepreneurs in the field are confronted with the risk that their future customer base will not be large enough to justify the time and resources that they need to spend on developing the technologies.

Stripe and the other founding members of Frontier - Alphabet, Shopify, Meta, McKinsey & Co. - created the fund to address this issue. The AMC sends a clear demand signal to entrepreneurs, researchers, and investors in the field that there is going to be a market for carbon removal, which in turn should catalyze supply.

We have to compress 10 to 15 years of this field developing on its own into the next 3 to 5 years if we really want to have a shot at scaling carbon removal to a meaningful part of the suite of climate solutions.

Nan Ransohoff, Head of Climate at Stripe

So, how does Frontier work?

The concept of Frontier’s AMC is borrowed from vaccine development and comprises three main steps:

Frontier aggregates demand from several different buyers, including the initial founding buyers. Each buyer sets a maximum amount of money they want to spend in one year.
Frontier's technical and commercial experts find and vet different technologies and facilitate two types of carbon removal purchases: 1) pre-purchase agreements with early-stage companies and 2) offtake agreements with later-stage companies.
Suppliers remove the carbon and pass the tons back to the buyers. The buyers benefit from a portfolio of solutions, rather than entering a single offtake agreement with one company alone.

Nan underlined that Frontier will mainly enter pre-purchase agreements in the early years because supply is limited. As the market matures and the cost curve comes down, the majority of the funds will be spent on offtake agreements.

Stubborn on vision and flexible on strategy

Frontier does not specify the number of tons that they want to remove, nor are they setting a benchmark for how much should be spent on which type of technology solution. Simply put, the aim is to create an ecosystem of solutions and get carbon removal on its best possible trajectory. To achieve this, Frontier set a number of criteria that carbon removal solutions should fulfill to be eligible for funding. The four most important ones that were highlighted by Nan are: permanent CO₂ storage, a low physical footprint, a path to being affordable at scale, and the potential to contribute more than half a gigaton of carbon removal per year.

By creating Frontier, Stripe has taken an important step to transform carbon removal into a billion-dollar industry. Still, several challenges remain to scale the technologies, especially regarding the measurement, reporting, and verification of the tons removed. According to Nan, policymakers need to create robust standards that are “criteria specific and technology agnostic” to be open to innovations. This should also support the creation of a compliance market for carbon removal, since voluntary commitments alone will unlikely be enough to permanently remove billions of tons of CO₂ from the air.