Member Spotlight: South Pole on Scaling the Removals Market

South Pole, NextGen and Mitsubishi Corporation’s Joint Venture recently announced the purchase of more than 193,000 tons of carbon removal credits — one of the largest in carbon removal history. The Carbon Business Council team sat down with Philip Moss, Chairperson of NextGen and Global Director of Tech Carbon Removals at South Pole, to unpack this news and discuss the removals market.

What do you think needs to happen to unlock the carbon removal market?

Demand and quality assurance are the key barriers preventing the levels of financing needed for the Carbon Dioxide Removal (CDR) market to reach the  gigaton volumes needed. Breaking down these barriers will create the conditions necessary to ensure that the CDR market scales alongside global efforts to reduce the carbon dioxide we emit, or mitigation. 

Creating demand within the CDR markets presents many challenges. Historically, CDR technology has been too expensive for many corporate buyers. However this is rapidly changing as more CDR technologies mature and projects expand. To harness this momentum, we need to crowd in ever more corporate buyers as the current public and philanthropic financing is insufficient. 

Alongside efforts to create demand in the market, it is crucial to maintain the integrity of the carbon removals. South Pole’s 2022 Net Zero Report shows that one of the key roadblocks for companies using or planning to use technological carbon removals is the lack of quality assurance for ensuring verified carbon removals. Developing clear standards and methodologies for credibly scaling technology-based removal solutions will help to address this barrier.

NextGen’s recent advance purchase of over 193k tons of CDR has been one of the largest in CDR history: tell us more about this news?

NextGen’s major purchase from three projects sends a clear message to the CDR industry:  the market is open - with major sources of capital available - to support a range of technology companies that will ensure we can achieve gigatonne scale. 

The three projects include technologies such as Direct Air Capture and Storage (DACS) Biomass Carbon Removal and Storage (BiCRS),  and High-technology Biochar. These projects will exhibit CDR at commercial scale by 2025, with two of the largest projects in the market (Summit Carbon Solutions and STRATOS by 1PointFive) removing millions of tonnes from the atmosphere every year.  The projects will also demonstrate technological innovation for storing biogenic CO2 with companies like CarboCulture.

On the buyer and seller side, can you tell us more about who is involved with NextGen? 

South Pole and Mitsubishi established NextGen to provide a framework for a credible and accessible market for the sale of CDR credits. NextGen is essentially a portfolio management company for companies looking to take a leading position in the CDR space. 

NextGen helps buyers to identify, screen, contract and ensure delivery from a range of high-quality certified projects. It offers an efficient and reliable platform for major multinationals to become pioneers in supporting CDR projects. We do this by combining the decades of experience and extensive access to projects of both South Pole and Mitsubishi Corporation.

NextGen buyers cover a range of industries and geographies, and we are continuing to onboard new corporate buyers from around the world. Our founding buyers are market leaders, with  three companies (Boston Consulting Group, Swiss Re and UBS) ranking amongst the top ten CDR credit buyers globally in addition to their NextGen commitments.  Mitsui Shipping is one of the few large emitters globally that has committed to purchase CDR 50K tonnes under the First Movers Coalition. LGT is an active investor in  climate tech companies and has made major CDR purchases beyond NextGen as well.

Can you share your thoughts about taking a portfolio approach to reaching gigaton scale? 

The CDR industry is in its infancy, with many technologies emerging. As with any new industry, there will be failures and missed deadlines which may be acceptable for companies considering CDR as part of their R&D spend. However, this  is more challenging  for corporate buyers allocating their budgets with expectations of delivery. 

Moreover, effort to define eligibility criteria for projects and evolving  national policy may impact the viability of specific types of projects, so there is a heightened risk concentration when buying directly from individual companies or projects.

Conversely, a portfolio approach can spread and soften the impact of known and unknown risks for buyers, increasing their potential appetite for CDR purchases. Having a portfolio approach allows a buyer to commit capital with greater confidence in delivery, while ensuring that the negative effects of one project does not necessarily affect their other positions. Additionally, by combining buying power through a portfolio like NextGen, buyers can reduce their transaction costs and ensure credibility through association with other market leaders.

Finally, a portfolio approach allows buyers to access technologies that would not be accessible for them on a standalone basis because they may be too expensive. By blending  prices in a portfolio, the average price can be reduced to an acceptable level. These elements allow us to bring more capital and buyers to the market, helping to scale the market  to gigatonne scale. 

What type of criteria is NextGen looking for when you’re selecting projects for the portfolio? 

NextGen is seeking to support the CDR industry by supporting a range of technologies to ensure that there is no overexposure to individual projects, technologies or geographies. We are planning to commit to another 800K+ tonnes by 2025 (for delivery through 2030) to allow projects to secure the financing they need. We are actively seeking new options to evaluate.

NextGen purchases from five different types of projects that fall within our scope, selected based on the maturity of the technology and our confidence in reliable certification standards. These technologies are: Biochar, Biomass Carbon Removal and Storage (BiCRS), Direct Air Capture and Storage (DACS), Enhanced Weathering and Product Mineralization.

Our criteria vary based on the sector, but generally speaking we assess projects against the following criteria:

• Accessibility - Priced at a level that allows the portfolio to achieve an average price of US$200/tonne on a blended basis. 

• Credibility - Offers a clear pathway to certification under an ICROA-endorsed standard, with a methodology that South Pole assesses as sufficiently robust (ICROA+), with high confidence on the ability of the project to deliver. 

• Scalability - Project will be operational at commercial scale by 2025 (5-10K/t per year depending on technology), with potential to lead to significant tonnes removed  by 2030 (~1 Mt).  

• Storage - High confidence of 1000+ year storage durability.

What types of carbon removal approaches would you see or like to see included in a future portfolio by NextGen? 

Despite our interest in long-term offtakes, the market is evolving rapidly, so at the moment we cannot commit to projects with offtakes beyond 2030 at the moment. Our team is keen to expand the current mandate to  projects that provide longer term storage of carbon, but may have difficulty justifying the 1,000 year benchmark.

Over time, we have seen a number of new technologies that are very interesting but aren’t sufficiently developed or offer too much uncertainty in terms of the quantification of the CDRs, MRV approaches, and safeguards. If the infrastructure around these technologies evolves, we would be particularly interested in solutions that require lower energy input to remove and durably store atmospheric carbon,  such as Ocean Alkalinization.

NextGen has achieved a blended price point of $200 a ton for carbon removal. Do you think the cost has to fall even further for removals to scale and what will it take to do so? 

The feedback we get from buyers is that there is limited demand for carbon removals at a higher price point. If we want to successfully scale the market, we need to realize a price point that is bearable for both buyers and companies,  while lowering the cost of transactions.

That is why we structure a portfolio around an average price point of US$200/tonne, which we are able to deliver based on purchases from a wide range of projects. When we look at the landscape of buying companies and their internal carbon pricing approaches, US$200/tonne is very much pushing the top end of what is considered acceptable, and if we see compliance prices (i.e. EU Allowances) continue to rise then this could emerge as a reasonable price point for the industry.

What’s coming next for NextGen? 

The market is evolving rapidly and NextGen is adapting with it. We hope to have some exciting news to announce later this year that would allow us to provide further support to emerging companies and allow us to position beyond 2030, in addition to some additional purchases from CDR projects.