A strong market demand is undoubtedly one of the key levers to scale up carbon removal technologies like direct air capture and storage (DAC+S), which need to remove billions of tons of CO₂ by 2050 to help limit global warming. Without growing demand, carbon removal entrepreneurs face the risk to spend time and resources on developing technologies that the world urgently needs — but can’t be deployed fast enough because there are not enough buyers.
On the other hand, many businesses find it challenging to enter this nascent market. Why should companies buy carbon removal when emissions reductions are the key priority? Which of the many solutions available today deliver on their promise? And if the costs are set to decrease as these technologies scale, why should companies act now (and not just wait ten years)?
To empower more companies to start their carbon removal journey today, Climeworks invited Mitchel Selby, Program Manager at Shopify’s Sustainability Fund, to share the learnings Shopify gathered since they became one of the very first buyers on the market in 2019.
Guided by climate science, Shopify knew that carbon removal was an indispensable piece in the fight against global warming, and yet, there was no supply. By entering agreements with both early stage companies like Climeworks and innovators looking to enter the market, they wanted to act as a demand signal to accelerate the industry’s scale up.
“The amount of carbon removal Shopify will need in 2030 is well above the current supply available today in the market — and we’re just one company.” — Mitchel Selby, Shopify
Shopify’s journey started with the main goal to deliver impact but as Mitchel highlighted, their business viability as an e-commerce platform is also closely connected to their carbon removal purchases. Many of their merchants around the world already feel the physical impact of climate change. To help preserve their business and Shopify’s in the long term, they knew they needed to act.
With their commitment, Shopify set an inspiring example for what climate leadership looks like today. In the future, as regulatory changes will shape the carbon market, Shopify’s voluntary purchases will be outnumbered by those made for compliance purposes. However, their first mover advantage with which they’ve secured removal capacities and knowledge of how the industry works early on, will persist.
“You shouldn’t underestimate the knowledge that is necessary to be able to buy carbon removal at a large scale. You need time to understand how this industry is working, you need time to find the right suppliers and to understand how those contracts are done.” — Laurent Müller, Climeworks
Shopify has bought carbon removal from a range of suppliers. How did they decide which solutions are a good match for them? As detailed in their recent publication “Buying Carbon Removal, Explained”, they base their decision on seven criteria:
Although Shopify regards cost as a criterion that is critical to consider, many potential buyers most likely think of this variable as “non-negotiable” if they have a strict budget. As Laurent Müller, Corporate Partnerships Manager at Climeworks explained, it’s crucial that buyers put the costs into the perspective of how early stage this industry still is.
In many ways, direct air capture (DAC) today is at the same stage that wind and solar energy were in the 1980s. Through the scaling effects of multiplying and building bigger plants, in addition to increasing the technology’s efficiency through R&D, Climeworks is working steadily towards cost reduction. However, the entire carbon removal industry must scale in parallel, for which corporate buyers, investors and policymakers need to pull in the same direction.
At the same time, costs also should be put into the perspective of value. At Climeworks we remain steadfast in our approach to aim for the highest quality and integrity of our service. Climeworks became the first DAC company to collaborate with assurance leader DNV on a methodology and subsequent auditing and verification of its carbon removal services — which were delivered to our first corporate customers in 2022. This guarantees that the removals were properly performed according to stringent standards.
The fact that the costs of DAC and other technologies will decrease in the coming decades renders many potential buyers doubtful. Why not wait a few years and buy when it’s more affordable?
In order to have the removal capacities available that are necessary for companies, and the world, to reach net zero, suppliers must scale their operations drastically. To achieve this, long-term agreements with pioneering buyers are particularly important for carbon removal companies like Climeworks to accelerate growth planning.
Taking action to help materialize supply is essentially a form of risk mitigation. Thousands of companies have set net zero targets and all of them will need carbon removal to some extent –future regulations may even require it. By entering purchase agreements and building long-term relationships in this sector today, companies can therefore secure future capacities in a market that will be supply constrained for a while.
“Heavy emitters will likely face a reality in the near future where they’re required to buy carbon removal, so it’s important for them to act now to anticipate that requirement in the coming years.” — Mitchel Selby, Shopify
Does this mean all benefits of becoming an early buyer will accrue in a decade or more? According to Mitchel, Shopify has already seen positive effects over the last four years: from demonstrating their climate leadership toward external stakeholders, enhancing their brand as an employer and ultimately having a say in how the carbon removal market is being shaped. And with the many resources available that are published by Shopify and others, the companies who are considering to buy can take advantage of the due diligence that has already been done.
“There’s enough space to still have a positive impact. There are a few key players who spoke about carbon removal but there are a lot of industries where it’s not yet established, where carbon removal is not at all mainstream or known.” — Laurent Müller, Climeworks