Carbon removal has a funding gap. This climate nonprofit is attempting to fill it.

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Oct 19, 2022, 3:33:22 AM10/19/22

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Carbon removal has a funding gap. This climate nonprofit is attempting to fill it.

Terraset, a new nonprofit, is channeling private philanthropy into carbon dioxide removal.

A carbon dioxide removal plant in Iceland with steam rising from it.

“There’s this gulf between how much people want to act and the options available to them." | Photo: Arnaldur Halldorsson/Bloomberg via Getty Images

Michelle Ma October 18, 2022

Tech companies have committed hundreds of millions of dollars to buy carbon dioxide removal services. Now, Terraset, a new nonprofit, is jumping in to help channel private philanthropy into the nascent field.

Alex Roetter, the founder of Terraset, which exited stealth mode on Tuesday, said the organization will “be an independent source of demand” for carbon removal services. Bringing down the cost of those services will be key to the world reaching net zero by midcentury, and philanthropy could be an untapped avenue to help make that happen.

Companies including Microsoft, Alphabet, and Salesforce have pledged hundreds of millions of dollars for carbon removal individually. Frontier, a group of companies led by Stripe, has put $925 million up for an advance market commitment for services as well. But that’s a fraction of the investment needed to bring down costs and ensure the technology reaches a meaningful scale.

Until now, individuals who want to pool their resources to pay for carbon removal and help the industry gain a toehold have had very few options outside purchasing services from direct air capture company Climeworks.

“There’s this gulf between how much people want to act and the options available to them,” Roetter, who’s currently a managing director and general partner at Moxxie Ventures and previously was president at Kittyhawk and head of engineering at Twitter, told Protocol. And when it comes to CDR, “there can’t be large supply without a really strong signal that there’s demand.”

Terraset is attempting to bridge that gulf by funneling private philanthropy to the most promising carbon removal startups that need capital to scale. The nonprofit, which has been operating in stealth mode since early this year, has secured annual donations in the “low six figures,” according to Roetter, from a handful of donors, including investor Tim Ferriss and Segment co-founder Calvin French-Owen. Initial donations have been used to fund two CDR startups: Charm and Heirloom.

Starting today, anyone can donate any amount to Terraset. The organization pools the funds, then vets and selects the CDR projects using a handful of requirements.

Among them are ensuring that projects remove carbon dioxide from the atmosphere that wouldn’t have otherwise been removed without a donation and store it for centuries or more. Projects must also be scientifically rigorous, either by publishing research or having scientists who vouch for it. Finally, technology Terraset gives money to must have the potential to scale to remove megatons of carbon and do so in a manner that minimizes or entirely avoids harm to local communities. Though Terraset does not have its own research team, Roetter said it follows the guidance of groups like Frontier and CarbonPlan to help evaluate CDR startups.

Shashank Samala, the CEO and co-founder of Heirloom, said he hears from people “all the time” who want to give directly to Heirloom but aren’t able to. At the moment, all of Heirloom’s customers for its direct air capture services are big corporate buyers like Microsoft, Stripe, and Shopify. Samala said the company would consider eventually letting anyone buy a carbon credit straight from Heirloom’s website similar to Climeworks. Right now, however, the startup doesn’t have the capacity to serve small buyers.

Because carbon removal technology is so nascent, the cost of financing is high, Samala said. Lenders also want to see that there are buyers who will purchase carbon removal services at a price that covers their cost. Pulling a ton of carbon from the sky costs around $1,000 per ton or more. While Heirloom and other companies are aiming to get costs down to $100 per ton or less in the coming decades, there’s a lot that needs to happen between now and then to get there.

He compared the CDR industry to the early days of solar and wind when it comes to the potential of decreasing costs with scale. Solar penetration is currently about 3% in the U.S., and the industry has already seen a massive drop in cost. For context, solar power purchase agreements were often $100 per megawatt hour or more as recently as 2011. By 2015, they were averaging $50 per megawatt hour and have gotten cheaper since.

Policy played a major role in driving down the cost of solar power, particularly tax credits to encourage more production. The CDR industry has just seen an influx of federal support, including the Inflation Reduction Act’s 45Q tax credit for direct air capture. The Department of Energy is also planning to spend billions to create direct air capture hubs that could spur further innovation in the industry.

“We need a lot of diversified buyers from various different parts of the economy,” including corporations, governments, high-net worth individuals, and people giving small amounts, Samala said, since every additional buyer helps companies like Heirloom scale up and reduce costs as a result.

Organizations like Terraset help “galvanize individuals to play a small role in the world right now,” Samala said. Plus, the tax benefits of donating to a 501(c)(3) can provide a “pretty dramatic increase” in the impact of every dollar, given that doing so allows donors to deduct up to 60% of their adjusted gross income. That’s an incentive for individuals to give more than they would if the donation weren’t tax deductible.

Climate philanthropy accounts for less than 2% of global philanthropic giving, according to a ClimateWorks analysis. Within climate-focused giving, the nonprofit estimated that CDR received 3.85% of total average foundation funding for climate change mitigation between 2015 and 2020. Both CDR and climate philanthropy as a whole have room to grow within the larger world of giving.

French-Owen, an early Terraset donor and Silicon Valley entrepreneur, said he was impressed by what Stripe had done with its Frontier fund, “catalyzing this market between a bunch of different early-stage tech firms.” He said Terraset “felt like a good first step” when it comes to using philanthropy to help the industry mature.

“Terraset is helping to tackle a very challenging problem — how to bring in early catalytic dollars into carbon removal to help bring down costs, and answer big open questions in advance of larger government procurement efforts,” Peter Minor, director of science and innovation at Carbon180, wrote in an email to Protocol.

Roetter was inspired to start Terraset when he was “shocked” to discover that something like it didn’t already exist. But he already has big plans for it, saying he hopes Terraset becomes “the same size if not bigger” than Frontier by 2030 and eventually attracts the attention of everyone from the person who gives $50 a year to massive philanthropic organizations like the Gates Foundation.

The wealthy are largely responsible for driving the climate crisis. While philanthropy is certainly one avenue to make up for those impacts, it also amounts to getting a tax break after polluting.

Given that ClimateWorks estimated that total donations to climate change mitigation in 2020 globally were between $6 billion and $10 billion, Roetter’s goal of reaching Frontier levels of funding is a tall order. To rake in $1 billion of donations would put Terraset in the upper echelons of climate nonprofits, on the order of the World Wildlife Fund, the Natural Resources Defense Council, or the Nature Conservancy. Even in a world where climate philanthropy has grown at a faster rate (14%) than overall giving (3%), that’s a lot to hope for with a new nonprofit.

Even that would still be a drop in the carbon removal bucket, though. United Nations estimates put the need for CDR as high as 10 billion tons annually by midcentury (other experts think that may be high, though). If the industry meets its $100-per-ton cost target, that would still put the market at $1 trillion per year. Given the huge price tag, it’s clear that while private philanthropy can play a role in covering the costs of CDR, it can’t be the only driver.

Michelle Ma

Michelle Ma (@himichellema) is a reporter at Protocol covering climate. Previously, she was a news editor of live journalism and special coverage for The Wall Street Journal. Prior to that, she worked as a staff writer at Wirecutter. She can be reached at m...@protocol.com.

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