Building the market for carbon removal

Carbon Removal

Robust, at-scale carbon removal is critical to stopping climate change. Businesses have a big role to play by purchasing carbon removal today, so it can scale in the future.

We recently sat down with Peter Reinhardt, CEO of Charm Industrial and Segment, to hear more about Charm’s progress and challenges in the carbon removal space.

Content here has been edited for readability, and to remove some confidential data that was shared live.

Christian Anderson: All right. Welcome, everybody, to Watershed's Q&A with Peter Reinhardt, the co-founder and CEO of Charm, the carbon removal company. Charm is currently delivering carbon removal orders to customers on a roughly six-month cadence. I see several Watershed customers on this Zoom who have purchased carbon removal successfully through Charm. This blistering pace puts Charm at the forefront of robust long-term carbon removal providers.

We're going to do a Q&A with Peter to figure out how it's done and how it has moved so quickly. Audience members should please feel free to jump in with questions using the Zoom Q&A feature. I'm planning to spend the first 30 minutes running through questions that I have for Peter, but I'll keep an eye on the Q&A and try to mix some things from you all as well. The last 30 minutes will be dedicated entirely to your questions.

All right. Peter, you're the rare, double CEO. You co-founded Segment in 2011, you co-founded Charm in 2017, and you lead both companies. I am very curious, what is the Charm origin story? What causes you to wake up in the morning and [say to yourself] running this customer data platform is not enough work, I need to found an innovative, hard tech climate company. How did that come to pass?

Peter Reinhardt: Before I dive into that, thank you to those of you that have made purchases from Charm. Super appreciate it. It's incredibly impactful for us as we try to bring down the cost of Charm, so thank you.

The story for me, which goes back to 2016 or even 2015, is figuring out how to offset Segment's emissions. We didn't have a program back then; we were at just a hundred people. I assigned it to my EA to figure out what we should do here, so we made some purchases. And a year later I was looking at those purchases, and we had set aside some forests in Indonesia or something, but I didn't know what happened. Did the forest burn down? Did they just cut down the forest next door, but not that forest? And 60% of the money never actually made it there because it got cut off by various kinds of intermediaries.

I was really dismayed with that, began reading more about it, and kind of fell down the rabbit hole. I felt regulation needed to get into a place to protect all this and put in place a higher bar for quality carbon offsets and removals.

Then I was like, well, that's all right, there’s a presidential election season, I’m sure someone will get elected and figure this out.

Christian Anderson: Ah, this is 2016, right?

Peter Reinhardt: Well we know how that went down. So, I was like, "Oh shit, regulation isn't going to happen. So, how is this going to work?" I was on an airplane one day, and for some reason, I was thinking about it, and I realized the only way this will work is if it's profitable — if you can start a for-profit company that goes and puts carbon underground. I at least understand how capitalism will get behind that because that's what drives Congress at the end of the day. [For-profit work] drives jobs, and jobs drive Congress. All these things come back to: we need a for-profit thing that can drive the volume and intensity of capital deployment in this area.

Peter Reinhardt: So then I spent about a year of Saturdays with some friends trying to figure out if there was a carbon removal pathway that was profitable. That's what led us down the path to gasification and ultimately to bio-oil sequestration.

Christian Anderson: I want to talk about Charm's pathway before we hop to that. You've drawn this sort of traditional offsets versus carbon removal distinction.

Peter Reinhardt: Many folks make it. I think people often draw slightly different lines between the two. It’s what you see as the sort of key difference between what Charm and what others in this current generation of carbon removal companies are doing versus what has been available to customers historically.

Peter Reinhardt: I think what's been available to customers historically or to buyers historically are things that move through traditional registries, like the CAR and ACR – I forget what these abbreviations stand for — and then they're verified by Verra or one of these verification bodies.

Peter Reinhardt: There's research that's coming out from Berkeley, Stanford, Oxford and Carbon Plan — as a team that's been doing a bunch of research on this — that despite the fact that these things are getting a gold standard stamp or are verified by Verra, with a similar kind of stamp of approval and are sold on these registries, that like 85% of them that are bought are not additional. In other words, whether you buy them or not, whatever carbon benefit was there would have happened. An example is deploying clean cookstoves which are almost always paid for by health benefits. Then on the backend five, 10, 15 years later, a bunch of carbon credits get claimed as financial upside.

You have 85% that are additional problems, then we've got 15% that are left. Then half of those have major leakage, for example you set aside the forest, but the forest next door got cut down. Then of the remaining seven and a half percent of the total volume, it's very impermanent. So, you actually get carbon out of the atmosphere on the order of 10 to 50 years. When we need it out for at least 500 years, ideally forever. What we're finding with customers and folks who've been really deep into this, is that the quality of these traditional carbon offsets, whether they be nature-based or anything else, are so low, that it's almost worthless.

If you actually start multiplying it all out, the true cost of removing a tonne [of carbon] through those methods pretty quickly gets up to $1000 / $500 bucks a tonne, even though the list price that you're paying is two bucks a tonne.

Christian Anderson: All right. So, additionality and permanence are the two big distinctions. So talk to me about Charm's pathway and how you assure both additionality and permanence.

Peter Reinhardt: Additionality asks if someone didn't pay for it, what would've happened? And that gets confusing when there's lots of co-benefits, because sometimes you can have someone paying for one co-benefit.

Christian Anderson: Define co-benefits for us.

Peter Reinhardt: We deployed a clean cookstove, which reduces particulate emissions, which improves health and reduces carbon emissions. It's wonderful. But then you end up double-dipping on the financing of it and the additionality gets hard. So, for Charm, it's really simple, we're pumping carbon back underground.

We're putting oil back underground. We have to pay for that. It has no co-benefit, therefore you're pretty clear on additionality. There are some other checkboxes that we need to make, but since we're sourcing biomass, we'll have to assume, there's a leakage question, which asks, are we displacing fossil fuel usage somewhere else? So, we have to be really careful about leakage, in terms of our biomass sourcing. And then from a permanence perspective, we're taking this bio-oil — think about it as caramelizing biomass. So, we take corn stover or another thing, and you basically end up with what you’d get if you caramelized sugar on a stove in this thing called a pyrolyzer. And it turns into a dark brown liquid, and we pump that carbon-rich liquid underground. We're putting it back in the same geological strata, a mile down where the oil came from. We’re literally putting it back underground and it's very permanent — the oil was down there for hundreds of millions of years.

Part of the reason why it's so permanent is that it is denser than the brine that is injected into. So usually, these strata are full of brine. We inject it, and it literally sinks because it's just denser. And then bio-oil does this funny thing where it auto polymerizes, which means that it's a mixture of aldehydes and ketones and alcohols and phenols and all this crazy organic chemistry. It reacts with itself and forms a sticky goop. So it sinks and turns into goop. This sucks if you're trying to do anything else with bio-oil, but it's wonderful as a storage mechanism. And that can compare, for example with CO2 sequestration, where you're taking compressed CO2 into a supercritical fluid and then injecting it down.

Christian Anderson: That would be like a direct air capture company, for instance, capturing CO2 from the air and liquefying it.

Peter Reinhardt: Or point-source capture is your other one. When you have that CO2 fluid; one, it's trying to expand because it's under great pressure. And two, it's not buoyant in the brine that is injected into through, so it wants to rise to the surface.

That then means that you need all this extensive monitoring on all the nearby wells to make sure you're not accidentally piping the CO2 back out through some other pin cushion in that strata.

Christian Anderson: So you've drawn this vivid image for me of caramelizing this biomass. Talk to us about the Charm pipeline. What does it look like today? Not the literal pipeline, but what does this sort of process look like in terms of where do you get this biomass? Where do you caramelize it? How do you get it a mile underground?

Peter Reinhardt: Our supply chain today is a little more complicated. We're playing with a few different injectants, but starting this fall, we will be deploying our first supply chain and the process that we own end to end with machines that we've built and wells that we've drilled.

Christian Anderson: You're drilling your own wells. I didn't realize that part.

Peter Reinhardt: We're going to be re-drilling our own wells this fall or this summer.

Christian Anderson: That's wild. You really are a reverse oil company.

Peter Reinhardt: It literally is an oil and gas company in reverse.

Christian Anderson: So you were saying this fall? Talk us through what that process will look like? Where will you be sourcing that biomass?

Peter Reinhardt: The biomass will come from farms in Eastern Kansas. It will be agricultural residue, corn stover. You take the corn cobs with all the corn kernels and you're left with all the other stuff, the stocks and the leaves and everything. You want some of that left on the farm to protect soil erosion and soil carbon. You leave about 50% there. We'll take the other 50%, we’ll rake it, bail it, wrap it, stage it to the side of the field. And then we'll have our pyrolyzer, which will be in a couple of 20-foot shipping containers for biomass handling, do the caramelization, and some storage of bio-oil. Then we'll have trucks coming by, picking up the bio oil, driving to the injection well, and pumping it down.

Christian Anderson: On these farms, do you own the drilling? You probably don't own the farms. Who are you partnering with?

Peter Reinhardt: We definitely don't own the farms. Just partnering with the local growers or producers who are already growing massive amounts of corn. There's 92 million acres of corn grown in the US every year, which for us means a potential supply of about 200 million tonnes of corn stover in the US.

Christian Anderson: This biomass that you're caramelizing, what would have happened to it if you hadn't?

Peter Reinhardt: It would have sat on the field and rotted. The carbon would have returned to the atmosphere as CO2.

Christian Anderson: Coming from the software world previously, I imagine there's a whole new world of challenges in the logistics chain of a carbon removal company. Tell us some stories from the past year. Some challenges that came up, some hurdles that had to be overcome.

Peter Reinhardt: Moving hardware is super complicated. Two example challenges that we're facing right now: there's a global container shortage, so we are trying to transport some experimental bio-oil from another supplier in Finland and the Netherlands. We want to experiment with it on a shorter cycle — like we always are trying to move as fast as humanly possible — which means doing all kinds of wild things. In this case procuring bio-oil from Northern Europe. We've done the lifecycle analysis on it, and it is worthwhile if we transport it by boat but there's a container shortage. Katie, who runs sequestration operations, is trying to figure out how to source containers. And there's just not enough right now.

It turns out that if you don't have the containers leave the port, they're more likely to let you use the containers. So now we're trying to figure out how to do this completely at the port.

So anyways, it's crazy stuff like that.

Christian Anderson: Hannah's asked this question in chat, which I'll interpret. As you get the longer-term supply chain ramped up, what geographical limits, if any, do you have about where you source the biomass? Do you need farms that are next to drilling sites? Or what does that network look like?

Peter Reinhardt: Where we have flexibility is a really important thing. We actually have a lot of flexibility on the injection side. The types of geological formations that we can inject into are almost everywhere, we just need porous sedimentary rock. There are some places in the world like Iceland, which is like all volcanic, non-porous rock. We’re not gonna inject in Iceland but anywhere else that has deep sedimentary layers, which is basically any continental plate that has these porous sedimentary layers that can be injected into.

If you look at it like direct air capture, they actually need a much more specific type of geological strata to inject into because they need these impermeable layers over it so that the CO2 can't get out because it's buoyant. So we have much less restriction in terms of where we can inject, which then means we have a lot of flexibility on the other side in terms of sourcing biomass.

The other thing to keep in mind is with biomass itself, the biomass is solid. It's very fluffy. Like it's lightweight. It has a lot of air content. It's very difficult to move biomass and expensive. So typically you can only move biomass within about a 50 mile radius before it's uneconomical to move it.

So this is one of the reasons why we're doing our caramelizer or pyrolyzer right next to the edge of the field so that we can actually process the biomass without transporting it at all, just to the edge of the field and then we process it. Once it's turned into bio-oil, the bi-oil is about 10 times denser on a carbon basis and it's a pumpable fluid, which means the logistics of moving it are drastically easier. So that effectively gives us a 10x radius. It means we have a 50 mile radius collection base into a 500 mile radius collection base from an economics perspective. If you can drill anywhere and you have that 500 mile radius, there's a lot of flexibility on the biomass sourcing.

But to answer the specific question, I think the actual constraint on biomass is about a gigaton a year of residue in the United States — and the United States is about 7% of global agricultural land.

Christian Anderson: Is that a gigaton of biomass or gigaton on a carbon basis?

Peter Reinhardt: It's a gigaton of biomass. When you do the lifecycle analysis, it ends up being about a one-to-one ratio, which is fantastic. Every one ton of biomass is 1.65 tonnes of CO2 equivalent, but then we have some losses along the way and it ends up at about one. There’s probably one gigaton a year in the United States. If we add purpose-grown crops, as if we start growing high yield crops purely for this purpose, then we can probably get to two gigatonnes a year in the United States and then get to a 14x multiple on that if you go global — theoretically, maybe 28 gigatonnes a year.

Christian Anderson: For folks' reference, I think this compares to around 50 gigatonnes a year currently of anthropogenic CO2 emissions. So this could put a huge dent in the problem, if you scale it up.

Peter Reinhardt: Indeed, that's why we're excited about it.

Christian Anderson: We've got one more question in chat on the pathway and then I'll move us onto our next topic. On the pathway, the question is, do you foresee injecting your biomass into already-existing wells? I happen to know you have done that. So I'm curious about the flip side of the trade-offs between using existing wells versus leading you to drill some of your own.

Peter Reinhardt: Slightly nuanced but when I say drilling, I actually mean re-drilling existing wells. There's so many abandoned, unused wells, there's very little point in drilling a totally new one. There are several different kinds of wells, and this may be more depth than folks are interested in, but there's what's called a Class 1 deep underground waste disposal injection well. This is all regulated by the EPA. So a Class 1 well is basically what I've described so far, which is deep down into a sedimentary layer. And in the United States, we inject something like five gigatonnes a year of liquid waste into Class 1 and Class 2 wells. Class 2 is the same thing, but specifically for brine coming out of oil extraction wells.

When you have an oil extraction well, 80% of what you get at the surface is brine, 20% is crude. So what do you do with that 80% of brine? You reinject it into a Class 2 to keep the pressure up in the reservoir and it allows you to extract more oil over time. A Class 3 well is like a solution mine, where people will drill down to a salt layer and dissolve the salt out, bringing it up to the surface. For example, Morton table salt often comes out of a Class 3 solution mine. Class 4 is illegal, and then Class 5 is a salt cavern, which is where you dissolve out a chamber and maybe use it to store fluids or gases.

So the strategic oil reserve is stored in Class 5 salt caverns at several sites; each site has several hundred salt caverns. And a Class 6 is a Class 1 well that is specifically used for CO2 injection and sequestration. So we at Charm are looking at using Class 1 well, which is the deep sedimentary type, and Class 3, which is abandoned or unused solution mines and exhausted, and finally, Class 5, which are abandoned or unused salt caverns that maybe have structural issues and putting bio-oil in them stabilizes them and prevents surface collapse.

Christian Anderson: Charm is not just a carbon removal business; it's also an energy business, specifically a clean energy business, helping decarbonize industrial sectors that are hard to decarbonize because of fuel needs. In that world with this sort of two-pronged business, is Charm doing carbon removal forever, or are you a long-term carbon reduction company? How do you balance those things?

Peter Reinhardt: Both. Ultimately, what we're trying to achieve is economies of scale and the production of bio-oil and where that bio-oil ends up — as it can end up in either place. So we need both to drive us to initial scale (carbon removal especially), as it all helps drive economies of scale.

If carbon removal continues to get bigger and bigger, that's awesome. It will aid even faster decarbonization of this industry as we come down the cost curve faster. So it all helps. I see ourselves doing both.

Christian Anderson: It's really interesting because we talk so much to individual customers about the role of both carbon removal and emissions reduction in achieving decarbonization. One of the things I love about Charm is that the technology addresses both. On a global basis getting to zero carbon, will probably be mostly reduction, replacing existing industrial and energy processes with new clean ones, and then a layer of carbon removal to help us get to the last mile.

You mentioned Moore's Law, you mentioned Wright's Law. What are the specific kind of learning effects that Charm benefits from as you have more and more customers?

Peter Reinhardt: What really matters initially, is the cost of the machine to convert the biomass into bio-oil, that's what really matters. This is primarily driven by producing more of them. Each of these is like a 40-foot shipping container.

Think about the mass production of semis, that's basically what's happening here, in terms of coming down [the cost] curve. We'll hand-build the first one, and are in the process of hand-building our first one, and in the process of leasing a space in San Francisco that would allow us to produce about 30 per year. So that should get us pretty far down the cost curve.

The absolute dollar is pretty far down the curve, but then we'll need to build something like a Gigafactory that produces a hundred thousand a year outside of Wichita or a place like that. What's interesting at a scale, is you can see that biomass starts to dominate and that's because you don't get that much economy of scale just purchasing more biomass.

You get some economies around sort of the efficiency of your operation there, but there are some diseconomy effects that fight it, as you start to get closer to saturating supply. But it's interesting to look at what actually drives biomass costs. It's not actually money to the grower, it's actually logistics or manipulation of getting the biomass off the field. So 80% of the cost of biomass is cutting, raking, baling, wrapping — wrapping the bale in plastic to make sure it doesn't spoil — moving into the edge of the field, called staging, and then loading it into a machine. 80% is all of that manipulation.

One of the things that we're investigating right now is if we can make the pyrolyzer or this caramelization machine robust enough that it could actually operate on the field. We would cut out the raking, the baling, the wrapping, the staging, the loading. There's huge potential in upside in the cost of the biomass. Surprisingly, it’s nothing to do with improving photosynthesis or anything like that. It is just literally having the pyrolyzer on the field, like a combine harvester, as opposed to on the edge of the field.

There's a few things like that are a little less obvious, but as you get into the operational details, this would be a big jump for us. We’re hoping to do that with around 250 to 500 pyrolyzers, as we have that kind of robustness built in.

Christian Anderson: If you can achieve this kind of biomass savings, it inspires cost reduction — something that you and I talk about in terms of the role early adopters play. Right now, this is the role that Watershed and our customers try to help play for you, to bring these early customers who can help bring down the first few years of that cost curve.

I'll ask the maybe naive question: what's the fundamentals on that? Why are early adopters important? Why don't you just build more pyrolyzers and learn how to build pyrolyzers by building the first hundred yourself? What is the role of those early adopters for the business?

Peter Reinhardt: There's a funny loop that happens. Which is, how do you raise the capital to build the first hundred [pyrolyzers]?

You raise the capital on the basis of your ability to show revenue growth. It becomes this strange loop of if you get some customers, then you get the capital to go do things like lease the space and build out all the machines. So it's super catalytic to have customers at this stage and we're trying to create contracts now that will have a most favored nation clause so that folks that are purchasing at 600 bucks a tonne right now, get some of the benefit of that when we start announcing price reductions.

Christian Anderson: Oh. Sign us all up.

Peter Reinhardt: We're trying to figure out what those reward mechanisms are, but it's hugely catalytic in the early stages because it's not that much absolute dollar. It is a high price point at the time, but it's not that much absolute dollars relative to the sort of cost curve impact, which then pulls in more people behind it. So it's more people, more customers, more investors, more actual build-out, et cetera. It's hard to overstate how catalytic it is.

Christian Anderson: Wonderful. Wonderful. So we've got about 25 minutes left, let's shift towards fully audience Q&A. We've got an open question here that I'll sort of ask now would love folks to put others in there.

I have quite a lot more questions for Peter, but the risk is I think they will get increasingly climate nerdy if you let me go and go. So the next question from the audience is, as we look at the kind of scale up that you're showing, what does that translate to in terms of job creation? I imagine that's a big part of the discussion with these federal regulators, you were just talking about.

Peter Reinhardt: We actually haven't done those calculations. I would assume that to produce a Gigafactory facility with a hundred thousand pyrolyzers a year is probably, pretty far out on this absolute curve, but hopefully not that many years away will be several thousand jobs.

But then you also have maybe more importantly, all the operational costs going to the CAPEX. All the operational costs going to purchasing biomass are going into the pockets of farmers. It turns out it roughly doubles the profit margin or the absolute profit dollars that a farmer is getting because it's purely revenue.

So even though it's a small revenue stream for them, it actually is pretty impactful. From an agricultural community perspective, I don't know if we'd count that as jobs, but it's pretty meaningful. And then of course, you've got all kinds of things like trucking —[a] huge number of trucking jobs.

So I think most of the jobs actually get created on the OPEX side as opposed to the manufacturing side.

Christian Anderson: Really interesting. So this job creation topic is very adjacent to this topic of regulation and kind of the landscape as you talk to federal regulators. What's that been like over the past four or five years? Did it change with the new administration? Is it a politically polarized topic or not? What does that feel like today?

Peter Reinhardt: This is actually another reason why purchases that a customer purchases are very catalytic. I would say we've really struggled to get the time of day from any regulators or anyone until we showed up and we were like, “Hey, we have a customer and we delivered it.” So just in the last few months, we did the thing on the ground, then two months ago we announced we completed the Stripe purchase and that was the first 400 tonnes. I think we've now maybe 1500 tonnes or more.

And we're chugging through a big one right now. However, that news that says, “No, it's real, someone had purchased it and we actually hired people in your district, and I'll show you a picture" hopefully makes it real. It all becomes visceral for people, including regulators and senators and Congress people. And they're way more excited.

We haven't been able to get the time of day till three weeks ago. Then, we had a Senator come and tour our HQ. Like they're just way more interested in it. In the last two months, we've had a chance to brief the Senate Ag committee, Senate Finance, House Ways and Means — all these different people who are now very excited about it. Certainly the administration changing has changed the tone, so now it's like, “We need to go do something in this area,” which has been a huge shift.

Christian Anderson: With many new carbon removal pathways being explored, do carbon removal companies lobby together at all, or is it really a per pathway thing?

Peter Reinhardt: I think a lot of the detail of lobbying is pretty per pathway. Because we need this modification to 45Q when someone else gets this other modification. You do eventually end up saying, "Hey, as an industry, here's the delta that we need." That's the ideal case, but we've only been in the carbon removal space proper for 13 months. We were previously focused just on the industrial decarbonization side here, and then my co-founder Sean had this breakthrough that we could use bio oil as a carbon removal mechanism. We've only been at that for 13 months, from concept to 1500 tonnes underground has been pretty quick, so I'm just starting to meet folks like Christoph who runs Climeworks and I think out of those kinds of relationships, hopefully over the next year or so, we'll start to understand better how we can collaborate. I don't know, one idea for example, would be we write a joint op- ed for the New York Times around what, a federal procurement or something like that, which could be impactful. But we're just starting to figure out how to make that work well.

Christian Anderson: Something that I've loved personally, about working in the climate space is how high the collaboration is between different companies. So love the joint op-ed. I'll move us to these next audience questions. We've got two related questions from the audience here, about the potential of nonagricultural sources of biomass. The most specific of these questions is whether there's anything you anticipate doing with marine biomass as Charm grows?

Peter Reinhardt: There's a company called Running Tide that has a really interesting concept that just got a little bit of funding from Stripe. What they're investigating is taking kelp and growing it on a buoy that auto-rots in the ocean. The kelp just falls to the ocean floor, which is a cool pathway. There's a lot of science being done around whether it's permanent removal, but the problem with kelp and all these other kinds of different kinds of biomass for our purposes is that they're extremely high in water content. So the wet tonnage is extraordinary, just like unreal levels of wet tonnage, because it's a lot of water — it's 90% water. That's just tough for our process, because it's a heating process. Water has very heightened capacity which just makes it super inefficient. So it's really hard for us to use kelp or other algae, other kinds of things like that in the current process that we've outlined.

Christian Anderson: It makes perfect sense. We've got this next question from the audience here. Big picture, what role or scale do you see carbon removal [playing]? I'm going to interpret that as the whole carbon removal industry, not even Charm in particular, but what scale do you hope or expect carbon removal to get to by 2030, by 2040?

Peter Reinhardt: I think unfortunately we have to separate what we need, from what we hope, from what we expect. What we need for the Paris Accords or Paris agreement, is 1.5 degrees C [in reduction], which is a gigaton, at least, per year, by 2030. Then 10 gigatonnes a year by 2040, and more and more after that. We need a lot.

Internally at Charm we have a pretty aggressive goal where we would love to get to a gigaton a year by 2030. To try to give a sense of what that actually means, scale-wise, if we were to put all that bio oil in railcars, we would keep the entire fleet of tank rail cars in the United States busy 24/7/365. Just the volume of material that we're talking about moving here is ridiculously large. That’s a big, hairy, audacious goal that we can put on the wall.

Maybe we will find a way to make it happen. Maybe we as a country, gain the push to do federal procurement or those other things that might really accelerate it. That's kind of the hope that matches what we need, but it would be really extraordinary. It'd be basically scaling up to Tesla manufacturing levels and twice as fast. In terms of what we can reasonably expect, maybe more like a gigaton by 2035 or 2040 from all carbon removals combined, would still be maybe a little optimistic.

Christian Anderson: When we talk about all carbon removals combined, Charm has gotten so fast to market with your pathway. I've got a kind of two-prong question. I'm curious, what about Charm or your pathway has gotten you to this six months delivery horizon, which I think is just kind of so fast in the industry. That's my first question. Let's start with that.

Peter Reinhardt: I'll try to put this in slightly more context. If you take the aggregate of all direct air capture and sequestration to date, direct air capture sequestration has put 175 tonnes of CO2 underground. Charm in 13 months has gone to about 1500 tonnes, so almost 10X more in one 10th of the time. So that's the more quantitative view of the pace of scale-up. Part of it is hacking things together, being a bit more creative in the supply chain. I think we’re piecing together different pieces from different things, because we want to learn as fast as possible, even if it's not the ideal. We own every step of the supply chain yet, but it has accelerated our learning enormously and has accelerated sort of like traction, both with customers and with investors, which then allows us to pile on even faster.

So kind of hacking the supply chain, if you will, I think is one big piece. The other big piece is that we're not trying to build a big facility. So carbon engineering has not materially changed their engineering or science in five, six years. But in the last five, six years, they basically just been trying to figure out how to fund the construction of the first facility.

And the first facility is like a billion dollars in CapEx, I think maybe it's going to $2 billion in CapEx now. And so that's just really hard. Like I've raised like 11 rounds of funding. I have absolutely no idea how you would go raise a $2 billion vehicle like that. That's insane. So, that is really tough.

And what's different about the Charm model is that we're deploying a semi-truck — we're deploying a 40 foot shipping container unit that costs a couple million bucks for the first time. That is a very materially different kind of capital requirement, which means that you can have people taking way higher levels of risk, which means they can move much faster. I think that is maybe the most interesting thing at the root of the supply chain hacking and lower CapEx requirements for the incremental unit scale.

Christian Anderson: I was going to ask a question, but I will instead ask the audience a question. What region outside the US is most attractive to work in for Charm? Do you have a timeline for expanding internationally? I’ll put my spin on this, because when you talked about needing the national capacity to expand national infrastructure, like a rail car fleet to support Charm's scaling ambitions, is there some government that you could imagine partnering with over the U S government? Could that be necessary over time?

Peter Reinhardt: I think there's kind of two considerations in looking at international expansion. One is ultimately how much demand — how much carbon removal you can do anywhere in the world. We might as well do them in the US for now. So really, the reason to expand internationally would be if you wanted to establish these bio oil supply chains that you could tackle these industrial decarbonization use cases as well, because those are local, and the supply chain has to be local. So then you're looking at basically kind of overlapping two different things or three different things. One is what is the sort of vibe of all the political parties in power in terms of support for climate related initiatives like subsidies or those sorts of things to accelerate adoption.

The second is biomass availability. Is there any agricultural residue, for example? You know, Northern Africa, not great. Even though they actually do have a bunch of industrial syngas. And so, by comparison like India, tonnes of agricultural residue. And then the third is is there a large industrial base to sell into it?

So when you overlay those three factors, it's a little bit complicated to talk through each of them, but the ones that become particularly interesting are India and Brazil. They always have large amounts of biomass, both have large industrial kinds of systems that could consume the syngas there.

They're not particularly environmentally forward right now, which means that they're not great right now, but in 10 years they could maybe get there, especially if we started to make it more economically viable. The US is a great one on all three dimensions right now. So, start here.

Christian Anderson: Well, do you have at Charm today any sort of concrete timeline for when you would expand to that second country, or is it just like the US for as long as that's working?

Peter Reinhardt: We can get to a gigaton a year in the US. That's a monstrous amount of material. I think we'll stay focused here for now.

Oh, actually China would be great too, but that's probably more a partnership model and maybe the sort of thing where we just license it and hope for the best in terms of climate impact.

Christian Anderson: And is that specifically because of the difficulties of operating locally in China as a US company?

Peter Reinhardt: Yes.

Christian Anderson: There are a bunch of the folks on this Zoom, who think from the carbon removal purchasing perspective, what makes the ideal purchaser for Charm? You know, any given company is going to have to sort out its own incentives and its own objectives. But if you just kind of got your magic wand of what the kind of ideal mindset, attitude, like time horizons of purchasing, et cetera, like what does the sort of ideal purchaser look like for you?

Peter Reinhardt: I think what we're finding is that the ideal purchaser probably looks like a technology company. So [we’re] inspired by them and their employee base and potential employee base, and so on.

The second is a commitment to having a positive impact on the climate. When a company makes a net zero commitment, in some ways, it makes catalytic purchases harder. Stripe is very interesting, I think for having made a financial commitment that is quite meaningful, but not deploying it necessarily with an explicit target of net-zero, but instead investing it towards reducing the cost of things that might be better for the future.

Christian Anderson: And to make it explicit that's because net zero or even carbon neutral, has a sort of dollars per tonne number, which kind of implies that the objective is less fitting for bringing something down the cost curve.

Peter Reinhardt: As soon as you make a net zero commitment you are incentivized to go look for the cheapest thing per tonne, which generally will push you towards things that are low quality. And you know, if you actually pull through the additionality leakage — a permanence kind of situation like the carbon plan calculator, you can pretty quickly get to 500 to a 1000 bucks a tonne in terms of actual costs. Which is actually very expensive on a net zero basis.

I think the most interesting kind of approach is one where we're just going to focus on high quality [options] and bring down the cost curve because the low quality [options] are actually quite expensive. But for folks who've made a net zero commitment, a portfolio approach where you can satisfy the net zero commitment with some low cost things and blend in some catalytic stuff, is an approach we've seen that works really well.

Christian Anderson: I mean [this is] specifically what Watershed does with most of our customers, and I think one of the things that is helpful for the Charms of the world, is getting to the scale numbers you need in 2030, once you start to price in, leakage or additionality. To your point, this basically demands you to help bring projects down the cost curve ahead of them. That is the thing that you like about that net zero commitment, which is once you rigorously back solve from the 2030, I think it does imply that you will fund the right project today.

We talked about how one of the ways these early adopters are critical is in securing the right funding. What does that funding environment look like for Charm as you're building up the customer side? How then are you also building up on the investment and fundraising side?

Peter Reinhardt: So one thing to keep in mind about investment in hard technology or heavy infrastructure like this, is that there's really two different kinds of capital.

There's capital that goes into the company corporate equity, and then there's capital that goes into deploying projects — that tends to be more like debt and other vehicles that don't necessarily have an ownership stake in the company. Now it's all about project finance, which is for us to do, as we've only raised corporate equity.

We haven't started doing project finance, but as we start to scale that way, we bring down the cost of capital, like a venture capitalist expects 40% internal rate of return year over year as a hurdle rate, and that's just very expensive. If we deploy a pyrolyzer and someone wants to see a 40% return, holy smokes! The pyrolyzer is super expensive, all of a sudden or that bio oil sequestration is super expensive.

So instead we utilize project finance, which will very quickly become the majority of capital that we're putting to work. It doesn’t touch the kind of corporate equity structure, but it gets deployed in such a way that you can finance the construction of many pyrolyzers and those might be on a 6% kind of internal rate of return hurdle.

That structure is important to understand from a venture capital/angel perspective. There's a lot of angels and there's a lot of folks that will invest at the early stages. But then there's a bit of a gap, which is how do you deploy the first of kind machine?

How do you finance that? Because it's non-trivial for most companies, it's like tens of millions or a hundred or 200 million bucks to go build the first-time machine. You haven't de-risked it enough for project financing, but it's also too much capital to take high risk, even on the venture side. Which means that often companies get kind of stuck around this initial capital raise which is another reason why actually early revenue is really important. Because if you have some revenue, it really helps with the valuation, which really helps raise the amount of capital that you can bring to bear as you've jumped across that chasm. I mean, we just closed our Series A this past week — we won't announce it. But that should be more than enough for all of our first- of- kind wells, gasification, and pyrolyzer over the next year and a half.

Christian Anderson: Love it. Love it. There are a couple more audience questions coming in. One is about fundraising. So I'll do that. Jenny, I am going to get to your question, because I think it's excellent. On the fundraising, are there sustainable finance style instruments, green bonds, sustainability oriented credit facilities that exist and are relevant to Charm?

Peter Reinhardt: Yes, they tend to be in the project finance block, if you will. So once you get up to some scale, once you've demonstrated that the thing really works in production, then you can attract this kind of project financing. That's where that debt might be green bonds or other kinds of things, but usually it's in the project finance stack, which usually has a primary debt, secondary debt, or a mezzanine debt that might have a USDA loan guarantee. You might have technology insurance and then that becomes a package of funding to go build a big plant or like for us a hundred pyrolyzers or whatever.

But usually most of those facilities instructors tend to play on the project finance side. So anytime you have more structure, it tends not to be the super high return venture.

Christian Anderson: Makes sense. We're on the homestretch of audience questions. So audience members are sitting on any questions, get them to me now so I can get them to Peter.

Jenny had asked this question, as you'd mentioned leakage issues around this need to ensure that you're using waste biomass. Jenny's first question is how do you ensure that?

Then the second question related to another hazard of needing biomass in the process is, do you anticipate conflicting at all with other kinds of bioenergy or other decarbonization pathways that depend on things like land use and water and biomass.

Peter Reinhardt: One criteria for us in sourcing biomass, is it doesn't have an alternative use. And if it has an alternative use, it becomes a lot more fraught right? The alternative use of sawdust is a really good example. If you take sawdust, you can very easily burn sawdust to replace natural gas or oil or petcoke or any of these other kinds of energy rich Petroleum products.

We take sawdust and convert it into bio-oil and pump it underground. We are pulling more petroleum into the system to provide heat or power, where that sawdust would have been burned otherwise. So the key for us is to be very careful about what the alternative use cases are. Things like corn stover or almond shells generally do not have alternative use cases. They typically are on the field or on roads or whatever and rot. We have to do that on a per biomass type basis and sometimes a little more local than that. But it does require some care.

Christian Anderson: Final question to close this out. In these past few years you have hugely ramped up the amount of personal time and personal energy you're spending on climate, as you've gotten so deep in space. How has it updated your view on what we as a world face from a climate perspective? Are you becoming more optimistic? Becoming more pessimistic? What's the feeling after being so deep in this?

Peter Reinhardt: I think over the past six months I've gotten a lot more optimistic because the federal government has largely switched positions. There's meaningful changes happening there [federal government] often on a bipartisan basis — surprisingly. So, I think we need to update a little bit of our work and all of our heads around that.

It is true that the switch [of] administrations caused tension to be put on this, but there is broad bipartisan support for moving forward with an energy transition as long as it preserves jobs. So that makes me optimistic. I think the surge of carbon removal purchasing makes me optimistic.

That said, there's a lot of people currently investigating purchases and quite a few that are actually doing it. That's an area that all of you can have a huge impact on. There are also very few companies actually putting carbon underground, but on the other hand there's a lot more getting started.

Christian Anderson: We're going to go. So thank you, Peter. Thank you so much for joining and answering all our questions and see you all super soon.

Thank you to the audience. Everybody have an awesome day.

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