Earlier this year, Carbon Engineering – the innovative firm that sequesters atmospheric carbon dioxide using “Direct Air Capture” technology – raised $68 million from a consortium of investors.
In a prior article, I related my conversation with a family office manager about his process and motivation for investing in such a venture. In another article, I offered my impressions of my conversations with several venture capital (VC) investors. This article covers my conversation with one of the “Strategic” investors in Carbon Engineering.
A strategic investor is a corporation that invests in private companies that have unique intellectual property that may help the corporation’s business strategy.
Some companies, such as Alphabet, fund and staff VC arms of their own – Alphabet’s in-house VC firm is GV (formerly Google Ventures). These companies may invest at either the VC arm level, at the corporate level, or at both. For example, private data security firm, Ionic, recently completed a later-stage capital raising round that was invested in by both Alphabet and GV, in addition to several other notable investors.
The strategic investor with whom I spoke is an executive at Oxy Low Carbon Ventures, the venture capital arm of Occidental Petroleum that is especially focused on incorporating carbon capture, utilization and storage (CCUS) projects into its parent company’s operating model.
Before my call with the executive, I had expected it to be similar in substance to my earlier meetings with Carbon Engineering’s other investors. After all, the name of his organization contains the word “Ventures” and the investing functions seemed no different to me than to those of an investment manager working at a private venture capital firm.
However, after speaking for a few minutes, I realized that the executive’s focus was subtly different from those of us tasked with finding a company with a unique product run by competent managers.
The executive was clearly looking for innovative, well-run businesses as well, but it was obvious to me that he was starting to mentally slot together different investees and different technologies into sort of an integrated platform whose perfect coordination might not be realized for years – an investment time horizon longer than all but the most patient venture investor.
Whereas other investors talked about Carbon Engineering as an individual opportunity, he was talking about a future integrated carbon market – not a market for oil or natural gas or chemical feedstocks – but a market that would allow companies to make purchases of carbon chain building blocks themselves.
These carbon chain building blocks might be newly mined (i.e., oil drilled out of a reserve) or might be extracted from organic waste or the atmosphere or an industrial process that emits carbon as waste.
While many people decry the burning of fossil fuels, the reason that so much time, energy, and money is spent searching for and mining hydrocarbons is that hydrocarbons are almost unique in their ability to provide an easily portable source of usable energy. At the heart of that convenient energy source is the carbon atom and molecules of carbon, hydrogen, and oxygen.
He acknowledged that the future was a low-carbon or no-carbon one, but that even in a low- / no-carbon world, carbon use would continue to serve an important role. In this world, an integrated carbon market would become a necessity and collaboration between the different players in the carbon value chain would become vitally important.
I knew that Occidental had carved out a niche for itself in the Permian Basin by figuring out how to extract difficult-to-extract oil through Enhanced Oil Recovery techniques, one of which pumps carbon dioxide into wells to coax oil out. I asked the extent to which the company’s experience in EOR led to its interest in Carbon Engineering’s technology.
He acknowledged that his company’s EOR operations did make them much more comfortable and knowledgeable about managing carbon dioxide resources and said that he thought that experience had colored his view regarding an integrated carbon market in the future.
However, he also said that he thought the defining characteristic of Occidental’s operations was its engineering capacity and that this focus on engineering is one of the things that allowed the company to see Carbon Engineering’s potential.
When I asked him if he thought that the implementation of a carbon tax was necessary, he pointed out that the “45Q” tax rule, which allows for companies actively engaged in carbon capture and sequestration to receive a tax credit, effectively does the same thing but in a positive way.
Through the tax credit, companies capturing carbon emissions are rewarded, as opposed to companies producing carbon emissions being punished. Whether by a carrot or a stick, there is now an effective price on carbon in the United States, and the certainty of an economic price for carbon is already changing corporate behavior.
I must confess that sometimes, thinking about what humanity must do over the next hundred years to allow itself to survive and thrive on this planet seems daunting. After I hung up the phone with the Occidental executive, though, I confess I felt a glimmer of hope.
There is much to be done and companies like Carbon Engineering are just part of a larger solution that includes increased energy efficiency, more thoughtful organization of supply chains, and a rethinking of models of consumption.
But the fact that they exist and are starting to flourish thanks to the efforts of strategic investors such as Occidental Low Carbon Ventures tells me that there is hope for us on this lonely rock. It will not be easy, and the in-process paradigm shift will overturn a lot of apple carts, but it is not impossible. Intelligent investors take note.