Startups

The Grand Challenges of Deep Decarbonization

Shayle Kann is a partner at Energy Impact Partners, a 2 billion dollar VC firm investing in companies at the frontier of climate technology. He brings deep domain knowledge and nearly two decades of expertise to his work investing in revolutionary companies that can meaningfully contribute to addressing climate change. 

13
 min read
Last Updated: 
October 29, 2021
Startups

The Grand Challenges of Deep Decarbonization

Shayle Kann is a partner at Energy Impact Partners, a 2 billion dollar VC firm investing in companies at the frontier of climate technology. He brings deep domain knowledge and nearly two decades of expertise to his work investing in revolutionary companies that can meaningfully contribute to addressing climate change. 

13
 min read
Last Updated: 
October 29, 2021
NAVIGATION
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Deep decarbonization is a both multifaceted and daunting problem. But the challenge is proportional to the reward: companies that successfully contribute toward significant climate change mitigation will build enormous businesses in the process. The world of climate tech can be complicated, but I try to keep my eyes trained on six grand challenges we face on our road to decarbonization 

Before diving in to the specific challenges at play in decarbonization and their associated opportunities for innovation, let’s look at where our greenhouse gas emissions are coming from to understand the broader context.

Understanding emission sources

The combination of electricity and heat account for a quarter of global greenhouse gas emissions, followed by agriculture and forestry, then industry and transportation. Ultimately, these markets are the prize.


But of course it’s more complex than that. What actually causes emissions in those sectors? For the most part, it’s our use of energy. In one form or another, the energy sector is responsible for over seventy percent of all greenhouse gas emissions, and many decarbonization pathways can be traced back to changing energy sources or delivery.

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Though energy is therefore clearly the biggest source of emissions, the picture becomes more complicated when you layer in more granularity. 

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Industries like waste and building management may seem small in relation to larger sources of greenhouse gas emissions, but even eliminating half a percent of global carbon emissions would have a tremendous and meaningful impact, so even changes in these relatively smaller areas are huge on a global scale. 

Any solution that aims to address an aspect of climate change should first identify where it fits in the broader picture. There are about 50 gigatons of CO2e emitted each year: What is your role in reducing or removing them, and how are you going to do it?

The six challenges of decarbonization

If you’re wondering where to begin, here are six of the greatest obstacles to be overcome in the next few decades if decarbonization is to be achieved at scale. 

1. Deploying existing solutions in the ‘easier’ sectors

(Deploy, deploy deploy)

Climate tech companies are often looking for the next big thing to move the needle, in the process glossing over the most mature tech, but many of the clean energy technologies we’ve already produced haven’t yet achieved adoption at scale. When they do, the impact on decarbonization is likely to be profound. The “easier” sectors  — electricity and light-duty transportation — are in reality anything but. 

Technologies like solar power, wind power, nuclear power, geothermal power, and lithium ion batteries already exist, and are now economically and commercially mature. But their current scale is dwarfed by the need.

Today, well under half of our electricity is zero GHG. Existing technologies need to scale by orders of magnitude as a first, immediate step toward decarbonizing energy.

Innovation is still needed in order to make their utilization easier, faster, and cheaper, but we have the tools to get started today. We also have a powerful impetus to do so, considering that our electricity needs are only going to grow in the next few decades as more and more sectors (transportation, industrial, etc.) rely on electrification as a core component of their decarbonization strategies. 

Take electric vehicles as an example. Currently, only 2% of new U.S. vehicle sales are EVs. What would it take, from a technology and adoption perspective, to drive from 2% to 100% in the next 15 years?

The last aspect of using our existing solutions has to do with preservation and conservation. Today, major ecosystems like oceans, forests, and reefs are at risk. Yet we haven’t taken the necessary precautions to ensure that we are getting ahead of avoidable damage — either through public legislation, private pressure, or both. 

Making sure we don’t mess things up any worse remains important. So while there are plenty of frontier technologies that will be necessary to help solve decarbonization, we should always start with the low-hanging fruit by scaling existing technologies and ramping up conservation efforts.

2. Developing solutions to harder problems in ‘easier’ sectors

(Finish the job in electricity and transportation)

Once we achieve 80% clean energy, how do we attack the final 20%? And what about the hard-to-electrify areas of transportation? 

This is tricky, and involves both solving energy needs for heavy duty transportation like trucks, ships, and planes, and overcoming location and time-scale issues in the electricity sector. 

Heavy duty transportation requires a large amount of consistent energy. Powering a steamer ship is very different from powering a household or small car. We’re not likely to power cross-Atlantic freight ships with batteries in the near future because of batteries’ energy density limitations - though smaller maritime applications are emerging fast..

There is also the issue of seasonality as we scale up intermittent renewables. How do solar-dependent regions get energy if they have a cloudy week? What do we do in winter, considering that 3x the solar energy can be generated in spring? 

So we can’t exclusively rely on mature technologies to support these industries. We will have to overcome these and other land and time-scale factors when figuring out how to clean up the final 20% of energy. 

Entrepreneurship and innovation are welcome here as we continue to see a growing need to either upgrade the technologies we have, or develop new ones altogether, to address the need for heavy-duty transport. 

3. Addressing the ‘hard and dirty’ sectors

(Deal with heat; deal with meat)

The industries mentioned with respect to the first two challenges (electricity and transportation) are ‘easy’ in the sense that we can head pretty far down the path towards decarbonizing them with existing technologies. 

But for other sectors like heat, meat, chemicals, and fertilizers, the path is trickier. 

Intermittent renewables work well if you need some electricity some of the time, but most renewable energy sources aren’t viable on their own for industries that require constant and large streams of energy. 

The heat sector, which includes both building heat and industrial heat, is a huge source of greenhouse gas emissions. The steelmaking industry, for example, alone accounts for 8% of all greenhouse gas emissions. Extremely high temperatures are needed in the steelmaking process, which presents a challenge for decarbonization.

Meat and dairy account for another 14.5% of emissions; the methane emitted by cows is up to 34x more potent than CO2. As a society, many of us have woken up to the fact that we’re going to need a solution to meat consumption that reduces our carbon emissions. This could involve the development and commercialization of alternative artificial meats, a societal shift towards consuming less meat, or a solution that could either capture methane or cause cows to emit less of it. 

Chemicals and fertilizers account for another big chunk of greenhouse gases. Each of these industries will need to develop their own suite of solutions to lower their emissions. 

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4. Embedding carbon management in the fabric of the economy

(#carbontransparency)

As John Doerr says, Measure What Matters. Part of our journey to zero-GHG is to better understand our emissions and present everyone (consumers, enterprises, governments) with decision support to make better choices. 

This is a difficult endeavor. Accounting alone is a challenge. To measure the carbon footprint of a given product purchase, for example, we would have to break down the journey of each of its component parts: the materials they are made of, how they were harvested, manufactured, and shipped. How much carbon is created by the company’s operations: its office and employees? How do we avoid double-counting?. 

As for making carbon footprints transparent during transactions, the difficulty here will be in ensuring that whatever number presented is perceived as trustworthy and transparent. If the public doesn’t believe that carbon management systems are operating in good faith, their uptake will be seriously hindered. 

But if we are able to accurately and transparently measure the carbon impact of our goods and services, we can empower consumers to make informed decisions. On Amazon, for example, you should be able to pick a low carbon emission shipping option at check out — perhaps with a longer delivery time. 

These kinds of informed choices should be pervasive in the economy so people and organizations can understand the impact of each of their buying decisions; there is an entire industry here that is mostly untapped. 

5. Build a huge carbon removal industry

(Because #1-#4 won’t be enough)

The unfortunate reality is that, even if we’re wildly successful on the first four Grand Challenges, we’ll likely overshoot our carbon budget. So in addition to driving toward zero emissions, we need to scale carbon removal.

But in order to build this potentially multi-trillion dollar carbon management industry, we need to incentivize carbon removal from the atmosphere with public and private pressure. On the policy side, this could look like a carbon tax or a price on carbon in another form. In the private sector, corporations can contribute to growing the market of voluntary buyers for carbon removal credits.. 

Both sides of the equation will have to work in tandem. There is a small market of voluntary buyers at the moment for carbon removal, but it needs to get exponentially bigger to support burgeoning climate technologies, and we may not be able to rely on this growth to come naturally; it is likely that this large buyer market will need to be regulated into existence through public legislation akin to a carbon tax to avoid an imbalance in supply and demand in 5-10 years. 

While we build and incentivize the carbon removal industry, we will need to develop solutions on what to do with carbon that has been removed from the atmosphere. Do we sequester it? Find a way to recycle and utilize it? 

If we pull it off, carbon management could become an industry at least as large as waste management. 

6. Fostering a culture of resilience

(Adaptation is climate tech)

No matter how fast we move toward decarbonization, we’re in for a few decades of temperature rise, natural disasters and climatic volatility. Resilience, in its various forms, will need to be embedded in our economy in ways we’ve not seen before.

Consider the growth of residential batteries. For the vast majority of homeowners, there’s no strong economic case to install batteries (as opposed to solar, where the case is clear). But the market is booming nonetheless, because consumers will increasingly consider the risk of outages in their buying decisions. 

Now scale this up to all buyers of all things, all supply chains, and for all climate impacts, and you can imagine what it will take to make our society more resilient.

Identifying opportunities within decarbonization

Each of the challenges above represents a great deal of very salient and timely opportunities for entrepreneurship. 

For founders looking to build startups in decarbonization, picking one of the six grand challenges outlined above is a good place to start. Next, you might ask yourself two questions: 

  1. What wave are you riding? OR:
  2. What wave are you building? 

Riding a wave involves identifying something that’s going to happen in the economy in the coming years and delineating a given innovation that is going to be necessary and important as a result. 

Building a wave involves identifying a trend that is simply not going to happen without, well, you. The opportunity here is much larger, but also usually more difficult to execute. 

Passenger vehicle electrification is a prime example of a wave already at play that founders can ride. Tesla created this wave, and is reaping the valuation benefits of being a wave-creator. 

Since then, dozens of companies have ridden that wave and invested in the technologies needed to sustain its uptake as a whole. A few include QuantumScape and new EV battery technologies; ChargePoint, EVgo, and Addenergie, which operate charging stations; and Lilac, which is improving lithium mining technologies. 

There’s a tradeoff here. Wave riders are needed to further technological advancement, but there is only one Tesla. If it hadn’t existed, this wave would not have either, at least not in the same way or at the same time. If you’re a wave-creator, the bar is set extremely high for your success. If you’re a wave-rider, you need to catch the right wave.

7 decarbonization waves to ride 

Here are 7 important waves that founders can ride to build the next wave of impactful companies working on decarbonization: 

  1. The electrification of X. This trend has already begun, with not just passenger vehicles but boats, planes, industrial heaters, cement factories, and more. What else can we electrify, and how? 
  2. Pressure on heavy emitting sectors. In the coming years, there is going to be increasing pressure from shareholders, investors, regulators, and even employees and consumers for heavy emitting sectors to come up with credible pathways towards decarbonization. These pathways will cost money, and companies will be looking for a suite of solutions. There is a huge opportunity here to cater to this need. 
  3. Climate is the new mobile”. Corporations are going to see a revolution just like the mobile revolution, when every company suddenly needed to put in place mobile compatibility and strategy. Every large enterprise, and even some small ones, will have to have a robust and credible way to account for and report on their carbon emissions, and will have to present strategies to reduce those emissions. They’ll be looking for tools to help them do so. 
  4. Cheap renewables. The cheapest energy in the world, for decades to come, will be grid-scale wind and solar. That unlocks a host of fuel-switching opportunities across sectors and presents innumerable opportunities to drive even faster renewables adoption.
  5. Flexibility in power markets. One consequence of increasing reliance on intermittent renewables will be rising demand for flexible resources on the grid. These can be on the demand side (load shifting) or the supply side (energy storage, flexible generation). Opportunities to monetize grid flexibility vary widely from market to market, but there’s no question that this wave is building. 
  6. Need for trust and transparency in carbon markets. We do not yet know what mature carbon dioxide removal markets look like, but if they are going to be sustainable, they will need to be trustworthy and transparent. New offset programs often face suspicion about whether they are going to have the desired effect. Gaining trust with consumers is imperative, and in a mature carbon removal market, systems will need to be permanent, verifiable, and measurable in order to build that trust. 
  7. Rise of the conscious consumer. From reusable grocery bags to compostable iPhone cases, there is a clear trend today towards conscious consumerism. The rise of popularity in categories like organic, GMO-free, and fair trade underscores this trend. There is an enormous opportunity here for brands to improve their product’s environmental footprint in order to take advantage of shifting consumer sentiment. 

The obstacle is the way

There are major hurdles we will have to face as a society on our path to deep decarbonization, but money for investments in climate technology is also more abundant now than it has ever been in the past. 

Energy Impact Partners is one of dozens of VCs investing in the frontier of climate technology, and there is a trillion dollar global market that has not yet begun to be tapped. 

Climate entrepreneurs should consider the challenges of decarbonization, identify where their solution fits into the global scheme of emissions, and create or ride a wave of their own. 

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