At Zero Carbon Capital, we work with scientist entrepreneurs that are tackling the biggest unsolved problems of climate change. We invest in deep decarbonisation, and specifically in hard-science solutions that can contribute to reducing emissions by 0.5 GtCO2e per year by 2050, when deployed at scale, built by outstanding teams – as outlined in our previous blogposts about our investment thesis and what we look for. In this post, we delve into our methodology for assessing future emissions reduction potential.
This post has two main aims. Firstly, we aim to demystify our process for founders, fellow investors, LPs and any other interested parties. Secondly, by following and promoting existing methodologies and best practices, we hope to bring more money and investors into the space. We are members of the Prime Coalition’s Project Frame Community and active participants in the Content Working Group. Project Frame is a nonprofit program, convened by Prime Coalition, designed to to organise investors around forward-looking emissions impact methodology and reporting best practices. Its website has a wealth of resources (including impact methodology guidance, glossary and events calendar) for those looking to learn more and adopt best practices.
Why do we care about emissions reduction potential?
The purpose of our Emissions Reduction Potential (ERP) assessments is to help us make decisions about where best to invest: to prioritise resources to innovations and strategies that reduce global GHG emissions significantly, rather than making marginal improvements. Before entering our internal due diligence process we screen startups and their technology for its emissions reduction potential, where the emissions reduction potential (ERP) is our assessment of the future GHG emissions that can be avoided by deploying a new technology.
How do we determine the emissions reduction potential of a technology?
1. What problem are we trying to solve?
We have a pretty good idea of what the biggest drivers of emissions are, across sectors like transport, energy production, agriculture food and land-use, industry and buildings. In some areas—like electric vehicles to decarbonise road transport—we are making good progress on decarbonising. But there remain many areas where the level of funding is nowhere near enough to tackle the challenge of reaching net zero. We spend lots of our time learning about these different areas and possible solutions for decarbonisation, so that when we see a new technology we can easily determine what problem it is trying to solve.
2. Type of technology
We typically see two types of technologies
Direct emissions reduction technologies, where deployment of this technology will directly lead to a (per unit) reduction in emissions for a particular activity. e.g. steel production in a DRI furnace, where production of a tonne of steel leads to a measurable per tonne emissions reduction relative to BF-BOF steel production with coke as the reductant
Facilitating technologies. We define a facilitating technology as one that is critical for the decarbonisation of a particular activity. One where the counterfactual scenario (i.e. the technology is not deployed) results in limited (or no) emissions reduction. e.g. leak-free hydrogen valves—without a safe and efficient way of transporting hydrogen, we won’t be able scale the hydrogen economy to maximise the potential impact.
3. Theory of change
We start with the theory of change for a company/technology—what are the outputs of the technology and how does this lead to emissions reduction?
The timeline for our emissions reduction is to have technology scaled by 2050 (at the latest). So our starting point is to imagine what the world would look like in 2050 in the absence of this new technology (including e.g. changes in market demand, projected efficiency improvements, existing likely alternatives, regulation).
We need to determine the baseline that we use to ensure that the additional emissions reductions result from the scaling of the new technology, as opposed to the total emissions reduction that would have happened anyway (including changes in demand / energy efficiency / alternative technology). We only consider the technology to be additional where we think it will be a better solution than other alternatives—including the status quo, and other new technologies currently being developed.
Determining the baseline from which to compare the impact of a particular technology is a complex problem–in the absence of a crystal ball, how do we know what the status quo will be in 2050? The truth is that it is subjective; we acknowledge that our projection for 2050 is at best an educated guess, but we try our best to get a good idea of the size of the problem. We apply principles outlined by Project Frame, namely:
transparency - we state our assumptions and data sources
conservatism - we don’t want to over estimate the potential impact, nor do we want to miss investing in an opportunity that could have a big impact
robustness - we go back to first principles and try to find multiple data sources for a given value, as well as using the best available projections (for future demand / energy requirements etc)
For both direct reduction technologies and facilitating technologies, we assess a company’s technology as having the potential to beat other incumbent or emerging technologies in terms of cost, quality or other key decision-making criteria, such as energy demand or resource utilisation.
4. The Emissions Reduction Potential
We take a top-down approach to evaluate the emissions reduction potential and look at the total market for avoidable emissions. We look at the potential for the problem space as a whole (rather than taking a bottom-up approach of avoided emissions for a single company—also known as the Planned Impact). We do this for two main reasons. Firstly, because we invest in pre-seed and seed stage teams with a brilliant idea, but without a finished product, predicting bottom-up impact would involve somewhat arbitrary projections and assumptions. Secondly, and more importantly, looking for 0.5 GtCO2e problems spaces allows us to focus on finding opportunities in the big unsolved areas for climate impact.
For direct emissions reduction technologies we identify the emissions reduction potential per unit of product (i.e. Unit ERP = Baseline emissions per unit – New technology emissions per unit). This could be per kg (e.g. per kg cement produced), per unit object (e.g. per EV) or per plant etc.
For facilitating technologies we may evaluate the market that the technology is impacting as a whole. We require the technology to be a critical enabler or accelerant for that particular market. Both approaches are outlined in the case studies below. And finally, whilst decarbonisation is our main focus and the number we try to account for and measure, we do screen for other adverse impacts using the UN sustainable development goals. These take into consideration impacts on factors including biodiversity and social metrics.
The investment process
We use the 0.5 GtCO2e Emissions Reduction Potential value as a gate in our investment process–any technology that does not reach this threshold will not be considered for our due diligence process. We work with founders throughout the process to develop a robust theory of change; we review and scrutinise this theory of change and unit impact calculations at every step.
Case studies
Direct emissions reduction via electrochemical ammonia production
Ammonia (NH3) holds immense significance as an industrial chemical, primarily used in fertiliser production. Currently, ammonia production relies on the Haber-Bosch process, which involves combining hydrogen (H2) and nitrogen (N2). This process has a substantial emissions footprint as hydrogen is primarily produced from fossil fuels through steam methane reforming (SMR). Approximately 2.9 kg of CO2 is released for every kilogram of ammonia produced. Using best available technology—in this case, the most efficient steam-methane reforming—that value can be reduced to 1.6 kgCO2e/kgNH3.
Ammonia demand is expected to more-than-double by 2050. While the use of ammonia-based fertilisers is expected to decrease—due to the emissions associated with its application to the soil—ammonia itself can serve as a carbon-free fuel, making it a promising solution for decarbonising critical sectors like cargo shipping and steel furnaces. If ammonia is to be used to decarbonise other sectors, we need to be able to produce it without such high unit emissions.
NitroFix is a seed-stage startup developing technology that takes nitrogen from the air and uses water as a hydrogen source (rather than methane or coal) to produce ammonia using a low-energy, low-temperature electrochemical process (inspired by ammonia-synthesising bacteria found in nature). We estimate that the major source of emissions from this process will come from the carbon intensity of the energy used to power the process. Given the global shift towards solar and wind deployment, we expect the carbon intensity to be approaching zero by 2050.
Using estimates for the projected increase in demand for 2050, we estimated the emissions using current best-available technology (shown in yellow). Taking the emissions-intensity of the grid in Sweden (low, but non-zero) we estimate the indirect emissions from electrochemical ammonia production, based on the projected energy required to produce ammonia, resulting in approximately 203 MtCO2e/year. If powered entirely by renewables, this number would decrease. The Emissions Reduction Potential in this case is > 0.5 GtCO2e/year.
The calculations and data sources are provided here.
Facilitating emissions reduction via fast-charging electric vehicles (resulting in accelerated EV adoption)
Echion are developing niobium anodes for use in Li-ion batteries. The inclusion of niobium improves energy-density and charge-speed while maintaining high safety, putting them at a distinct advantage to current anode technologies.
We believe that EV adoption is already underway and with no further intervention will contribute to emissions reduction by 2050 (see blue line). However, we believe that faster charging will accelerate the adoption of electric vehicles, by relieving range anxiety and increasing the types of vehicles that would be suitable. And the faster we switch the entire fleet to EVs, the more emissions will be reduced. As part of our calculations, if we make the assumption that Echion’s fast-charging technology will accelerate EV adoption by 20% (you can see the effect of this assumption on the ERP in our calculations here) we expect that the accelerated adoption would have an Emissions Reduction Potential of at least 0.6 GtCO2e.
