Venture Capital

The Frontier of Carbon Removal

Stripe’s Zeke Hausfather on Creating Markets and Silver Bullets

4 min read

In October 2020, Stripe launched Stripe Climate allowing any customer to direct a fraction of their revenue towards carbon removal. The company allocates contributions towards projects that remove carbon dioxide (CO2) from the atmosphere, primarily by purchasing the permanent removal of CO2 at a particular price per ton. In 2022, the initiative evolved into Frontier, an advance market commitment to buy an initial $1B+ of permanent carbon removal between 2022 and 2030. It was founded by Stripe, Alphabet, Shopify, Meta, McKinsey and tens of thousands of businesses using Stripe Climate.

To break it all down, Stripe's Zeke Hausfather sat down with Susy Schöneberg who heads impact initiatives on Emerson Collective's venture capital team.

Susy Schöneberg: You have a deep professional history as a scientist, analyst and entrepreneur working in the climate and mitigation space. How has the conversation in business shifted to reflect our scientific understanding of the challenges of climate change?

Zeke Hausfather: There are two big changes that have happened over the last decade that have really affected how business is approaching the problem of climate change. One is that we're not moving to a world of government-mandated compliance markets as quickly as we thought. Voluntary actions are filling a big gap because government policies are more subsidy-based than regulatory. Because of the lack of compliance markets, individuals have been left to figure out how to make an impact in our ambitious climate targets.

The other thing that has changed is that the idea of “net zero” — the acknowledgement that to get the world to stop warming, we need to get carbon dioxide emissions down to zero — has become much more widely understood. Because of this, business, policymakers, and scientists have framed a lot of debates around asking when will the world get to net zero emissions, what that means, and how much we need to index on various parts of the emission reduction side versus the removal side. This has opened up debate around carbon removal—both where it is needed and the potential pitfalls of focusing too much on it compared to emissions removals, and the challenges and shortcomings of the market for carbon removals.

SS: You mentioned the focus on carbon removal technologies. Could you also tell us a bit more about how Frontier thinks about vetting their technical partners? 

ZH: We've seen people make carbon neutrality claims, often used synonymously with net zero, based on less rigorous approaches—companies have spent millions buying $5/ton cheap credits on the market and called themselves carbon neutral. That's problematic for a number of reasons. One, you get what you pay for when it comes to carbon, and if you're buying $5 credits, it's almost certainly not actually reducing emissions or removals. There are also problems in existing markets, centering around additionality (knowing that when you pay someone to do something, they actually do something they wouldn't otherwise be doing), leakage (making sure if you paid to protect a forest, you're not just shifting the logging to an adjacent forest), and durability (making sure that when you're removing carbon from the atmosphere, it actually stays out of the atmosphere long term).

A lot of groups have been trying to push a stronger set of standards around net zero. The standard that has gotten the most buy-in from the business community in recent years is the Science-based Targets Initiative (or SBTi). 

SBTI says that to make net zero credible, you need to focus primarily on reducing your emissions. SBTI recommends 90% emission reductions and having no more than 10% of your current emissions as removals. SBTi’s guidance was also informed by the idea that to make net zero credible, we need a like-for-like matching of gasses and lifetimes. When you burn a ton of coal, about half of it gets removed over the first 100 years, about 80% of it gets removed over the first 1,000 years, but it takes about half a million years to fully remove that ton of CO2 from the atmosphere. If you're a company trying to make a neutralization claim, what bar does that have to meet to be equivalent to undoing that ton of coal emissions? It also raises questions around durability because historically, much of the market is focused on things like tree planting, deforestation, and reforestation, which are really important things to do, but  don’t keep carbon out of the atmosphere over the long term.

If you're taking CO2 that's been underground for millions of years, digging it up, and burning it, the only way to credibly neutralize that is by taking CO2 from the atmosphere and putting it back underground, or in some other form, in a way that's stable for many thousands of years.

When we started Stripe Climate back in 2019, before that SBTi standard existed, there was very little being done in that space. Stripe decided that this was an area where it could potentially make a difference. They initially set up a system where when Stripe users sign up for Stripe, they can opt in to contributing a certain percent of the volume they transact—usually around 1%—towards supporting permanent carbon removal. In the first year that raised $1 million dollars, and the second year it raised $25 million. Stripe then started a process of openly asking for bids for companies to sell permanent carbon removal to Stripe.

That proved quite successful. Stripe ended up with a portfolio of 24 companies, including many really innovative companies across a number of different pathways, but it wasn't enough. $25 million is a drop in the pan. A lot of these companies were facing a fundamental problem—there was no guarantee there would be a market for carbon removal, especially when long term carbon removal is expensive. 

This challenge led to a new idea: create a market. If we pool enough money together to guarantee that there will be a demand for these products, companies can go out to VCs to get funding, raise financing from banks to build projects, etc. 

We ended up partnering with Alphabet, Meta, Shopify and McKinsey to launch Frontier, a $1 billion advanced market commitment. We will spend $1 billion by 2030 to purchase permanent carbon removal technologies that stay out of the atmosphere for at least 1,000 years, with relatively minimal land footprint, and are strongly net-negative. 

Anecdotally, we've talked to a number of companies who have raised money in part because there is a clear market signal. It's also been accompanied by a number of policy initiatives both within the United States and abroad. We've started to see permanent carbon removable mature as a field because it is going to be an important part of our solution to climate change.

It's not a silver bullet. We're not going to solve climate change just by permanently removing carbon from the atmosphere. In fact, it's probably somewhere around a 10% part of the solution. But for a problem as big as climate change, a 10% solution is a really important solution. For reference, solar power is a 20% solution, electric vehicles are a 20% solution, industrial heat is a 10% solution. Everything is a small part of this puzzle. While we can't over index on carbon removal, we also can't ignore it.

SS: How does Frontier leverage their whole ecosystem for impact? How does this approach generate value for Stripe? 

ZH: It's a great question. To be clear, Stripe is not making any money off of this effort. We are not investing in the companies that are doing carbon removal. We're not taking equity stakes in them. We're not, at least ourselves, buying then reselling any of the credits that we get from these companies for permanent carbon removal. We see this as an important gap in the ecosystem that existed, a place where we can use a sizeable amount of money, (though compared to the amount of money that is in the hands of big tech company it's not that much), to have a really big impact.  The nice thing about Frontier is that it creates a vehicle for everyone else to aggregate efforts and collectively have a much bigger impact than any one of us could have by ourselves. We know we're going to need to mature this permanent carbon removal space, we know companies are going to have to start buying more permanent carbon removal to help neutralize the part of their emissions that they can't fully reduce. By joining Frontier, companies can more easily get access to the vetting and analysis we do of potential projects. There is a desire among a lot of companies to figure out a way to make a difference. Permanent removal is going to be critically important to meet our goals in the future. Now we're starting to reap the rewards of putting more resources into it. 

SS: Can you share one thing that comes to mind that laid the groundwork for today’s success? What would you say that the Stripe Climate Team did well, and what led to the successful creation of Frontier and the ecosystem that you have built?

ZH: Strong buy-in from the leadership was critically important. And good and effective leadership. The team is made up of world-class scientists and people that came from the White House or the Department of Energy. And being able to be a fast and nimble organization, even though we're part of a larger company, has been really important for being able to get as much built, as quickly as we have. Part of it also comes down to being in the right place at the right time, identifying an area that the science shows is going to be essential, that not many people have  really investigated or resourced yet.