Shifting the DAC paradigm

This week, we had a chance to digest a recent article from the Boston Consulting Group (BCG) which covered the current state and future prospects of the direct air capture (DAC) industry.

We found this article to be impressively well-researched, targeted, thoughtful, and generally, a major advance in thought leadership and specificity within our industry. (Read the full article here)

Given how much we liked it, we wanted to share our top 5 takeaways from the article with our reader base as a teaser, and a reason to give the complete article a read!

OUR TOP FIVE TAKEAWAYS:

#1: The world can afford direct air capture

Mirroring the technologies that propel it (e.g., solar, batteries), climate change is an upfront investment challenge. The world is faced with a decision to invest a great deal of capital in the next 10-20 years, to save itself a disproportionate amount of pain caused by the physical hazards of climate change over the long run.

The question for each technology underpinning the net zero transition, then becomes, can the world afford this solution?

So… can the world afford DAC? BCG answered clearly and directly — yes.

BCG made its point with the following scenario:

• Cost: assume the DAC industry (including Holocene) is able to reduce all-in costs of carbon removal to <$150/tonne-CO2.

• Scale: assume that the world needs to remove 10 gigatonnes of CO2, annually.

This amounts to $1.5Trn of global annual spend, or less than 1% of the projected $200Bn global GDP in 2050. Comparing this spend to wastewater treatment spend globally, an estimated 0.5-1% of global GDP today, BCG concludes that “DAC removals are a costly but by no means unaffordable solution.”

BCG further strengthened its point by contextualizing the cost of DAC vs. the complete portfolio of climate solutions needed to power the transition and their respective costs. Under this lens, BCG highlighted that reducing the last 20-40% of emissions can often cost well above $150/tonne of CO2 reduced — making DAC a viable and complementary alternative.

So… can the world afford DAC? Yes, under this scenario.

At Holocene, we’re building the future of the direct air capture industry to ensure these cost and scale assumptions turn into a reality.

#2: Low temperature, liquid systems are advantaged

BCG framed up three primary technological approaches to direct air capture:

1. High-temperature systems (often liquid)

2. Low-temperature systems (often solid)

3. Electrochemical systems

Through their analysis of cost and affordability, they highlight that liquid systems are the most affordable in the worst-case or first-of-a-kind (FOAK) scenario, and low-temperature systems are most affordable in the best-case scenario.

At Holocene, we leverage the best of high-temperature systems (the liquid nature) and the best of low-temperature systems (the low temperature). This detailed BCG analysis suggests that Holocene technology could be advantaged from a cost perspective under both the worst and best-case scenarios.

#3: We can and should look to other industries for inspiration

BCG thoughtfully framed direct air capture as a management problem, noting that society has taken on this type of problem successfully several times before. They used two specific analogies:

• Solid waste management: BCG noted that the $100-200 per ton cost target for DAC is “in line with other waste products; solid waste disposal costs… by comparison, range from around $170 to $205 per ton.”

• Wastewater management: BCG noted that the global spend needed on DAC for a 10 gigatonne scenario is “comparable to current estimates of the global spend and cost of wastewater purification each year: a combined 0.5% to 1% of current global GDP.”

We believe analogies and context are powerful — BCG proved that point, to frame the feasibility of DAC.

#4: DAC can provide the highest quality carbon dioxide removal (CDR)

The IPCC estimates the world needs 5-10 gigatonnes (a.k.a. billion metric tonnes) of carbon removal — alongside deep reductions in carbon emissions — to meet its 1.5C warming targets.

Direct air capture is not the only type of carbon dioxide removal (CDR) — sitting alongside other solutions such as enhanced weathering, biomass burial, and ocean alkalinity enhancement — begging the question, which form of CDR will make up the lion’s share of that ambition.

As BCG postulates… “DAC can provide the highest-quality CO2 removals in terms of scalability, permanence, and verifiability.”

Further detailing the following comparisons:

• Scalable: “DAC is more than 100 times as land efficient as reforestation, making it a more scalable solution”

• Permanent: “It can sequester emissions for many centuries, making it the most permanent of all removal options.”

• Verifiable: “Tracking how much CO2 has been removed [via DAC] is straightforward, making it more verifiable than ocean alkalinization.”

All of these conclusions indicate, while DAC as nascent, it has the highest potential to meet the challenge.

#5: We need scale, and cooperation, to reach these ambitions

Our #1 takeaway from the BCG article was that the world can afford DAC, if DAC is able to acheive a $100-200/tonne-CO2 cost target. This ambition will not be delivered by a single company alone, but by a collective ecosystem of private and public partnerships across technology, development, policy, and demand-side support.

BCG succinctly summarized the 4 major levers that will enable the DAC industry to deliver on this ambition:

1. Pace of Scaling — DAC needs to reach at least 2-3 gigatonnes of annual carbon removal by 2050 to enable the scaling benefits (e.g., cost of capital, learning rates) and impact to stay on track.

2. Infrastructure Support — clean energy (electricity, heat) must be accessible at base-load levels (e.g., 80-90% of the year or more) for a cost of $10-30/MWh to power DAC’s energy needs.

3. Cost of Capital — DAC takes upfront investment, and that upfront investment requires a “cost of capital” from the investors who are providing the upfront dollars. This cost of capital should reach 5-7% on a weighted average basis (WACC) to enable <$200/tonne-CO2 DAC.

4. Collaboration across Technologies — “learning rates” are the rates at which technologies become better and cheaper as the technology ecosystem scales, and they have been seen and proven reliably across both clean (e.g., solar, wind) and fossil (e.g., fracking) emerging technologies. For DAC to reach its ambitions, learning rates must reach 11-15% (defined as the decline in CAPEX for every doubling in technology scale) which will take ecosystem collaboration and scale vs. silos.

Each of the above 4 levers will only come to life via a collaboration of public and private actors across incumbents and innovators — and BCG’s “Call to Action” is a great enabler for that collaboration to nucleate.

We hope you enjoyed this summary, and encourage you to read the full article to get the complete learning experience.

Bravo to the folks at BCG, specifically the author group Habib Azarabadi, Thomas Baker, Alex Dewar, Rich Lesser, Karan Mistry, Oluseye Owolabi, Katherine Phillips, Cornelius Pieper, Bas Sudmeijer, and David Webb — along with Nake Thompson for contributions.

Welook forward to future content that drives forward the DAC and CDR industry!