In this episode of the McKinsey Global Institute’s Forward Thinking podcast, co-host Michael Chui talks with Nan Ransohoff. Ransohoff is the head of climate at Stripe and leads Frontier, an advance market commitment for carbon removal. In this podcast, she answers questions including:
- What are the most promising carbon removal technologies?
- Is it possible to scale up effective technologies quick enough?
- How much do costs need to come down before scaling is possible?
- What is an advance market commitment?
Michael Chui (co-host): Janet, I know you’ve spent a lot of time studying climate change and the ways that companies, governments, and NGOs are attempting to address this issue.
Janet Bush (co-host): Well, I have read a lot of experts on the subject. There is so much work to be done to reduce the millions of tons of carbon that are being emitted into the atmosphere, and to adapt to the changes in climate that we’re already seeing.
Michael Chui: Today’s guest is working on another piece of the puzzle, the idea that even with all of the work to reduce emissions, we’ll still need to actually remove some of the carbon that is already in the atmosphere and will continue to be emitted over time.
Janet Bush: That makes sense. When people talk about net-zero emissions, that means it’s the sum of carbon that is being emitted minus the carbon that is being taken out. I’m interested to learn about how carbon can be removed from the atmosphere, and how feasible that will be over time.
Michael Chui: Nan Ransohoff is the head of climate at Stripe, and leads Frontier, an advance market commitment for carbon removal. Nan, welcome to the podcast.
Nan Ransohoff: Thanks for having me.
Michael Chui: So let’s just start: What was your path to getting to where you are today? Where’d you grow up? What’d you study in school? How’d your career evolve to your current position?
Nan Ransohoff: I grew up in North Carolina. I developed an interest in climate in college after studying abroad in India, and didn’t really start to pursue it until my second job out of undergrad. I did the consulting thing for a little bit and quickly learned that I was very passionate about climate and also wanted to try operating within a company.
And so at the time I joined Opower, which was one of the early-stage climate companies that was VC-backed back in the first climate boom. I was at Nest awhile later. I worked at Uber on Uber Pool, trying to get more people into fewer cars, and continued to pull the climate thread.
I eventually got into carbon removal after reading the 2018 IPCC [Intergovernmental Panel on Climate Change] report in 2019, and really ratholed on the question of how do we build a market for carbon removal in the absence of policy, given I am not a policy maker, and I’m also not an engineer by training, and at the same time we need a huge amount of it.
So my background led me into climate mostly through private-sector endeavors, but I haven’t been able to stop thinking about the problem since I started.
Michael Chui: Opower’s still around, isn’t it? That was the company that basically showed your energy use in your household versus people in your neighborhood type of thing?
Nan Ransohoff: Yes. Oracle owns it now.
Michael Chui: Ah, OK, cool. Well, you mentioned carbon removal. That’s what you’re doing now. Why do we need carbon removal? I mean, a lot of people talk about reducing the amount of emissions, but why is it actually necessary to pull carbon out of the atmosphere?
Nan Ransohoff: It’s useful to answer this question in the context of the science. The world emits about 50 billion tons of CO2 equivalents every single year. We know from scientists that we are going to need to get that down to net zero by 2050, if not earlier.
And there are, generally speaking, two main levers that we can pull. We can stop emitting CO2 into the atmosphere in the first place. Or we can pull out CO2 already in the atmosphere and oceans, and store that somewhere permanently, so doing it in reverse.
The world is going to need a huge amount of emissions reduction. This should remain the priority for global efforts. Roughly 90 percent–ish of the solution is going to be within that emissions-reduction piece of the puzzle.
But, in addition to that, we are also going to need to do a huge amount of carbon removal, roughly on the order of, five to ten billion tons per year by 2050. The United States emits about six billion tons of emissions every single year. It’s just a huge, huge number. And this is, again, to make that net-zero math work, and to pull out legacy emissions since we’ve already overshot the safe level of CO2 parts per million in the atmosphere.
Michael Chui: Some people have said, look, carbon removal, isn’t that like a “get out of jail free” card for emitters, right? Just emit, but as long as you pull it back out, that’s fine? What would you say to that?
Nan Ransohoff: Oftentimes people will call that the moral hazard problem. And ultimately we look at the science and what all of these different scientists who’ve come together via the IPCC report have said. Which is that we aren’t going to get to net zero by emissions reduction alone. We are also going to need carbon removal.
Now, if we had made the necessary changes ten, 20, 50 years ago, we would be in a different position. But, for better or for worse, we now need to do both. And so I look at this as a “yes, and.” There are multiple parts of the solution set that we are going to need to pursue. And carbon removal, for better or for worse, is just one of them, to make the math work.
Michael Chui: If you don’t mind, can we geek out about the technologies? Like, what does it mean to do carbon removal? I mean, you can plant trees, but that’s a lot of trees. What are the sorts of technologies that could work?
Nan Ransohoff: You mentioned trees, and it’s useful to think about this five to ten billion tons per year as a portfolio. And there are some solutions that we already have today that exist: planting trees, soil carbon sequestration. And these are important pieces of the overall portfolio. The challenge with them is that they take up large amounts of arable land.
So we cannot plant our way to the huge volumes that we have to do every single year. So, really, one way to think about this is, what are the solutions that we need that we don’t yet have today to reach that five to ten billion tons a year?
And I’ll give you a couple of examples. What’s really exciting about this space is there are an increasingly diverse number of types of approaches to do this.
One of the solutions is called direct air capture. These look like giant fans that pull in air and pull out the CO2, and then inject that underground into wells.
There’s another approach called enhanced rock weathering, which actually leverages what nature already does well. Most of the world’s carbon is actually stored in rocks, in the lithosphere. And it just takes a really long time for that to happen. So enhanced rock weathering is taking crushed-up basalt or olivine, spreading that on fields, and trying to accelerate how quickly that happens so that it can suck CO2 out of the air and store that permanently once it mineralizes.
There’s another approach called biomass storage and carbon removal, BiCRS.
And effectively then we have a company called Charm that takes waste biomass, like corn stover that would have otherwise, if left on the field, degraded and re-emitted that CO2 back up into the atmosphere. They pyrolyze it, which just means heat it up without oxygen in this machine. And then it turns into bio-oil, and then they can inject that back underground.
There’s a company that’s doing kelp sinking in the open ocean, just to give you a flavor of the really broad set of technologies that can qualify as permanent carbon removal.
Michael Chui: So you mentioned all these cool technologies and, OK, I really want to dig into all of them. But nevertheless, is it possible to scale those up to the level necessary to get to five billion tons a year?
Nan Ransohoff: This field is so early that it’s an open question. But I’ll give you some visibility into how we think about that.
Roughly, right now, the world has permanently removed in the tens of thousands of tons, which is closer to zero than any other number. This is a tiny, tiny number. When we’re talking about volumes this big, in this short a period of time, what is most likely is that there is going to need to be a portfolio approach. There’s no one solution that is going to get that number.
How we think about it at Frontier is, how do we put together a risk-adjusted portfolio of approaches that can collectively scale to the capacity that we need in the time frame that we need it? But you’re right, it’s not a foregone conclusion that we will get to the scale necessary in the time frame that we need to do so.
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Michael Chui: One of the things that we’ve studied at MGI are these learning curves across different technologies. And so, again, whether it’s energy generation, or Moore’s Law in IT, or in the Bio Revolution the ability to scan as well as create genetic sequences. I presume there are similar things going on in these carbon removal technologies? Can you talk a little bit about how much they cost now, and what type of cost you have to get to in order for the scale to start to make sense economically?
Nan Ransohoff: The goal is to get these technologies as cheap as possible, right? If we just think about the need, that 2050 number—call it five billion tons a year, at $100 a ton, that is $500 billion per year in market size that is needed to support these technologies.
Global GDP is $100 trillion. It’s just a huge, huge number. So as much as we can cut costs, there are huge, reverberating benefits of that at the kinds of scales that we’ll eventually need. Today, these technologies are really all over the map in terms of cost, and they’re quite expensive.
We’ve spent up $2,000 a ton on a technology that is just getting started. Our weighted average is probably in the mid hundreds, mid to high hundreds. And the way that we think about cost is less, “What is the cost today?” but, rather, “What do we think that this solution has the potential to be in the future?”
When we evaluate any different technology, we are looking at a number of criteria that we’ve made publicly available. And one of those is, first of all, is it permanent? We’re looking for solutions that are more than 1,000 years of permanence. Because when you emit a ton, it is in the atmosphere permanently, so you also need to take it out permanently as well.
We are looking for solutions that are not constrained by arable land, for the reasons that we talked about earlier. And then, importantly, we’re looking for solutions that have the potential to be around $100 a ton or less by 2050 and have the potential to be more than half a gigaton per year, basically as a proxy for, do we think this can be a pretty significant part of the global portfolio?
To your point on cost curves, the reason that many of these technologies are so expensive today is not dissimilar from many of the other industry examples that you cited. Technologies tend to start out expensive at the beginning, but costs come down over time as they scale. We’ve seen this in solar, and DNA sequencing, and phones, and TVs.
The challenge is, if these technologies don’t have early customers, they can’t get down that cost curve. And so carbon removal technologies have been stuck in this chicken-and-egg problem where, if you’re a potential carbon removal entrepreneur, you ask yourself, why would I start a company if nobody’s going to buy my product?
And therefore their costs remain high. Most customers don’t want to buy technologies that have huge sticker prices in the early days, and as a result, these technologies have really struggled to gain early traction to start coming down the cost curve.
So that’s a long-winded way of saying the lens that we take is, let’s not look at what they are today, but what they have the potential to be in the future.
Michael Chui: Got it. And you mentioned the hundred bucks a ton benchmark. Is that roughly what people are paying on carbon markets nowadays? What’s the reasoning for that?
Nan Ransohoff: It’s a little “finger in the air.” It is roughly intended to say, we need technologies that are an order of magnitude cheaper than they are today. But whether it’s $50 or $150, I don’t think anybody knows how that price exactly is going to change over time. But directionally, we want it to come down as quickly as possible to much cheaper than it is today.
Michael Chui: I introduced you as leading an effort which is described as an “advance market commitment.” That’s a bunch of syllables. What does that mean?
Nan Ransohoff: This was an idea that we borrowed from vaccine development. The basic idea is to send a loud demand signal to producers and suppliers that there’s going to be a market for the products that you’re building.
I’ll give you the example that we pulled it from. In the mid-2000s, we wanted a pneumococcal vaccine for low-income countries. And at the time, pharma companies weren’t incentivized to invest in the R&D and the scale-up of this product, because the ultimate buyers are civilians in poor countries that may not be able to actually pay for the vaccine. So at the time, a bunch of philanthropists and countries came together, and they basically pooled a billion and a half dollars and said, “Pharma companies, if you can build a product to this spec at this price for this group of people, there’s at least a billion and a half dollars for you in revenue.”
And it worked. It was enough to motivate the pharma companies to invest the R&D and scale up to deliver this product much earlier than they otherwise would have.
And so we’re taking that same concept and we’re applying it to carbon removal. The challenge with carbon removal is even more acute, I would say, than for vaccines, where there’s no intrinsic value in the end product. With energy, humans derive value from energy. But with carbon removal, if you are pulling CO2 out of the atmosphere and you’re storing it somewhere, there’s no “value” of that to the customer, so it doesn’t have a natural set of customers like many other products.
As a result, if you’re an entrepreneur, why would you build a company that is going to have no revenue? If you are an investor, why do you want to invest in a company that’s going to have no revenue? And so, again, our intention here is to say there is at least $1 billion of revenue for companies that are building to this set of target criteria that we’ve laid out, in an attempt to say, “Hey, if you build this, we will buy it.”
Michael Chui: Is the theory of the case that eventually some number of companies will feel either a moral or a financial or a regulatory incentive to take carbon out? But it’s not going to be economical unless those cost curves come down some. And so what is your promise, right? You have nearly $1 billion. How does it work? How does Frontier work? And then what does that lead to?
Nan Ransohoff: Frontier facilitates carbon removal purchases on behalf of buyers that have joined Frontier. So imagine a set of buyers has said, “We want to put in $100 billion to buy carbon removal over the next nine years.” Frontier goes out and finds the best suppliers, we diligence them, we facilitate and author these contracts that are, ideally, bankable for the supplier. That’s in the form of an offtake agreement. And when tons actually get delivered, those tons get passed from suppliers back to buyers.
And what’s interesting about the Frontier model is that most of the funds get spent through these offtakes. And from a buyer perspective, they are pay-upon-delivery. This isn’t an equity investment. It’s basically saying, “We are going to pay you revenue for the tons that you are selling when you deliver them. But if the supplier doesn’t deliver, we’re not on the hook for them.”
Ideally, these promises to buy, these offtake contracts, the supplier can then take to the bank and say, “Hey, we have customers for the tons coming off this facility. Can we have a loan?” And so the theory of change here is, acting as an early buyer through these legally binding offtake contracts, we can help pull projects forward in terms of speed as well as pull in other forms of capital by providing that revenue certainty for suppliers.
Michael Chui: And is the form of the contract “If you take out 100,000 tons, I will pay you X dollars”? So there’s some division, and you can say how much dollars per ton that is? Is that how it works? But you’ve got to deliver it?
Nan Ransohoff: Exactly. So we agree on the number of tons and a price per ton. There’s some extra nuance there, but that is the very simplified way to think about it, over some period of time.
Michael Chui: And in terms of Frontier’s role, you’re almost like a broker, I guess, right? You’re just trying to match buyers and sellers of carbon removal. Is that how it works?
Nan Ransohoff: Yes, although I would think about it more like a portfolio. What we do is, we are going and building this risk-adjusted portfolio. So when new buyers join, they effectively are buying that portfolio of carbon removal companies. It’s almost like buying into the S&P or something.
And what we’ve heard from members is that most companies that are spending time thinking about climate have three big things to do. One, they need to measure their emissions. Two, they need to reduce as much as they possibly can. And much of that is very endemic to your core business, right? It is very specific to you. Three, they need to remove carbon, which is typically not specific to them.
And so we’ve found that most companies really want to spend the bulk of their energy on the reduction piece, which makes a lot of sense to us. And so the removal piece right now is quite hard. Because this field is really young, you need a geochemist to evaluate the one company, and a geologist to evaluate another company. We want to make it really easy for any company who wants to purchase really catalytic, high-impact carbon removal as part of their net-zero programs to be able to do that without much effort.
So that’s really where we think that we’re sort of, hopefully, trying to help more companies get involved. Because this field is really in the early innings, and there’s a lot more work that we need to do in order to build up the market to help the supply scale.
Carbon removals: How to scale a new gigaton industry
Michael Chui: So from the Frontier perspective, you’re collecting a portfolio of carbon removal. But for the individual buyer-member of Frontier, is it a set of bilateral agreements with the carbon removal companies? Is that how it works?
Nan Ransohoff: Yeah. That is generally how it works, though there’s some nuance in how you want to join. So we can also do that for you, if you don’t want to do that piece. But, functionally speaking, yeah, think about it like minimal effort for you so that you can buy great stuff, great catalytic stuff, without having to do all the diligencing and contracting work on your own.
Michael Chui: And so what have you learned in working on this? What’s worked and what’s been more challenging?
Nan Ransohoff: Well, there are many things in both of those buckets. I think that one of the early observations has been that this field has benefited from a louder demand signal.
At Stripe, we started making purchases from carbon removal companies back in 2020. We’ve done, I think, six rounds of purchases, and we recently did some analysis looking at how many high-quality companies did we get in that first round versus our latest round of prepurchases. And there was a seven-X increase over just a couple of years, and there’s a huge increase after Frontier was announced.
It’s hard to draw perfect causal relationships between these things. But one of the observations and reasons why we feel optimistic is that the number of companies, and the number of high-quality companies that are doing carbon removal, is growing. And that is exactly what we need. We need to get more companies to the starting line so that we have a shot at building the collective scale of portfolio that we need to reach targets.
That is one of the things that we’ve observed. Another observation is that the diversity in the kinds of companies, and the approaches that they’re taking, has increased a huge amount. Which is fabulous. Because, as we talked about earlier on, every single pathway has pros and cons, and it’s too early to pick a horse. We don’t know which ones are going to win. And most likely there won’t be a single winner—there will be this portfolio of approaches. So it’s very encouraging to us to see that diversification.
On the demand side, we have seen new members join Frontier. We have seen increasingly larger purchases in carbon removal generally, which is exactly what we are hoping for. And, at the same time, we have a really long way to go in terms of building the market to scale with demand.
Some of the challenges on the demand side are, how do we get from this $1 billion over nine years to $20 billion a year by 2030? Eventually to hundreds of billions of dollars in the coming decade? So there’s still a lot of open question marks about how that’s actually going to happen.
And I think one of the calls to action is, if you are a company that is considering how to have a catalytic impact in this space, and, ideally, also meet your net-zero commitments, what can you do today to make commitments to increase the chance that we have the carbon removal tomorrow that we actually need to do what we need to do?
Michael Chui: Well, it’s super exciting to see an industry at the early part of the innovation curve. And if you don’t mind, why don’t we do a quick lightning round of quick questions, quick answers, for fun?
Nan Ransohoff: Let’s do it.
Michael Chui: All right. What’s your favorite source of information about climate change?
Nan Ransohoff: OK, I’ll say two things. I think if you’re just getting started, Watershed has a great reading list, and so that’s a good place to start. And then some great Twitter accounts, Zeke Hausfather, Hannah Ritchie, there’s a number of great folks on Twitter who are always talking about kind of the latest and greatest.
Michael Chui: Whom do you find most inspiring, in terms of people working to address climate change?
Nan Ransohoff: I’m trying to think of a good kosher answer, OK. I think the list there is long. The builders themselves, so Tim Latimer at Fervo [Energy] and Apoorv [Bhargava] at WeaveGrid. There’s a bunch of folks who are actually building the solutions that we need that I find really inspiring, including the founders and the team of our carbon removal companies, like Peter Reinhardt [of Charm]. They’re just fabulous.
Then you’ve got folks like Jigar Shah, in the [US Department of Energy] Loan Programs Office. He’s doing amazing work in actually helping these companies get the financing that they need in order to build the facilities. But there’s a very long list of folks there, and fortunately that list is now too long to keep all in my head, because the climate field has expanded so significantly over the past couple of years.
Michael Chui: What’s the most surprising thing you’ve learned working in the climate field?
Nan Ransohoff: That it’s tractable. I do think that this is a tractable problem. It is not inevitable that we will solve it, but we have the opportunity to solve it. And I think that the doomerism line of thinking has really—I think we’ve gone too far with it, to the point of being demoralizing. And I think that we know what we need to do. We need to do a huge amount in a very short period of time, but it is a tractable problem.
Michael Chui: What’s your favorite technology innovation of all time?
Nan Ransohoff: Oh my God, I have no idea. Of all time?
Michael Chui: Yes.
Nan Ransohoff: I’m going to think about that one, for sure. Well, let’s see. I’m not sure how I’d answer that question. Maybe electricity?
Michael Chui: That’s good. What would you advise someone who’s just graduating from secondary school to study?
Nan Ransohoff: I would advise them to pay a lot of attention to what lights them up. And to pull that thread and follow what they feel personally motivated by, not about what they feel like they should study.
Michael Chui: If you weren’t doing what you’re doing today—and I don’t mean today, literally today, I mean in general, what would you be doing?
Nan Ransohoff: I think that this AMC [advance market commitment] concept has legs outside of just carbon removal and vaccines. And I am increasingly interested in what that would look like in practice, whether it’s for steel, or cement, or hydrogen, or problems that are completely unrelated to climate. But I think this is a pretty generalizable concept that we haven’t seen its full potential yet.
Michael Chui: And what would be one piece of advice you’d have for listeners of this podcast?
Nan Ransohoff: In the context of climate, I think we, as a society, have an instinct to overthink everything, sometimes at the expense of speed and just doing something. And I think the discount rate to time is very, very high for climate. So not letting perfect be the enemy of good, and moving forward quickly, even if it is imperfect, is often—not always, but it is often the preferable strategy. I think we can play more offense than defense in all of our respective roles.
Michael Chui: Thank you. Nan Ransohoff, thanks for joining us.
Nan Ransohoff: Thanks for having me.
