Deploy or innovate? Scale up an existing technology or develop a breakthrough? Build, build, build, or invent a better mousetrap?
The question isn’t which strategy to follow; it’s which strategy to use in which sector. Virtually no one thinks that solar needs brand new tech breakthroughs to scale. Crystalline silicone took the lion’s share of the market years ago from cadmium telluride, amorphous silicon, CIGS and other early solar technologies.
But in carbon removal, batteries, nuclear, and other industries — should we develop new technologies, or scale up a promising few?
In this episode, Shayle talks to his colleague Andy Lubershane about the better mousetrap fallacy in climate tech. Andy is the head of research and a partner at Energy Impact Partners. He argues that, in certain industries, investing in building a better mousetrap is a bad use of capital, and that too many options causes analysis paralysis for would-be customers.
Shayle and Andy cover topics like:
- How scaling up technologies – as Chinese manufacturers have scaled up solar and batteries – drives down cost
- Why new technologies that aren’t five or 10 times better than an incumbent may fail to beat the cost curve
- Whether batteries need breakthroughs, and how Andy thinks about lithium-iron-phosphate, sodium-ion, thermal, and iron-air
- Why Andy thinks that the Nuclear Regulatory Commissions should license more new projects than new technologies
- The challenge of having more direct air capture technologies than buyers
Recommended resources
- Catalyst: The cost of nuclear
- Latitude Media: Is large-scale nuclear poised for a comeback?
- Catalyst: Seeking the holy grail of batteries
- Catalyst: Growing the carbon dioxide removal market
Catalyst is brought to you by Kraken, the advanced operating system for energy. Kraken is helping utilities offer excellent customer service and develop innovative products and tariffs through the connection and optimization of smart home energy assets. Already licensed by major players across the globe, including Origin Energy, E.ON, and EDF, Kraken can help you create a smarter, greener grid. Visit kraken.tech.
Catalyst is brought to you by Anza, a revolutionary platform enabling solar and energy storage equipment buyers and developers to save time, increase profits, and reduce risk. Instantly see pricing, product, and counterparty data and comparison tools. Learn more at go.anzarenewables.com/latitude.
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Transcript
Shayle Kann: I’m Shayle Kann and this is Catalyst.
Andy Lubershane: I’ve watched and talked to dozens of companies and founders and I think oftentimes making the same mistake as they were trying to commercialize some better mousetrap for energy storage, which is they underestimated the pace at which the cost could come down and the technology could improve, not through some game-changing innovation, but really just through that incrementalism of economies of scale and learning curves, bigger factories and more factories.
Shayle Kann: This week, how to avoid building a better mousetrap in a market that really just needs more mice or cheese or something? I am Shayle Kann. I invest in revolutionary climate technologies and energy impact partners. Welcome. All right, so I think there are basically two different ways to go about new technology development. One of them starts with the problem. So you say, “What is the need in the market or what’s the need from customers that is not being fulfilled and that won’t be fulfilled unless they build something to fulfill it?” and then you go off and develop that technology. The risk with this path is that maybe you identify a great opportunity or a gap in the market, but then you have absolutely no chance of actually solving it.
Then there’s the other way which is more driven by the technology and this is the one that at least I often see coming out of academia. It’s a little bit more like, “Hey, I have this really interesting new technology. What can I do with it?” And the risk on this side is that you’re a solution in search of a problem and one manifestation of that latter category, the solution in search of a problem category, at least as it shows up in startup land, is falling victim to the better mousetrap fallacy, which is basically when you are developing a technology that is not really needed in the market that you’re going after.
My colleague at EIP, Andy Lubershane, whom you’ve heard here many times, thinks that this problem, the better mousetrap fallacy, is actually pretty persistent in climate tech, at least in a few specific categories and it’s been bothering him lately. I’m not so sure to be honest. It’s an ongoing conversation between the two of us, so let’s make it an ongoing conversation amongst the very many of us. Welcome to the conversation. Here’s Andy. Andy, hello.
Andy Lubershane: Hey, Shayle.
Shayle Kann: Let’s talk about mousetraps. You brought this idea up to me about the better mousetrap fallacy and things that you’re concerned about as you watch what’s happening in climate tech world right now. So I’ll let you define it’s a start. Define the better mousetrap fallacy.
Andy Lubershane: The idea is that there’s always a better mousetrap, which basically means there’s always some new invention that is going to be the thing that unlocks a technology or unlocks a market. And I think it comes from a saying a long time ago, I’ve heard this idea that, “There’s always a better mousetrap,” or, “A better mousetrap will open up the industry for a long time,” and I think that’s sometimes true. There are some instances in which a better technology solution, the next iteration of something, is really what it takes in order to open up an opportunity, but I think, in a lot of areas these days and in certain aspects of climate tech in particular, the industry has gotten into a bit of a trap with better mousetraps where we’re assuming that a better mousetrap is the thing that is going to solve all our problems when in fact a better mousetrap, meaning some big technology innovation, is not really the answer and there’s a big risk in overinvesting in better mousetraps.
Shayle Kann: One thing I think we should be careful of as we talk about this better mousetrap fallacy is like this is mostly died down, so I’m hesitant to even rekindle this fire, but do you remember, five or 10 years ago, there was just this ongoing never-ending battle between the innovation people and the deployment people? And there, they would argue this was mostly like a climate thinkfluencer battle as far as I could tell, but the canonical innovation person was Bill Gates who was saying, “What we need is a series of technological breakthroughs. Otherwise, we’re never going to solve climate change.”
And then, I don’t know, the canonical deployment person was probably Jigar actually who was saying, “No, deploy, deploy, deploy,” which is still actually his favorite phrase, saying, “We don’t need, or at least, it’s not as important to see big technological innovations. What we need to do is take the technologies that are mature today and deploy the hell out of them.” And it was an annoying debate and remains an annoying debate because clearly we need some of both, but I want to make sure that we don’t fall into that same hole here. So what you’re saying is that there are places where major technology innovation are required and we talked about what some of those are.
What you’re worried about, if I understand it right, is that there’s some other places where major technological innovation is not necessarily required, but we seem to see a lot of people who think that it is. Is that about right?
Andy Lubershane: Yeah, this is obviously a both-and scenario that the scenario, meaning the battle against climate change, but there are absolutely places where we need better mousetraps, and actually, I would say plenty of areas in which we still need completely new types of traps to trap different types of rodents, right? Gopher traps and squirrel traps because there’s a lot of problems along the path to net zero that we just don’t anywhere close to have the right technology to solving today. And there are some areas though where I do think that the mousetraps we have are good enough and actually are likely to get better incrementally on their own such that funneling a lot of capital into trying to build a differently better mousetrap is probably a bad use of capital at this point, and in fact, I think is a little bit distracting not just for investors because I’m not so worried about venture capitalists and investors who are putting capital into new tech.
What I’m more worried about is that the proliferation of options in certain areas can almost be paralyzing and lead to the inability to deploy at the pace we need or to focus on deployment in certain instances. So it’s not that we don’t need new mousetraps and also not that obviously we don’t need to deploy those mousetraps faster, it’s that we need to do both at the same time and pick the areas in which we need to invest in real fundamental innovation and then pick certain areas in which we probably don’t need to do so much of that anymore.
Shayle Kann: Right. We’ll come back to some of the sectors where we think this might be the case, but I think we could ground it in some history here, which is, if you look at the technologies that are now mature in climate tech, wind and solar being the obvious ones, you could add maybe lithium-ion batteries to that, what mostly ended up happening for those technologies to get to the point where they are today, to the cost where they are today, is that relatively early on in the deployment curve, not necessarily early on in the technology development curve, solar was invented by Bell Labs in the ’50s, something like that, Solar PV?
Andy Lubershane: Yeah.
Shayle Kann: Right? So we’re not talking about the 1950s, but come the 2000s and into the 2010s, one technology, mostly one, and it was already the incumbent technology, it was crystalline silicon and then mostly what happened is it just scaled and scaled and scaled and scaled and scaled, and as it did that, the cost came down and down and down and down. And you know more about wind than me, but I presume there’s a similar kind of a story there. And so I think part of what you’re saying is, in order for that scaling and cost decline to occur, at least in some of these sectors, you have to see that shake out. Because back before, it was obvious that crystalline silicon was going to be the dominant winner.
There were a hundred technology startups, literally a hundred technology startups doing different kinds of solar cells, lots of different thin film stuff, SIGs, cadmium telluride, amorphous silicon. People who’ve been around this industry will remember all this stuff. So I guess what you’re saying is you want to see that shake out sooner or at least less of a proliferation in some of these cases because the faster we get on that learning curve, the faster we come down the cost curve?
Andy Lubershane: That’s right. You brought up solar and I think that pattern has repeated itself across most of the core foundational building blocks that are mature and are ready for deployment today in climate tech. Energy storage is the other really great example. I think you and I can talk about this a little more in detail, but I’ve covered the energy storage market personally for more than a decade now, first as an analyst and now from an investment standpoint. And I’ve watched and talked to dozens of companies and founders and I think, oftentimes making the same mistake as they were trying to commercialize some better mousetrap for energy storage, which is they underestimated the pace at which the cost could come down and the technology could improve, not through some game-changing innovation, but really just through that incrementalism of economies of scale and learning curves, bigger factories and more factories that have been the driving force behind lithium-ion batteries, just like they were the driving force behind solar, both of which of course also occurred in China, which is a whole other topic of conversation.
But I think part of the reason China is the world’s workshop for batteries and for solar PV for all kinds of other stuff unrelated to the energy transition as well, is that China has gotten really, really good at that scaling up of an established technology. And I wouldn’t undercount the fact that there’s also incremental innovation going on at the same time. With every factory that’s built, there’s learning that occurs. And in China, this has been very much the case with lithium-ion batteries, they get better. It’s not a completely new battery technology 95% of the time, but it’s a tweak and iteration on the existing formula that improves the product.
And I think comparing the US and China, part of the issue with the US is we really do tilt towards this mindset of novelty and boldness and daring and restlessness, which are definitely huge assets and strengths for the US, but I think in the context of scaling up energy technology, they’ve also been blind spots and perhaps one of the reason that our country has become and countries around the world have become so dependent on China, which is really good at the bigger incrementalism over time.
Shayle Kann: I think we should be clear, I think you agree with this too, that even in a sector where you’ve got incumbent technology and there’s an opportunity to drive down its cost or drive up its performance by scaling, if you’re building something that you think is a better mousetrap, 20% better than whatever the incumbent technology is, in all likelihood, your reaction, my reaction when we see a company that’s doing that is 20% better is not better enough. Because in five or 10 years, the industry is going to pass you by and we’ve seen that happen too many times. So you have to be 5x better, 10x better to build a better mousetrap that actually has a shot.
Andy Lubershane: That’s right, especially in these areas where technology where the mousetrap we’re using is still being scaled up and very much that was the case for polycrystalline silicon PV, that’s the case for lithium-ion batteries. Those technologies are very much not standing still and the industries behind them have reached a scale at which it’s actually difficult and especially because this is mostly going on in China in those two cases. It’s very difficult to even understand and to get good visibility into how fast the technology is improving and exactly what is on the horizon even two or three years from now and how fast the cost will come down.
If you’re going to bet against the cost curve for that kind of technology, you have to be making a big frigging bet, right? You have to be betting on a technology, on a mousetrap that is so much better that there’s just almost no chance that the established incumbent tech is ever going to touch it.
Shayle Kann: All right, so let’s make this a little bit more tangible. What is a sector right now where you think we are starting to see or already seeing too many better mousetraps?
Andy Lubershane: We’ve been using storage as an example, so I don’t know, let’s riff on that for a little while longer. Because energy storage specifically stationary grid storage, and frankly, I would extend this into next-generation batteries for mobility as well, so basically any way of electrochemically or mechanically storing energy I think is an area where the better mousetrap fallacy has taken hold to some degree. And again, I want to be clear, I think there are opportunities for that 10x better solution in some areas within energy storage, but that’s definitely one where it’s amazing, now for over a decade, there’s almost a continuous stream of companies, I feel like I’ve seen across a wide range of different approaches to building a mousetrap to store energy that have always been in the 20 to 50% theoretically better than lithium-ion camp and have just gotten repeatedly over time crushed over and over.
And this is an area where I think … I mentioned earlier I’m concerned that, in addition to wasted capital, there’s also a distraction effect of having dozens and dozens of mousetraps continuously entering the market in the industry. That’s one where I believe I’ve seen that especially, because in my role at Energy Impact Partners, I work with lots of large incumbent energy infrastructure operators, utilities and other companies who are deploying energy storage today, a lot of lithium-ion battery storage and are also considering what the next thing they deploy is to handle other types of storage challenges they’re anticipating in the future, especially longer duration storage.
And I think there is a little bit of analysis paralysis in the market right now where it’s very difficult for operators who are assessing their options for deploying novel storage technology to pick a lane and try to get comfortable with it just because there’s so many out there.
Shayle Kann: So there have been, over the years, like you said, many different versions of an energy storage mousetrap for the grid. There’s the mechanical stuff and compressed air energy storage, there’s also flow batteries and all sorts of other technologies and none of that has really scaled up yet. I guess two things here. One is there have been technology shifts within the battery world and one of the things I wonder about, there has been this big shift particularly for stationary storage and now increasingly for mobility as well from NMC and other similar chemistries to LFP and that’s all within lithium-ion, but it’s a different chemistry.
And then now, there’s this emergent category, for example, of sodium-ion, which is just a little further on the spectrum than LFP in the same sense, like theoretically lower costs for the lower energy density. Generally, it’s a continuation of the same thing and it potentially has a bunch of other benefits theoretically in terms of safety, not being reliant on the lithium, volatility and supply chain. Do you think of stuff like sodium … I understand why a flow battery, for example, runs a heavy risk of being a better mousetrap. Do you think a sodium-ion is a better mousetrap or do you think of it differently because it’s a continuation on a spectrum of innovation?
Andy Lubershane: It feels like a continuation. That’s another lithium-ion chemistry that the existence of LFP as an idea and as something that had been sort of lab-proven well predated any kind of the scale up that we’ve seen in the past 10 to 15 years and certainly deployment in the field. Sodium-ion is probably more of a real deviation, although it’s still I think a technically fairly close cousin of lithium-ion, especially the way that it’s manufactured today and some of the core principles at play. You could very much see LFP as an incremental advancement of the technology, sodium-ion probably of a different kind obviously, literally using a different atom.
But I think the fact that it’s been largely developed by and is already being scaled up by the exact same large industrial players, battery manufacturers that make existing lithium-ion means that I guess it is a better mousetrap, but it’s a better mousetrap that’s certainly not the kind that startup companies are well set up to develop and manufacture.
Shayle Kann: It’s on the borderline in terms of how you think about it, whether it’s just the next stage of … It could be nothing, but if it’s something, then it’s either the next stage of innovation along that continuation or its own thing in which case that is the question. The other, I guess, storage-related question here is you mentioned there are some categories that are a little different, but just be more specific, we, you and I, we’re investors in Form Energy, which is a stationary battery technology company for the grid and I think we both agree it is different, but it’s an interesting case study in what makes it different because you have a market that is clearly subject to the better mousetrap fallacy. Lithium-ion just keeps getting cheaper and cheaper and probably will continue to do so, and yet, we find a stationary storage chemistry that we find attractive. So what is it that distinguishes Form or just use it as a way to describe what falls outside the fallacy?
Andy Lubershane: Right. I remember having this conversation with you initially probably five plus years ago now and we’ve had a similar version of it over time as we’ve talked to and assessed more better mousetraps within the storage universe. And the basic thrust of the conversation was we don’t want to be caught investing in a company that is anywhere in the realm of what lithium-ion will approach from a competitive standpoint. And so what was attractive about Form is that the fundamental cost of the materials that go into their battery and the way that they’re building the battery enable them to build this multiday system at a target cost that is so far beyond what lithium-ion has achieved today and beyond what any reasonable vision of the future of the technology would entail, that it is, I’d say, outside of that competitive threshold.
It is a different category of product that this incumbent solution, lithium-ion, and even steps from lithium-ion that are related like sodium-ion just won’t be able to touch. And another example that’s also in our portfolio is thermal storage. Rondo is a company that we’ve invested in that is a thermal storage technology developer that’s pretty rapidly moving into the commercialization phase of its lifecycle, which is really exciting. And the unique thing about thermal storage that’s distinct from electrochemical storage is that it can absorb electricity and then produce heat with such high roundtrip efficiency, right? Because you’re ingesting electricity, storing that energy as heat and then just pumping it out as heat for industrial processes, which is something that can achieve both extremely low cost, because again, the materials involved can be just so incredibly inexpensive if all you’re really looking for is a material that can get really hot in a very stable way and then dispatch that heat efficiently.
And then also you don’t have to deal with any electrochemical losses. You’re converting energy into heat, which is basically how energy is lost and then pumping that heat out to simultaneously create a system that can store electrical energy and then turn that energy into a continuous stream of heat for any kind of process that takes low-to-high temperature heat in the case of Rondo. So again, it’s a category that it just does something totally different from what lithium-ion does. And so while they’re both technically storage, I think we were able to get comfortable that it’s just a different product.
Shayle Kann: All right, let’s move on from storage. What’s another category where you think the better mousetrap fallacy is rampant?
Andy Lubershane: So I think that, in my opinion, the now canonical example of the better mousetrap fallacies in the nuclear fission world where I think for decades the problem with nuclear power has really not been a technology problem. I’ve written about this, lots of people have written extensively about this and I think it’s been a public relations and opinion and regulatory and policy problem, right? We first built nuclear power plants starting in the late ’50s and through the ’60s and into the ’70s that are operating well today and we built those plants before we had computer modeling software and all the wonderful engineering tools we have at our disposal today.
So nuclear technology works. We used to be able to build it pretty cost-effectively. And in fact, nuclear power is still being deployed pretty cost-effectively in countries in which it is still being deployed today in which are ramping up deployment like Korea and China for example. And so I see nuclear as a space in which so-called Gen 3 technology or Gen 3+ technology, which is very much an incremental improvement over the light water reactor designs that have come before is really, in my opinion, all we need. And at the same time, there are dozens of better mousetrap developers out there that have what are probably very clever and very promising, from a technical standpoint, new takes on nuclear fission with different types of coolants and lots of passive safety features.
But ultimately, I think the hurdles to proving out a fundamentally new nuclear reactor design in the vast majority of those cases are just not worth the value that you get relative to deploying the technology we already have and just doing it like we did it in the ’60s and ’70s where you’re deploying a lot of it and therefore get back on the learning curve and also start to rebuild the supply chain in North America and in Europe. So nuclear is another space in which I think that the better mousetrap fallacy is distracting at this point rather than helping the industry move forward.
Shayle Kann: I think there’s a particular risk in nuclear too, which is that, as you said, to start seeing a true nuclear renaissance in the US, there’s a regulatory shift that has to happen, policy shift, perception shift. Let’s just assume all that stuff does happen and there’s an opportunity. It’s really a capital-intensive to build nuclear plants. Everybody knows that. We’re not going to do that many of them right away and the first ones are going to be expensive. I don’t think anybody thinks that the first Gen 3 reactor we build in the next decade in the United States is going to be the cheapest source of power, right? You need to be doing a bunch of them and coming down that learning curve.
Andy Lubershane: No matter what technology.
Shayle Kann:
No matter what technology. But that’s the point, is that, if you do one of each of 20 different technologies, you’re not really coming down the learning curve. These actually are pretty different from each other, a lot of them. And so the way, if you’re a God in charge of what we do in energy, what you want to do is pick one and then deploy it over and over and over and over again and get it so that it’s coming down the cost curve until it actually is cost competitive, which it probably is not going to be on day one unless you’re Amazon and you need clean power 24/7 for a data center and you have high willingness to pay, right?
Short of that, that’s what we got to do, but I worry that because there are so many different options, let’s just say the NRC starts licensing reactors left and right all of a sudden, would be a total sea change in that market, but now we have 20 licensed reactors. Is that good or is that bad for the future of nuclear in the United States relative to if the NRC licensed like two?
Andy Lubershane: I think it’s probably bad, sadly for the future of the US. I would obviously love to see changes in the NRC, which made it more efficient and much less costly to license a new design, but I think it’s much more important that the NRC process becomes more efficient and less costly for licensing as opposed to for licensing technology, right? And I do think that if I were the omnipotent energy czar of the country or the world, I would pick one, two, maybe up to three designs and deploy them serially and say, “We’re going to do 10 of these and we’re going to see how it works out, maybe 10 of each and we’re going to space them a year or 18 months apart from each other.”
And I almost guarantee that that would lead to much faster cost down and maybe even just ultimately lower cost than any of the next-generation designs that we’re seeing could really achieve. I should soften that language, maybe not any, but then the vast majority of the better mousetraps that are out there taking up attention.
Shayle Kann: What about … I guess the other thing we see is with some of the novel reactor companies, technology companies, is that the pitch they’re making is that they have an inherently safer design and that should be the thing that allows them to get regulatory approval, get public perception on their side, etcetera. And so you need a better mousetrap on the safety side, maybe not the cost side, in order to break through the wall that we’ve had for building new nuclear in the US.
Andy Lubershane: In nuclear reactor design and construction, superior safety features are better costs in some way, right? Because if you can demonstrate that there’s inherent features of the reactor that don’t require as much redundant equipment or protective equipment, etcetera, when you’re building the plant, then hypothetically that does reduce the overall cost of the plant. So I’m definitely sympathetic to that argument, but at the same time, it could also be another red herring in the sense that nuclear today is already so safe and especially the incrementally better Gen 3+ reactors that a handful of companies have ready to go today would be even safer than the nuclear fleet as it stands.
And so I think rather than arguing that existing technology is insufficiently safe, which is I think just not true, it would be better for the industry overall if the public were to understand and regulators were to reflect the safety of the technology as it exists today and regulate it and allow it to be deployed according to its existing safety profile. So again, I don’t want to say that we should entirely stop in investing as a society in the next-generation Gen 4 nuclear, but from a commercialization standpoint, certainly from a government policy standpoint, if you’re a government and you want to advance nuclear energy in your country, I think you’re much better served by focusing on the basically proven reactor designs we already have. And this is an area where I’m on the Jigar train of deploy, deploy, deploy.
Shayle Kann: As is Jigar on that train when it comes to nuclear.
Andy Lubershane: I think he is the conductor.
Shayle Kann: As a regular listener, I know he will hear and appreciate this. Let’s talk about one more example. Give me one more sector where you think the better mousetrap fallacy is taking hold.
Andy Lubershane: I don’t know if we’re going to agree on this one and I don’t know how much I actually believe this myself, but I think there’s a risk of the better mousetrap fallacy in the direct air capture world in the sense that there are now … I think we found a list somewhere and it’s a pretty credible list of over 150 direct air capture startups. So there are countless mousetraps. It turns out that if you want to suck carbon dioxide out of the atmosphere and then dump it somewhere, there’s a ton of different ways to do it theoretically. The problem with DAC, at least for now, is that there’s no mice, but I don’t mean there’s no CO2 to suck up. It’s that there’s very, very few buyers for carbon removal at anywhere near the price that DAC is selling it at.
There’s actually not that many buyers for large scale carbon removal period at the moment. I hope that changes over time. There’s basically one big buyer in the market, which is Microsoft and then a long tail of smaller buyers. And so I worry that the race to develop mousetraps in DAC is maybe just 10 years too early. And maybe that’s not a problem, right? Because the next 10 years, we’ll spend proving out a few of these and hopefully figuring out which is the best mousetrap to begin to deploy and to follow that learning curve downwards for. But at the moment, it’s a little intimidating. And even for now, I think that probably the market would be better served by picking a very small handful of solutions that we’re pretty sure can scale and scaling them up rather than continuing to do one-offs. What do you think?
Shayle Kann: All right, so on this one, I’ll give you two ways in which I agree with you, I think, and one in which I disagree. The things I agree with are I do think that there is a proliferation, this is broadly true across carbon removal, but includes DAC of startups, technology startups that goes well beyond the existing buyer universe. My favorite stat at the moment that I’ve used a bunch of times now is that I’m pretty sure, depending on how you want to define it, I’m pretty sure there are more carbon removal startups than there are carbon removal buyers, at least at any scale, like meaningful scale of buyers.
That’s not a situation you want to be in long term in the market and so some of those startups have to disappear and some of those many, many more buyers have to emerge. So I agree with you there that there is a fundamental problem in not enough mice, I guess, in this analogy. That part I agree with. Another thing that I think is mousetrap fallacy related in that space is that, because you have so many DAC startups, they’re all startups, virtually none of them have ever built a thing. The number that have built the thing that can be measured in the tons per year, it could probably fit on my two hands. So instead what you have is a lot of promises.
And that can be confusing if you are one of the buyers in the market, everything is forward contracting at this point, right? You’re buying CDR credits for projects that haven’t been built yet. You have to decide, you have to pick and choose what’s real, what’s not real. That’s hard and that makes it tricky for the market. So on both of those points, I agree with you. Here’s where I disagree with you. Now there’s debate about what price point you’d have to hit to see really scale demand in CDR. A lot of people use $100 a ton for durable, permanent, verifiable CDR as the benchmark. I like an even lower benchmark long term.
I want to see DAC or some version of CDR that has all the characteristics of DAC in terms of permanence and verifiability and so on, but it’s $50 a ton for example, right? And it’s not clear to me that we know yet. So if you were to just say, “Okay, I’m going to pick this sorbent. Let’s go. I don’t know that we know we would be there yet. And so there’s an extent to which I still want more mousetraps in DAC despite I think what’s going to be a pretty painful reckoning in the startup landscape just because I think we need to find something that is truly cheap enough. If we’re going to do DAC at scale, maybe we’re not, but if we are, something has to get really, really, really cheap and maybe it’s one of the more “incumbent technologies”, but that’s not clear to me yet in this sector.
Andy Lubershane: I think I can get behind that. That makes good sense to me. And I think it’s just a question then of who is the entity that is best suited for sorting through the many, many mousetraps that are out there and trying to pick out ones to pursue and to scale up. And I don’t have a great answer to that right now for DAC.
Shayle Kann: This is where I think actually frontier, the Stripe-founded program, that acts as the sort of collective buying pool for CDR actually serves a really valuable market purpose. First of all, they aggregate demand and they say, “Okay, we’re going to get a bunch of companies together and so we’re going to have a pool of demand of purchasing power that’s a billion dollars plus over eight years,” or whatever it is. But also they are resourced with people who spend time and look at the stuff, they take applications, they sift through them, they have scientists, they do a lot of work to pick and choose who should be the cream of the crop.
It doesn’t mean they’re going to be perfect, but somebody has to play that role, because otherwise, if you’re just an independent buyer in the market and you’re like, “Okay, I want to buy some DAC credits and I’ll pay 500 bucks a ton or something like that,” and you just put out an open call, you’d get a ton of responses, I think it’d be really hard to pick and choose amongst them.
Andy Lubershane: Oh, it’d be almost impossible. And I agree, I think Microsoft has a really strong internal team doing that too. And they’re the single largest carbon removal buyer at this point, I think quite a margin. And so they’ve had to do that and I think it’s a real service to the world really.
Shayle Kann: It’s similar to, you remember in the early days of corporate renewable energy procurement, right? The tech companies were also the early leaders there, Google and Microsoft and Facebook and so on. And they both had enough demand and had enough resources that they built up their own internal teams who would figure out all the complex contracting structures and how to wheel power from a project and location X to your data center and location Y. And so they could do that themselves and they were big buyers, but the question was always like, “How do you get the less sophisticated and/or just less well-resourced buyers into the market?”
And that’s where you had these intermediary platforms like LevelTen and others showing up to say, “All right, let us help you sift through this and make it really simple for you to buy renewable energy if you’re a big corporate.” Something like that is going to have to happen in DAC world and there are a bunch of different companies trying to be that intermediary, but I think the fundamental challenge is more the one you described at the beginning. There’s more sellers than buyers, sellers who theoretically will have something to sell, but generally don’t have anything to sell yet than there are buyers and the costs are just too high.
Andy Lubershane: So I guess the lesson from all that is the internet is very profitable and it’s great that very profitable internet companies are some of the early buyers and sifters in these markets and can help move the industry at large down the learning curve. And actually, maybe this is a good time to talk about just the macroeconomic picture, which I think is relevant to the conversation about better mousetraps because we’ve definitely been through a period, especially in climate tech in which there was a lot of money available for better mousetraps and an amazing period I would say of innovation in the climate tech universe really in the last five years and it was really I think driven in part by the macroeconomic policy of zero interest rates that has really been around for the past 15-ish years at this point until very recently and was a big driver, not just of climate tech and all the better mousetraps we’ve seen in our sector, but of the search for better mousetraps across everything in tech for the past 15 years.
And I do think that the end of zero interest rate policy or ZIRP, the end of ZIRP is an important inflection point in our market and one that is probably going to make it harder to get capital to just try to design more mousetraps moving forward. What do you think?
Shayle Kann: I think the capital drying up to some extent, it’s not dry but drier than it was, capital drying up to some extent, it just acts as a filter earlier in the cycle for new markets and new technologies. When you’re in ZIRP era and there’s a lot of capital flooding in, a lot of different ideas are going to get it funded. Many of those ideas are going to get funded for longer than they otherwise would have. Now the filtering process just occurs earlier and earlier and that’s both good and bad. As we’ve said, there’s some ways in which that can be good and you don’t end up with this complexity and proliferation of ideas that can complicate and muddy the waters for a new market, but obviously, you just get less shots on goal to solve big problems as well. So I do think it cuts both ways here.
Andy Lubershane: Altogether, I think at this stage in the market it might be a net positive, but that’s provided that the capital that’s out there is still looking for those opportunities in particular where there is no mousetrap, where there’s no lithium-ion or no silicon PV that can just be incrementally improved upon and where we do need truly foundational five to 10x innovation in order to solve one of the bigger problems on the route to net zero. But I agree with you. It means that ideas that are starting to look like just 1.5 or 2x better within the first couple of years of their development, I think those are going to get nipped in the bud sooner.
Shayle Kann: All right, Andy, final question for you. Do you have actual mousetraps? I know you live in an old house in Maine, so I would guess that-
Andy Lubershane: I live in an older home in Maine. I live near some woods, and so yeah, I know my way around mousetraps, real mousetraps. And in the world of actual mousetrap technology, by the way, we basically don’t have better mousetraps. The mousetraps that have been around for, I don’t know, forever are still the best mousetraps on the market. That said, there is a 10x solution. I encountered this recently because I’ve had some mice in my basement. I’ve been catching a bunch of mice in mousetraps, which sucks. I hate to do it. I don’t want to do it over and over. And so I found a better mousetrap, which is gap filler that I actually went around my house and filled holes with. So the better mousetrap is to not have to trap the mouse at all.
Shayle Kann: There you go.
Andy Lubershane: Very Zen.
Shayle Kann: All right. The better mousetrap is having no mice at all. On that, we’ll end it. Thanks, Andy.
Andy Lubershane: Thanks, Shayle. Good to talk to you.
Shayle Kann: Andy Lubershane is my partner at EIP and our head of research. This show is a production of Latitude Media. You can head over to latitudemedia.com for links to today’s topics. Latitude is supported by Prelude Ventures. Prelude backs visionaries, accelerating climate innovation that will reshape the global economy for the betterment of people and planet. Learn more at preludeventures.com. This episode was produced by Daniel Woldorff, mixing by Roy Campanella and Sean Marquand. Theme song by Sean Marquand. I’m Shayle Kann and this is Catalyst.
