February 13, 2024 • 42 mins
Welcome to episode 27 of Catching Carbon, where we host an enlightening conversation with Phil DeLuna, the pioneering engineer and scientist leading the charge at DeepSky. With a mission to drive sustainable carbon removal technologies, DeepSky's unique approach and promising scalability could make a significant impact on our global carbon economy. As we walk through the nuances of carbon capture and sequestration, Phil breaks down the immense potential of direct ocean capture technologies and the role of carbon credits in facilitating a cleaner, greener future. With a focus on the larger picture, he also emphasizes the importance of a scalable and circular carbon economy. We discuss the specifics of DeepSky Labs' business model and their commitment to continuously identifying and testing multiple emerging carbon removal technologies for potential scalability and efficiency. The company's expansive portfolio promises future-ready solutions as DeepSky Labs continues to engage and partner with diverse companies specializing in direct air and ocean capture techniques. With innovation and grit at the heart of their operations, their aspiration to construct commercial facilities by 2026 heralds an exciting era for sustainable technological advancement. Join in to discover the future of carbon capture, the profound implications of DeepSky Labs' work, and how it opens a new chapter for sustainable innovation.
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Episode Transcript
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(00:00):
Music.
(00:24):
All right, hey, welcome to our next episode of Catching Carbon. We're in a new setup.
We've got a big tree over Jeff's head just taking his CO2 emissions and sequestering them.
Jeff is not a fan of the new setup.
I don't know what is going on. I feel like we're in a hotel closet or something.
But we'll keep playing until, yeah, we have a new sign. That's beautiful over there. Look at that.
(00:50):
We've got Phil DeLuna with DeepSky. And Phil is the carbon scientist,
and also he leads their engineering program.
And before coming to DeepSky, Phil has just been in the climate tech space,
clean energy space, working with the Canadian government, working with consultants,
McKinsey. And he has a really impressive background.
He has a PhD in material science. We're super excited to have you on, Phil.
Thank you so much for joining the podcast. Excited to learn about what DeepSky
(01:12):
is doing and plans to do in a year. Yeah, thanks so much for having me.
I can already tell it's going to be a blast. yeah no that's
a you know i i'm looking forward to this conversation because you
know we're always interested in people that are are doing and
and not just you know talking and you guys are raise money
and developing and investing and you know going after the targets that have
been set for 2050 and and beyond but just you know i i think this is really
(01:36):
just going to be a let's just listen to phil and see what deep sky is doing
more than us talking so for everybody else you don't have to really listen to us for once absolutely.
Yeah tell us a little bit about how Deep Sky was
founded interesting founder story for sure spin-off like
I said taken yeah yeah absolutely
yeah no pressure monologue time right no so Deep Sky the story of Deep Sky begins
(02:01):
with our co-founders Fred Lalonde and Joost Overkerk they founded a company
called Hopper you may have heard of it it's a five billion dollar plus tech
company in the travel space our competitor to Expedia,
a little rabbit app that you may have used to book your travel.
A few years ago, they started offsetting the emissions of their customers by planting trees.
They planted 30 million trees over three years. They thought they were doing a great job.
(02:25):
They went to go do PR about it, and they were getting criticized by climate
journalists and activists who were saying that they were greenwashing.
So it forced them to look into climate a little bit further,
and they realized two things.
The first is that you don't need a climate degree to see that the IPCC models are likely wrong.
The real world warming that we're getting is far greater than we actually have predicted.
(02:48):
And if you look at historical emissions, we're on track for much worse warming.
And a lot of people don't realize that there's actually a time delay between
maximum warming and emissions.
So the warming that we're experiencing today is from CO2 that has accumulated
in the atmosphere from 10, 15, up to 50 years ago.
Even if we were to completely shut off the taps and no longer emit anything,
(03:10):
hunt for food and ride horses everywhere, we would still have about 10 to 50
years worth of baked and warming to come.
So that was really scary thing number one. And the number two thing they realized was.
Was that planting trees is not enough. We actually have to remove carbon dioxide
mechanically from our air and from our ocean.
We have to do both of them at the same time in order to have a livable planet,
(03:33):
period. And so they started Deep Sky.
At first, Deep Sky, they were looking into the market, understanding how to
make the most impact, and they realized there was a huge gap.
And what are our sort of innovation is actually a business model innovation.
We are the first technology technology agnostic, project developer,
focused on scaling technology.
(03:54):
And what do I mean by that? In every other clean tech vertical,
solar, wind, nuclear, whatever, you have technology developers and you have project developers.
And they are different skill sets and different companies.
Panasonic builds solar cells. They're not the ones building the solar project
in your backyard. That's someone else.
So why should that be any different from carbon? And when they looked around
(04:16):
at the marketplace and the landscape, they saw all these amazing startup companies
that were developing new technology, but they kept hitting into a wall.
Where are they going to store the CO2 after they capture it?
And how are they going to get the clean energy to fuel it?
And so they started DeepSky to solve those problems and to do it in Canada.
And I'll tell you why Canada is particularly interesting.
(04:37):
One, we have an abundance of renewable electricity. In Quebec,
where DeepSky was founded, the grid is 98% renewable through hydroelectricity.
In BC, it's 98% renewable through hydroelectricity as well.
Manitoba is like 99%. So Canada as a whole has a very clean electricity grid.
The second thing is we have incredible geology to store CO2.
(04:59):
In Alberta, Saskatchewan, Manitoba, Western Canada, these are provinces where
you could literally reverse climate change.
You could capture every single ton of CO2 that humanity has ever emitted in
the atmosphere and store it underground in Western Canada.
At the same time, in Eastern Canada, we have all of this incredible mafic and
(05:21):
ultramafic rock potential where you can do ex-situ mineralization,
in-situ mineralization.
All of it is not well understood or known yet, but that's what we're going to
do is we're going to figure that out.
So our business model is very simple. We generate carbon credits and then we
sell them to the voluntary carbon market. it. That's it.
And the way we do that is think of us like an oil and gas company in reverse.
(05:42):
Right? Oil and gas company extracts fossil fuels.
They burn the fossil fuel to extract energy, and the CO2 goes in the atmosphere.
We take CO2 out of the atmosphere.
We use renewable energy to purify
and liquefy it, and then we put it back underground from whence it came.
And just like an oil and gas company, they're not necessarily the ones building
the technology themselves.
What they do is they partner with others. They license from Honeywell or UOP,
(06:04):
or they buy things from Schlumberger or a broad range of different companies
that service that sector.
So if carbon removal is to become the trillion-dollar industry that it needs
to become in order for us to avoid the worst climate catastrophe,
we also need to evolve into that model, into that industry.
(06:25):
And we think we're the first, hopefully, of many that are going to be focused
on project development.
So that's a little bit about Deep Sky. That's a little bit about the founding
story. We have a unique model. I'm happy to talk about all of that,
how we select technologies to partner with.
I know you have some questions on carbon credits.
Maybe I don't think we talked much previously about the numbers. Give us some numbers.
(06:50):
I mean, I know John Dewar has done a good job of summarizing some of these.
There's all sorts of different institutions.
Everybody's got different numbers about how much carbon we produce,
but really to maintain or to not exceed that 1.5 degree of temperature change
by 2050, what we have to do.
So how many gigatons a year do we need to both remove or eliminate from all
(07:14):
of these other outsources?
And then what is your objective from Deep Sky to solve for that?
What percentage do you think you can get there? Yeah, it's a great question.
So humanity emits about 37 to 40 gigatons, billion tons of CO2 into the atmosphere every single year.
And to get to net zero, it's becoming increasingly clear that reductions are
(07:36):
not enough because we keep failing and missing our reduction targets.
And so we actually have to go net negative in order to make up for that balance.
I have a five-point plan to get to net zero, and I'll tell you what it is.
I'll share it with your listeners now.
Step one is to protect what we have.
Stop tearing down the Amazon to make beef.
Step two is renewables everywhere as quickly as possible.
(07:59):
We're already on that way. Solar and wind is cheaper than many forms of electricity
and fossil fuel generated electricity today.
But we need more capital investment and deployment into that space.
Step three is electrify everything. Once we have all those green electrons that
we need or that we get from solar and wind and nuclear and everything else,
we need to electrify our economy, everything that can be electrified,
(08:23):
heat pumps in homes, electric vehicles, etc.
Step four is to decarbonize hard-to-abate sectors that are difficult or impossible to electrify.
Agriculture, steel production, cement, all of the things that we need for our
quality of life that we're not going to go without as a species,
we still need to find ways to produce those things. And we need to do so in
a way that is low-carbon or no-carbon.
(08:45):
And then finally, step five is capture carbon, both point source from all of
the emissions for all the things that are hard to abate,
and also directly from the air in the sense of actually removing CO2 from our
atmosphere and from our oceans.
Those are the steps. And the amount of effort and the amount of gigatons that
(09:05):
will be reduced are proportional to that.
So we can you know cover about
half of our emission reductions by protecting what we have and
then about a third of it from electrifying everything and tackling hardwood
detectors etc etc etc as time goes on
and we continue to miss our targets the role of carbon removal continues to
become more and more so right now the best estimates from McKinsey and IEA and
(09:30):
IPCC is that we need about a gigaton a billion tons one to three billion tons
so between five to ten percent.
Of worldwide yearly emissions today, we need that much amount of removals by 2030.
I take the view, and I think a lot of deep sky takes the view,
that we're probably going to need far, far, far, far more than that because
(09:51):
of where we are as a society and how slowly we are in decarbonizing.
And we also take the view that because of this temperature delay or this time
delay between emission and temperature rise and this baked-in pipeline warming,
which you can look that up, the literature is starting to realize this as well,
as well as all of these tipping points and runaway effects,
that unfortunately, the amount of CO2 that we need to remove from the perspective
(10:18):
of getting back down to 320,
350 parts per million, By the end of this century, by 2100, we're talking about
800 billion tons, 800 billion tons, which is insane.
Total, wow. Yeah. 800 gigatons, right?
Now, technologies that we're familiar with, that people are working on,
(10:39):
direct air capture, which I believe our audience is relatively familiar with by now.
We've talked a lot about it, especially in the United States. but direct
ocean capture now that's something that's
starting to get some buzz generate some news but it's
probably fairly new to our audience we are in
a unique position where Tomco running co2
(10:59):
solutions and one of those solutions is to control through
the use of co2 we sequester co2 into water we make carbonic
and Henry's law under pressure and we're able to create
a mild acid to help with pH control municipalities desalination
find out a lot of work and it got my gears turning i would
imagine spirit pressures the ocean is absorbing some sort
of amount of co2 and then it gets saturated and what do you
(11:20):
do with that how does that natural process happen when it
can take no more co2 and to hear about this direct ocean capture technology
got me really excited because we deal with this on the day-to-day can you talk
to us specifically about direct ocean technology and also with direct air capture
being kind of a challenge to scale and we're talking about scale everything
you're saying is billions of tons of CO2,
(11:43):
what are the obstacles to scaling direct ocean capture? Is it going to be easier?
Is the path forward clearer than direct air capture?
Yeah, absolutely. So first, let me explain why we need direct ocean capture at all, right?
Let's take it from first principles. As you said, Henry's Law,
there is a natural equilibrium between the air and the ocean in terms of the
(12:04):
amount of CO2 or any gas mixture.
If CO2 can dissolve in water and it can dissolve in air, air,
which it does, then there's going to be a natural equilibrium and transfer between both.
To put it even more simply, there's a reason that our coral reefs are dying
and that we're seeing ocean acidification.
And it's not because we're pouring acid into the ocean.
It's because we're putting CO2 into the air and then the CO2 in the air goes
(12:27):
into the ocean and it creates acidity and that's why coral reefs are dying because
they thrive in higher pH conditions, in more basic conditions.
So if you want to reverse that, you have to remove CO2 from the ocean,
right? So the topic of direct ocean capture is, let's say, for example,
we only do direct air capture.
If we only do direct air capture, we get to a point where I think we need to,
(12:50):
where we scale it up enough that we're actually moving the PPM down to instead
of 400, let's say we get to 400 and then 380, whatever it may be.
For every ton of CO2 that we remove from the air, there might be half a ton
or 40.4% of a ton of CO2 that will outgas from the ocean into the atmosphere
(13:11):
to maintain that equilibrium.
We've been putting and increasing the concentration of CO2 in the atmosphere
so much that it is saturating the ocean.
And therefore, if we remove it from the air, what's in the ocean will outgas back out.
So we have to do both. And another interesting thing about the ocean is that
it naturally has a buffering capacity, right? It naturally takes some CO2 from the air.
(13:35):
And what a lot of people don't realize is that the ocean is actually the world's largest carbon sink.
There is more carbon stored in the ocean in the form of inorganic carbon,
dissolved carbon, et cetera, than all of land, forest mass, all the fossil fuel
reserves, all of any other source of carbon combined.
(13:56):
Yeah, no, it's interesting. I mean, because I was you kind of answered my question
there a little bit, but so I'll have a follow-up question, but as you're talking
through that, I was thinking.
If if the ocean is saturated or at
equilibrium today can we gain anything
you know we can reduce the carbon in the atmosphere today
but there's got nowhere to go it's already at equilibrium right but is
(14:18):
you know so the first question is a is the ocean already at
equilibrium which i would imagine it's been that way for a million years
if that's the case and b like so
the real question in that is scalability i mean
if if you have the ocean's 95 of the earth's surface that's
a whole lot you know to get that back to equilibrium are we better
served and the answer is always all of the above of course
(14:39):
but are we better served trying to capture out of our atmosphere rather than
try to to boil the ocean yeah yeah it's a great in that regard
right a couple of things first the concentration of the co2 in the ocean is
about 50 times 40 to 50 times greater depending on the temperature than in the
air it is okay um so one you you have less of a penalty you have to pay from
(15:00):
a separation standpoint just because the concentration is higher.
Second, in terms of scalability, we move a lot of water as a species all the time.
Desalination plants, water treatment plants, all of these sorts of things.
We know how to pump water around hydroelectricity, all of these sorts of things.
(15:20):
So if we can utilize all of this infrastructure to move water,
the biggest issue with scalability is actually on the pumping energy required
to move the water from the ocean and then back into the ocean.
And this touches on how these technologies work.
So basically, what happens with direct ocean capture is water is separated.
(15:41):
Some technologies, for example, Captura, which we're partnering with,
what they do is they take water and then they use an electrochemical process
to separate sort of acid and base, right?
And then they extract the CO2 from the acidic stream simply because of the difference
in the basic or the difference in pH.
(16:02):
And then from there, they mix it back together so that your outfall is a slightly more basic water.
And it's that basic water, when you're increasing the pH of the ocean,
that allows the ocean to increase its buffering capacity and draw down more CO2 from the ocean.
Now, why is this a more interesting approach than enhanced ocean alkalinity, for example?
(16:26):
Which is the same thing, but rather than pulling in CO2, you just put base into the water.
Because we can actually measure the CO2 molecules within the battery limits of the plant.
And with things like enhanced ocean alkalinity, where you're playing with the
pH of the ocean directly, there's lots of modeling that has to go on.
You don't really know how much CO2 is actually being drawn down.
(16:46):
Is there appropriate mixing, etc.
But with direct ocean capture, we can measure every molecule of CO2 that we're
pulling from the ocean and therefore increasing the buffering capacity of the
ocean to suck in more CO2 from the air.
But yeah, to your point, the scalability is an issue.
And of course, it's something that we have to think about. But when we take
(17:06):
a step back and it seems like a lot of water to move around.
But if you think about the amount of water that is being moved today by humanity,
and if you can even leverage that capacity and that infrastructure and then
build on top of it or with it, then certainly I think there's a way to scale this.
I'd like to go back to your list. I liked your list there as far as,
(17:27):
you know, what the five kind of pillars there would be that you need to do.
I want to go back to four and five. You said, you know, decarbonize,
hard to abate industries. Obviously, that's critical.
And identify either carbon-free or low-carbon products output.
But then the next one is carbon capture.
Now, I kind of like the combination of it. And I want to kind of get your perspective on that.
(17:51):
Like capture the carbon, yes, but rather than sequester it long-term.
Is there a way to capture those carbon and put those carbon molecules,
those non-fossil-based carbon back into use and have a circular economy?
Do you guys focus on that at all? Or when you're thinking about that,
do you think those are two different things?
(18:11):
Decarbonize this industry, capture the rest of it. Me personally,
I think that's absolutely something that we need to do.
Like imagine a world where the carbon that we in
all of the plastic in our phones or all
of the fuels that we need for for long haul transportation imagine
a world where that the carbon in those molecules come from the air rather than
from fossils in the ground of course it makes a lot of sense from a utilization
(18:33):
perspective yes carbon utilization is important for us to maintain our quality
of life as a species and to do so in a circular way to not make the problem worse but as As Deep Sky,
we are only focused on sequestration.
Why? Because from a scalability perspective, there is no one product that you
could turn CO2 into that would match the scales of the amount of carbon that
(18:58):
we have to capture from the atmosphere.
You would immediately flood that market and make that product worthless.
Even concrete, which is the largest man-made substance on Earth,
even that, by volume, Even that, we can't sequester all the CO2 that we need
to from the air into concrete because the volume percentage is low and because
(19:19):
we're not building things fast enough, et cetera, et cetera, et cetera.
So from a fill as we need to decarbonize the world and it's a toolbox,
there's no silver bullet, it's a silver bookshot.
Yes, absolutely. We need to do carbon utilization.
And in fact, that should be the basis.
I can imagine a world in the future where any product that is made has to be
(19:40):
from either biogenically sourced CO2 or direct air capture sourced CO2 or carbon
rather than fossil fuels. and that fossil fuel use could be completely outlawed.
I could imagine a world where that's the case.
But from a, Phil, as the chief carbon scientist and head of engineering at Deep
Sky, our mission is solely focused on capturing and sequestering CO2 so that
(20:01):
not only do we not make the problem worse, but we're actively reversing the damage.
Yep, interesting. So let's jump over to the business model a little bit.
You talked about the carbon credits and that's obviously the model.
Who is purchasing these credits to maybe give us a quick synopsis of the credit market?
There's not really much of a credit market in the U.S., but I know European
(20:24):
countries and Asian countries do have more of that.
So yeah, kind of just give your synopsis of where you see this market.
What is your ultimate business model in this regard and kind of who's signing up for these projects?
So when we talk about carbon markets, we have to differentiate between the voluntary
carbon market and the compliance carbon market.
I'll start with compliance first because it's not worth selling into and it's
easier to explain. It is exactly how it sounds. It's compliance because it's
(20:47):
run by a government entity.
The European trading system, the EU ETS, emissions trading system,
is an example of a compliance carbon market where that carbon credit,
I think, has reached close to 100 euros per ton of CO2.
There are many more companies and countries that are launching compliance,
carbon markets, cap and trade systems.
(21:08):
California has a cap and trade system actually in collaboration with Quebec
on the provincial and state level.
And so these are more mechanisms to deal with emissions that exist today.
Again, maybe to take a step back and kind of describe.
When you think about the analogy of carbon capture, the difference between point
(21:28):
source and direct air, I'm sure you've heard this or someone else from your
podcast has said it, the world is an overflowing bathtub.
The bathtub is CO2 molecules.
What do you do when your bathtub is overflowing? You either turn off the tap
or you pull the plug and take the water out.
Point source capture and emissions reduction is turning off the tap.
It's making sure that the CO2 doesn't enter into the atmosphere,
(21:50):
that your water doesn't go into your tub because it's overflowing.
Removing the plug and then letting the water drain out is carbon removal.
We're taking the CO2 out of the atmosphere and putting it underground.
Why is this distinction important?
Because the compliance markets are primarily focused on emissions reductions, on turning off the tap.
(22:14):
They're a market mechanism to incentivize corporations and heavy emitters to
reduce their emissions by deploying carbon capture technologies or other decarbonization measures.
The voluntary carbon market, which is what we're selling into,
is the other thing. It's removing CO2 from the air.
And who would buy this? Why would any company buy a carbon credit on the voluntary carbon market?
(22:38):
These are companies that have high scope three emissions, but very limited control
on how to address those scope three emissions.
These are companies that have made net zero commitments and potentially prematurely
and are realizing that they're going to have a hard time meeting them and also
realizing that there is obligation for them to meet them either from their shareholders
(22:59):
or actually from the government in the United States with the SEC's climate disclosure.
You can no longer hide and say you're doing something when you're not actually doing something.
And then when you look at the stock market and the multiples,
oil and gas companies are trading at multiples of one.
That's it. So it's clear that the investment is retrenching away from heavy emission industries.
(23:19):
And if you're an organization that wants a sustainable future,
that wants to get to net zero, all these sorts of things, you have to have a
real plan with interim targets.
If you're an organization, if you're a corporation that has the government as
one of your key key customers,
then you better have a climate plan because the government is going to start
and governments everywhere will start mandating that their suppliers have plans
(23:43):
to get to net zero or making real efforts to get to net zero.
And so not only are they procuring, like in the sense of the Department of Energy's
$35 million pilot program, not only are governments starting to procure carbon
credits, but they're going to focus on their scope three emissions by forcing their suppliers,
which is every corporation to meet their net zero targets as well.
(24:05):
So who exactly are these folks, right? You have tech companies,
a bunch of publicly announced carbon credit, voluntary carbon credit market
purchases have come from Amazon and Microsoft and Shopify and Stripe.
And these are in the tech side. You have banks, JP Morgan.
Why are they buying credits? Because they're interested not only in it for addressing
(24:26):
their scope three emissions,
which is primarily the portfolio folio companies that they have little control
over but they're also probably interested in resale banks are you know the way
banks aren't trying to save the world i mean they're gonna make money maybe
i shouldn't be too honest in my opinion of banks on the podcast but really.
In your opinion are are some of these companies and our banks buying up the
(24:51):
credit market to be able to control that market down the road when absolutely
it's more than a hundred dollars or Or 100 euros per ton.
Because the supply and demand imbalance is- Hey, whatever.
Somebody's funding it, that's fine. The thing is the supply and demand imbalance
in the carbon credit and the voluntary carbon credit market right now is so
wide that I actually anticipate, even though the costs are very high,
as the costs go down because technology gets better and we deploy more,
(25:14):
I actually think prices will either stay where they are or even increase in
the short term because the supply and demand imbalance is so great.
Yeah. I was actually just about with my next question.
What's the right price per ton for a garden market?
You said $100 a ton or 100 euros a ton right now is the market,
but we've got, in the US, we've got 45Q, which is paying $85 a ton to sequester.
(25:38):
Where does it start to make sense? Obviously, it's going to be up and down in
peaks and valleys for a decade, but where do you and your grand vision crystal ball see pricing going?
So I'm going to give you multiple answers because the real answer is no one knows.
But I'll tell you and I'll postulate a few things.
(25:58):
And I'll start with the darkest answer, which is the price doesn't matter because
eventually things are going to get so bad that governments are going to pay
for this one way or another, whether that's through taxes, whether that's through something else.
Their pressure is going to be ratcheted up
on corporations and governments to act because there's
going to be a horrible horrible event climate catastrophe a loss of life loss
(26:25):
of economic tragedy that's going to force people to act i hope that it doesn't
get to that point but eventually the price won't matter similar how the price
didn't really matter for covid vaccines or whatever, at least initially.
That's answer number one. Answer number two, from a sort of academic socioeconomic
lens, the price should actually be the social cost of carbon, right?
(26:49):
If the cost on our society for every ton of carbon, whether that's on healthcare,
whether that's on defense, on immigration spending, on all of these different
things, things, economists can actually calculate what that cost is.
In Canada, it's about $270 per ton or something like that.
So if you have a solution that is lower than the social cost of carbon.
(27:13):
Then that is the price that you should be aiming to get below.
Not $100, which is just an arbitrary number that the industry decided to peg
on, but the true alternative cost of the alternative alternative situation,
which is we continue down this path.
There's more economic destruction, there's more health and all this sort of stuff.
And that cost can actually be calculated as a social cost of carbon.
(27:36):
And then finally, the third answer, which is the realistic answer,
not the gloom and doom one, not the idealistic answer, but the answer of what
I actually think is going to happen.
You're going to see costs being driven down through deployment to the $100 per ton year range.
And that's where lots of people will want the cost to go.
(27:57):
But in the short term, costs will probably be around $500 to $1,000 per ton of CO2.
On average, CDR.FYI, which is an incredible nonprofit organization that tracks
a lot of these deals, released data recently, And the average cost for direct
air capture is around $700 per ton of CO2.
(28:17):
These are small volumes. This
is industry first movers who are trying to jumpstart an entire sector.
So not every company can afford to pay $700 per ton of CO2.
Most companies are in the $50 to $60 sweet spot of what they are willing to pay for.
(28:38):
And so what I think is going to happen is a basketing approach.
Where you have resellers of carbon credits provide a portfolio,
where you have a large portion of it being sort of less permanent,
cheaper, nature-based solutions that are in the $2 range,
and then a very small premium sliver of direct air capture, mechanical removals,
(28:59):
direct ocean capture at very high price points.
But then when you level it out in a portfolio,
it comes to a price that the mid-market, you know, the Procter & Gamble,
the Nikes, all the other companies in the world, not these big tech companies
and banks, the mid-market can afford.
And when that happens, as time goes on, the costs of direct air capture and
(29:23):
direct ocean capture will decrease.
So the price of that will decrease. You'll see a larger and larger portion of
your portfolio skew towards mechanical removals and a lower portion of that
towards nature-based solutions so that you have increased robustness,
transparency, and permanence in your portfolio.
I think that's how the market is going to evolve in the next few years.
(29:45):
But so, you know, I started off with a scary one. I told you the idealistic
one, and that's the realistic one.
Well, so, you know, thinking about that, how do we actually get there?
And you guys have announced the market ships as of late, and we're talking about
those that are buying the credits.
But who are you partnering with to enable the deployment of this technology?
A lot of it's been under wraps. Feels like Deep Sky is kind of coming out of
(30:06):
stealth mode and opening up these trips one by one.
Maybe you can speak to who's working to make this a reality.
Yeah, absolutely. So we're very unique in our business model, right?
Which is from first principles, if you're trying to build a company that is
project developing carbon removals,
and one of the biggest risks is technology, how do you de-risk that?
You do it by potentially looking at a portfolio approach.
(30:29):
If you have all these different technologies, you don't know which one is going
to win, and none of them have really scaled, and the ones that have haven't
scaled to their full potential, why would you just pick one technology pathway?
So our philosophy is we won't. We'll pick them all. We'll try them all,
and we'll continue to try them until we find the ones that work.
So that's why we're building what's called Deep Sky Labs.
Deep Sky Labs is our testing and validation center where we have one location
(30:53):
for air, one location for ocean.
We are going to be bringing 12 different direct air capture technologies and
companies to Deep Sky Air.
And we're going to be bringing five different direct ocean capture technologies to Deep Sky Ocean Labs.
And we're going to test them and validate them side by side so we can get a
fair apples to apples comparison.
Comparison in Canada we have all four seasons
(31:15):
so we can see how they work in very hot humid
days in the summer to very cold dry days in
the winter benchmark them against one another and understand
how they operate the best technologies that we
identify from deep sky labs we then will commit to and scale for our commercial
facilities and the idea is that we can share similar things like the balance
of plant compressors condensers liquefaction units transportation storage one
(31:41):
of the things that we're doing that's unique is that we are building and maintaining
and operating our own storage infrastructure,
whether that's deep saline aquifer storage or in-situ mineralization,
and in the short term, partnering with those who are doing ex-situ mineralization.
So we've been coming out to market with a bunch of different partnerships.
A few Mission Zero, a company based out of UK doing electrochemical CO2 capture,
(32:03):
Air Hive, another company based out of UK doing fluidized bed mineralization
in a fluidized bed reactor,
both of which are going to be deployed at our Deep Sky Out Labs site in September.
We've announced partnerships with ReCarbon, with SkyRenew, with Captura, with Equatic.
(32:24):
We've announced partnerships with Climeworks and MOU to explore deploying commercial scale facilities.
We announced a partnership with Svante to look at underground sequestration
in Quebec and understand the potential of that. We've announced partnerships
with Isometric to do protocol development for MRV on direct air capture to geologic storage.
(32:45):
We've announced partnerships with Carbon Atlantis, with Greenlight,
two other direct air capture companies.
Those are based in Germany. And I'm probably missing a bunch because we have
many more in the pipeline.
That's outstanding. All right, so we'll just put you on the spot. This is a horse race.
Who's your favorite right now? Which technology is just jumping off the page
(33:06):
that's really advanced?
This is why we need to have Deep Sky Labs. We don't know. We don't know. I'll tell you this.
Let me tell you how we pick these technologies. How do we find which partners
to, what's our selection criteria?
Number one, they all have to have a pathway to low energy intensity.
We are targeting 1,000 kilowatt hours per ton of CO2 because in the future,
when everyone's driving around their Teslas or have their heat pumps,
(33:27):
the competition for those green electrons are going to be super fierce.
Number two, we're looking for technologies that can be entirely electrified.
If your technology requires high temperature, high grade process heat that you
can normally only get from an industrial complex, then that limits our deployability.
We already have to manage renewable electricity and storage and find the interlay
(33:48):
of that geographically.
What more if we have to find high-grade temperature process heat?
And we sure as hell don't want to burn fossil fuels in order to do any of our
capture. So that's off the table. So it has to be electrified.
The third thing is we're looking for technologies that have a simple supply
chain, meaning they do one thing really well, which is capture CO2.
Some technologies produce a bunch of acid. As a project developer,
(34:10):
how are we going to get that acid to market?
What are we going to do with it? Are we going to sell it? Are we going to have to remediate it?
So we're looking for technologies that just capture CO2 and have very simple
feedstocks or a limited number of feedstocks and ideally no byproducts or very
simple byproducts to deal with.
The fourth thing we look for is modularity and scale. You can scale things in two ways.
(34:30):
You can size it up in volume and make something really, really big,
or you can mass produce and number it up.
So we're looking for technologies that inherently allow itself to be sized up
or can be mass produced and mass mass manufactured very quickly.
And the final thing, the fifth thing, which has nothing to do with the technology, is the team.
Our CEO, Damien Steele, he used to lead Omers Ventures, which was a $3 billion
(34:54):
venture capital fund of the Ontario pension plan.
So he knows a thing or two about finding high-performing teams in venture.
And he does a lot of work in understanding and testing our partners on what
is their readiness from a team
perspective and whether they can actually deliver what they say they will.
17 technology. Yeah, that's crazy. This requires a lot of coordination.
(35:20):
I would imagine it requires a lot of hands in the cookie jar from your team.
So last question to wrap is, what is that timeline to validate these 17 to make
your final criteria selection? Yeah, great question.
So DeepSky Labs is going to be evergreen in the sense that, well,
we have 17 technologies now.
As soon as we know that one works or doesn't, we rip it out,
we open the pad up, and then we put a new technology in because we think that
(35:43):
the innovation technology curve is so steep.
And we're talking to one to two different new companies every week.
We've spoken to and assessed over 80 different direct air capture,
direct ocean capture technologies to date.
We visited about 20 of them in person.
And so the innovation curve is continuing to grow. The timelines.
(36:03):
We're starting operations in the fall of this year for Deep Sky Labs.
We, as soon as we have any sense that this thing can be project finance and
is scalable, we are going to start deploying and raising in commercial facilities.
At the same time, we're exploring with partners who are at a larger scale,
potential commercial deployments at the same time.
Like I told you about our MOU with Climeworks.
(36:26):
So the answer is we're trying to do everything everywhere all at once.
We're trying to build deep sky labs at the same time as we're identifying storage
locations, leasing land, and getting off-tick agreements with renewable developers
and virtual PPAs and all of that kind of stuff for our commercial facilities.
As we continue to learn and build Deep Sky Labs, there's so much project development
(36:49):
work that needs to happen anyway for our commercial facilities,
which we're doing at the exact same time.
We hope that by the end of 26, the start of 27, we will start construction on
our first commercial facilities, if not before then.
And our grand vision is that we need hundreds, thousands of these things.
So we want to start designing and building them like data centers,
(37:11):
where you have a set basis design, you can plop them down directly on top of
storage, drill a well, get it done.
And in the long term, you know, build a small modular reactor next to it.
So you can literally just deploy this everywhere. And the reason why we think
the scales and the costs for direct air capture and removals will come down
faster than point source capture is because you have the opportunity to do this
(37:36):
and mass produce on one basis design.
In point source, every single deployment is bespoke. Every flu stack is different.
Every connection point is different. So you're doing so much design engineering for the first time.
And it's not something that you can necessarily take and then put somewhere
else right away. with direct air capture and direct ocean capture,
we can do that and we will do that. Oh yeah.
(37:56):
But I'll ask one last question because that's all fascinating.
It's probably going to be a very impossible question to answer.
What's the runway here for financing? On average, at scale, $750 a ton for DAC,
but you're only getting $100 a ton.
You're upside down for quite some time on this while you're getting them to
scale, testing all these technologies.
(38:18):
This is a huge, huge, huge investment.
I'm sure you have plenty of financing up front and going, but how long do you
think this is going to take and how much total investment do you really need
in all of this to keep this thing going?
So one of the things that makes this possible in Canada is the Carbon Capture
Utilization and Storage Investment Tax Credit, the CCUS ITC,
which is a 60% rebate on any capital expenditure on direct air capture.
(38:44):
So we've taken a bit of a separate tone than the 45Q in the States,
which is a production tax credit.
And by being a CapEx upfront tax credit reimbursable, that really helps to build
a project financing capital stack.
So now instead of it costing a billion dollars to build a plant,
it's only going to cost $400 million.
And then we're going to fill that up for the first few plants with non-diluted
(39:06):
funding, public-private partnerships.
We might have to raise some venture equity and sell equity in order to raise
that money. But then we're going to be looking at infrastructure investors.
You know, there are lots of investors, whether it's BlackRock or Brookfield
or others that have started developing their own climate funds.
And those are the ones that we're going to be targeting as well.
(39:27):
Ultimately, we're willing to give away all of the economics for the first two
plants or first few plants because we believe so much that as soon as we prove
this out and as soon as we build the playbook to build these plants at scale,
that the flow of capital from pension funds and institutional investors that
are looking for returns is going to be so great, like nothing that you've seen before. for.
(39:51):
The reason being is that there is no end to the deployability theoretically, right?
Like all of these other things, if you build a bridge, you can only build so
many bridges, solar cells and solar projects, the returns are getting squeezed to almost nothing.
Most infrastructure investments are in your high single digits when they used
to be in the mid double digits or even so we're developing a new investment
(40:14):
class that has deployability and outlook to capital investment flows for decades to come.
So to be frank, if we can figure out the first few plants, if we can get across
that threshold and improve commercial viability, I have no worries at all about project financing.
(40:37):
It's a hockey stick after that. It's really a J-curve, right?
You've got to go down. You're going to lose for a while, but once you can find that market...
That's great, yeah. I'm learning more that maybe have, you know,
some sort of pathway to help assist in this undertaking.
Where can they find your team? More about Deep Sky. Direct the audience and
(40:58):
we'll see what can come of this. And where can they buy credits from you today?
So my team, we are Canadian-based. You can find us online at www.deepskyclimate.com.
You can find me online everywhere. Just Google Phil DeLuna on LinkedIn,
on the website, wherever. My email is phil at deepskyclimate.com. Reach out.
(41:19):
On the purchasing, actually, so a little confidential information for your listeners.
We're very close to pre-selling all of Deep Sky Labs' offtake for the next 10 years.
And so there may not be an opportunity to get in at that stage,
but for our commercial facilities, yes, absolutely.
(41:40):
Phil, thank you so much for coming on. We learned a lot. Yeah.
Now, your passion, your commitment to all this is just, I mean,
that just bleeds through.
So I want you guys to do it. It's really impressive.
We're still working on finding a strong team. I got between me,
him, and Lily. I don't know who we got. Actually, that is an ask.
(42:03):
We are always looking for people to join our team.
Talent is the one thing we have because we don't build technology.
We are our people. people.
So if you know anyone, any one of your listeners out there that want to go make
a difference, please reach out to me.
Great. Thank you so much. Appreciate it.
Music.
(00:24):
All right, hey, welcome to our next episode of Catching Carbon. We're in a new setup.
We've got a big tree over Jeff's head just taking his CO2 emissions and sequestering them.
Jeff is not a fan of the new setup.
I don't know what is going on. I feel like we're in a hotel closet or something.
But we'll keep playing until, yeah, we have a new sign. That's beautiful over there. Look at that.
(00:50):
We've got Phil DeLuna with DeepSky. And Phil is the carbon scientist,
and also he leads their engineering program.
And before coming to DeepSky, Phil has just been in the climate tech space,
clean energy space, working with the Canadian government, working with consultants,
McKinsey. And he has a really impressive background.
He has a PhD in material science. We're super excited to have you on, Phil.
Thank you so much for joining the podcast. Excited to learn about what DeepSky
(01:12):
is doing and plans to do in a year. Yeah, thanks so much for having me.
I can already tell it's going to be a blast. yeah no that's
a you know i i'm looking forward to this conversation because you
know we're always interested in people that are are doing and
and not just you know talking and you guys are raise money
and developing and investing and you know going after the targets that have
been set for 2050 and and beyond but just you know i i think this is really
(01:36):
just going to be a let's just listen to phil and see what deep sky is doing
more than us talking so for everybody else you don't have to really listen to us for once absolutely.
Yeah tell us a little bit about how Deep Sky was
founded interesting founder story for sure spin-off like
I said taken yeah yeah absolutely
yeah no pressure monologue time right no so Deep Sky the story of Deep Sky begins
(02:01):
with our co-founders Fred Lalonde and Joost Overkerk they founded a company
called Hopper you may have heard of it it's a five billion dollar plus tech
company in the travel space our competitor to Expedia,
a little rabbit app that you may have used to book your travel.
A few years ago, they started offsetting the emissions of their customers by planting trees.
They planted 30 million trees over three years. They thought they were doing a great job.
(02:25):
They went to go do PR about it, and they were getting criticized by climate
journalists and activists who were saying that they were greenwashing.
So it forced them to look into climate a little bit further,
and they realized two things.
The first is that you don't need a climate degree to see that the IPCC models are likely wrong.
The real world warming that we're getting is far greater than we actually have predicted.
(02:48):
And if you look at historical emissions, we're on track for much worse warming.
And a lot of people don't realize that there's actually a time delay between
maximum warming and emissions.
So the warming that we're experiencing today is from CO2 that has accumulated
in the atmosphere from 10, 15, up to 50 years ago.
Even if we were to completely shut off the taps and no longer emit anything,
(03:10):
hunt for food and ride horses everywhere, we would still have about 10 to 50
years worth of baked and warming to come.
So that was really scary thing number one. And the number two thing they realized was.
Was that planting trees is not enough. We actually have to remove carbon dioxide
mechanically from our air and from our ocean.
We have to do both of them at the same time in order to have a livable planet,
(03:33):
period. And so they started Deep Sky.
At first, Deep Sky, they were looking into the market, understanding how to
make the most impact, and they realized there was a huge gap.
And what are our sort of innovation is actually a business model innovation.
We are the first technology technology agnostic, project developer,
focused on scaling technology.
(03:54):
And what do I mean by that? In every other clean tech vertical,
solar, wind, nuclear, whatever, you have technology developers and you have project developers.
And they are different skill sets and different companies.
Panasonic builds solar cells. They're not the ones building the solar project
in your backyard. That's someone else.
So why should that be any different from carbon? And when they looked around
(04:16):
at the marketplace and the landscape, they saw all these amazing startup companies
that were developing new technology, but they kept hitting into a wall.
Where are they going to store the CO2 after they capture it?
And how are they going to get the clean energy to fuel it?
And so they started DeepSky to solve those problems and to do it in Canada.
And I'll tell you why Canada is particularly interesting.
(04:37):
One, we have an abundance of renewable electricity. In Quebec,
where DeepSky was founded, the grid is 98% renewable through hydroelectricity.
In BC, it's 98% renewable through hydroelectricity as well.
Manitoba is like 99%. So Canada as a whole has a very clean electricity grid.
The second thing is we have incredible geology to store CO2.
(04:59):
In Alberta, Saskatchewan, Manitoba, Western Canada, these are provinces where
you could literally reverse climate change.
You could capture every single ton of CO2 that humanity has ever emitted in
the atmosphere and store it underground in Western Canada.
At the same time, in Eastern Canada, we have all of this incredible mafic and
(05:21):
ultramafic rock potential where you can do ex-situ mineralization,
in-situ mineralization.
All of it is not well understood or known yet, but that's what we're going to
do is we're going to figure that out.
So our business model is very simple. We generate carbon credits and then we
sell them to the voluntary carbon market. it. That's it.
And the way we do that is think of us like an oil and gas company in reverse.
(05:42):
Right? Oil and gas company extracts fossil fuels.
They burn the fossil fuel to extract energy, and the CO2 goes in the atmosphere.
We take CO2 out of the atmosphere.
We use renewable energy to purify
and liquefy it, and then we put it back underground from whence it came.
And just like an oil and gas company, they're not necessarily the ones building
the technology themselves.
What they do is they partner with others. They license from Honeywell or UOP,
(06:04):
or they buy things from Schlumberger or a broad range of different companies
that service that sector.
So if carbon removal is to become the trillion-dollar industry that it needs
to become in order for us to avoid the worst climate catastrophe,
we also need to evolve into that model, into that industry.
(06:25):
And we think we're the first, hopefully, of many that are going to be focused
on project development.
So that's a little bit about Deep Sky. That's a little bit about the founding
story. We have a unique model. I'm happy to talk about all of that,
how we select technologies to partner with.
I know you have some questions on carbon credits.
Maybe I don't think we talked much previously about the numbers. Give us some numbers.
(06:50):
I mean, I know John Dewar has done a good job of summarizing some of these.
There's all sorts of different institutions.
Everybody's got different numbers about how much carbon we produce,
but really to maintain or to not exceed that 1.5 degree of temperature change
by 2050, what we have to do.
So how many gigatons a year do we need to both remove or eliminate from all
(07:14):
of these other outsources?
And then what is your objective from Deep Sky to solve for that?
What percentage do you think you can get there? Yeah, it's a great question.
So humanity emits about 37 to 40 gigatons, billion tons of CO2 into the atmosphere every single year.
And to get to net zero, it's becoming increasingly clear that reductions are
(07:36):
not enough because we keep failing and missing our reduction targets.
And so we actually have to go net negative in order to make up for that balance.
I have a five-point plan to get to net zero, and I'll tell you what it is.
I'll share it with your listeners now.
Step one is to protect what we have.
Stop tearing down the Amazon to make beef.
Step two is renewables everywhere as quickly as possible.
(07:59):
We're already on that way. Solar and wind is cheaper than many forms of electricity
and fossil fuel generated electricity today.
But we need more capital investment and deployment into that space.
Step three is electrify everything. Once we have all those green electrons that
we need or that we get from solar and wind and nuclear and everything else,
we need to electrify our economy, everything that can be electrified,
(08:23):
heat pumps in homes, electric vehicles, etc.
Step four is to decarbonize hard-to-abate sectors that are difficult or impossible to electrify.
Agriculture, steel production, cement, all of the things that we need for our
quality of life that we're not going to go without as a species,
we still need to find ways to produce those things. And we need to do so in
a way that is low-carbon or no-carbon.
(08:45):
And then finally, step five is capture carbon, both point source from all of
the emissions for all the things that are hard to abate,
and also directly from the air in the sense of actually removing CO2 from our
atmosphere and from our oceans.
Those are the steps. And the amount of effort and the amount of gigatons that
(09:05):
will be reduced are proportional to that.
So we can you know cover about
half of our emission reductions by protecting what we have and
then about a third of it from electrifying everything and tackling hardwood
detectors etc etc etc as time goes on
and we continue to miss our targets the role of carbon removal continues to
become more and more so right now the best estimates from McKinsey and IEA and
(09:30):
IPCC is that we need about a gigaton a billion tons one to three billion tons
so between five to ten percent.
Of worldwide yearly emissions today, we need that much amount of removals by 2030.
I take the view, and I think a lot of deep sky takes the view,
that we're probably going to need far, far, far, far more than that because
(09:51):
of where we are as a society and how slowly we are in decarbonizing.
And we also take the view that because of this temperature delay or this time
delay between emission and temperature rise and this baked-in pipeline warming,
which you can look that up, the literature is starting to realize this as well,
as well as all of these tipping points and runaway effects,
that unfortunately, the amount of CO2 that we need to remove from the perspective
(10:18):
of getting back down to 320,
350 parts per million, By the end of this century, by 2100, we're talking about
800 billion tons, 800 billion tons, which is insane.
Total, wow. Yeah. 800 gigatons, right?
Now, technologies that we're familiar with, that people are working on,
(10:39):
direct air capture, which I believe our audience is relatively familiar with by now.
We've talked a lot about it, especially in the United States. but direct
ocean capture now that's something that's
starting to get some buzz generate some news but it's
probably fairly new to our audience we are in
a unique position where Tomco running co2
(10:59):
solutions and one of those solutions is to control through
the use of co2 we sequester co2 into water we make carbonic
and Henry's law under pressure and we're able to create
a mild acid to help with pH control municipalities desalination
find out a lot of work and it got my gears turning i would
imagine spirit pressures the ocean is absorbing some sort
of amount of co2 and then it gets saturated and what do you
(11:20):
do with that how does that natural process happen when it
can take no more co2 and to hear about this direct ocean capture technology
got me really excited because we deal with this on the day-to-day can you talk
to us specifically about direct ocean technology and also with direct air capture
being kind of a challenge to scale and we're talking about scale everything
you're saying is billions of tons of CO2,
(11:43):
what are the obstacles to scaling direct ocean capture? Is it going to be easier?
Is the path forward clearer than direct air capture?
Yeah, absolutely. So first, let me explain why we need direct ocean capture at all, right?
Let's take it from first principles. As you said, Henry's Law,
there is a natural equilibrium between the air and the ocean in terms of the
(12:04):
amount of CO2 or any gas mixture.
If CO2 can dissolve in water and it can dissolve in air, air,
which it does, then there's going to be a natural equilibrium and transfer between both.
To put it even more simply, there's a reason that our coral reefs are dying
and that we're seeing ocean acidification.
And it's not because we're pouring acid into the ocean.
It's because we're putting CO2 into the air and then the CO2 in the air goes
(12:27):
into the ocean and it creates acidity and that's why coral reefs are dying because
they thrive in higher pH conditions, in more basic conditions.
So if you want to reverse that, you have to remove CO2 from the ocean,
right? So the topic of direct ocean capture is, let's say, for example,
we only do direct air capture.
If we only do direct air capture, we get to a point where I think we need to,
(12:50):
where we scale it up enough that we're actually moving the PPM down to instead
of 400, let's say we get to 400 and then 380, whatever it may be.
For every ton of CO2 that we remove from the air, there might be half a ton
or 40.4% of a ton of CO2 that will outgas from the ocean into the atmosphere
(13:11):
to maintain that equilibrium.
We've been putting and increasing the concentration of CO2 in the atmosphere
so much that it is saturating the ocean.
And therefore, if we remove it from the air, what's in the ocean will outgas back out.
So we have to do both. And another interesting thing about the ocean is that
it naturally has a buffering capacity, right? It naturally takes some CO2 from the air.
(13:35):
And what a lot of people don't realize is that the ocean is actually the world's largest carbon sink.
There is more carbon stored in the ocean in the form of inorganic carbon,
dissolved carbon, et cetera, than all of land, forest mass, all the fossil fuel
reserves, all of any other source of carbon combined.
(13:56):
Yeah, no, it's interesting. I mean, because I was you kind of answered my question
there a little bit, but so I'll have a follow-up question, but as you're talking
through that, I was thinking.
If if the ocean is saturated or at
equilibrium today can we gain anything
you know we can reduce the carbon in the atmosphere today
but there's got nowhere to go it's already at equilibrium right but is
(14:18):
you know so the first question is a is the ocean already at
equilibrium which i would imagine it's been that way for a million years
if that's the case and b like so
the real question in that is scalability i mean
if if you have the ocean's 95 of the earth's surface that's
a whole lot you know to get that back to equilibrium are we better
served and the answer is always all of the above of course
(14:39):
but are we better served trying to capture out of our atmosphere rather than
try to to boil the ocean yeah yeah it's a great in that regard
right a couple of things first the concentration of the co2 in the ocean is
about 50 times 40 to 50 times greater depending on the temperature than in the
air it is okay um so one you you have less of a penalty you have to pay from
(15:00):
a separation standpoint just because the concentration is higher.
Second, in terms of scalability, we move a lot of water as a species all the time.
Desalination plants, water treatment plants, all of these sorts of things.
We know how to pump water around hydroelectricity, all of these sorts of things.
(15:20):
So if we can utilize all of this infrastructure to move water,
the biggest issue with scalability is actually on the pumping energy required
to move the water from the ocean and then back into the ocean.
And this touches on how these technologies work.
So basically, what happens with direct ocean capture is water is separated.
(15:41):
Some technologies, for example, Captura, which we're partnering with,
what they do is they take water and then they use an electrochemical process
to separate sort of acid and base, right?
And then they extract the CO2 from the acidic stream simply because of the difference
in the basic or the difference in pH.
(16:02):
And then from there, they mix it back together so that your outfall is a slightly more basic water.
And it's that basic water, when you're increasing the pH of the ocean,
that allows the ocean to increase its buffering capacity and draw down more CO2 from the ocean.
Now, why is this a more interesting approach than enhanced ocean alkalinity, for example?
(16:26):
Which is the same thing, but rather than pulling in CO2, you just put base into the water.
Because we can actually measure the CO2 molecules within the battery limits of the plant.
And with things like enhanced ocean alkalinity, where you're playing with the
pH of the ocean directly, there's lots of modeling that has to go on.
You don't really know how much CO2 is actually being drawn down.
(16:46):
Is there appropriate mixing, etc.
But with direct ocean capture, we can measure every molecule of CO2 that we're
pulling from the ocean and therefore increasing the buffering capacity of the
ocean to suck in more CO2 from the air.
But yeah, to your point, the scalability is an issue.
And of course, it's something that we have to think about. But when we take
(17:06):
a step back and it seems like a lot of water to move around.
But if you think about the amount of water that is being moved today by humanity,
and if you can even leverage that capacity and that infrastructure and then
build on top of it or with it, then certainly I think there's a way to scale this.
I'd like to go back to your list. I liked your list there as far as,
(17:27):
you know, what the five kind of pillars there would be that you need to do.
I want to go back to four and five. You said, you know, decarbonize,
hard to abate industries. Obviously, that's critical.
And identify either carbon-free or low-carbon products output.
But then the next one is carbon capture.
Now, I kind of like the combination of it. And I want to kind of get your perspective on that.
(17:51):
Like capture the carbon, yes, but rather than sequester it long-term.
Is there a way to capture those carbon and put those carbon molecules,
those non-fossil-based carbon back into use and have a circular economy?
Do you guys focus on that at all? Or when you're thinking about that,
do you think those are two different things?
(18:11):
Decarbonize this industry, capture the rest of it. Me personally,
I think that's absolutely something that we need to do.
Like imagine a world where the carbon that we in
all of the plastic in our phones or all
of the fuels that we need for for long haul transportation imagine
a world where that the carbon in those molecules come from the air rather than
from fossils in the ground of course it makes a lot of sense from a utilization
(18:33):
perspective yes carbon utilization is important for us to maintain our quality
of life as a species and to do so in a circular way to not make the problem worse but as As Deep Sky,
we are only focused on sequestration.
Why? Because from a scalability perspective, there is no one product that you
could turn CO2 into that would match the scales of the amount of carbon that
(18:58):
we have to capture from the atmosphere.
You would immediately flood that market and make that product worthless.
Even concrete, which is the largest man-made substance on Earth,
even that, by volume, Even that, we can't sequester all the CO2 that we need
to from the air into concrete because the volume percentage is low and because
(19:19):
we're not building things fast enough, et cetera, et cetera, et cetera.
So from a fill as we need to decarbonize the world and it's a toolbox,
there's no silver bullet, it's a silver bookshot.
Yes, absolutely. We need to do carbon utilization.
And in fact, that should be the basis.
I can imagine a world in the future where any product that is made has to be
(19:40):
from either biogenically sourced CO2 or direct air capture sourced CO2 or carbon
rather than fossil fuels. and that fossil fuel use could be completely outlawed.
I could imagine a world where that's the case.
But from a, Phil, as the chief carbon scientist and head of engineering at Deep
Sky, our mission is solely focused on capturing and sequestering CO2 so that
(20:01):
not only do we not make the problem worse, but we're actively reversing the damage.
Yep, interesting. So let's jump over to the business model a little bit.
You talked about the carbon credits and that's obviously the model.
Who is purchasing these credits to maybe give us a quick synopsis of the credit market?
There's not really much of a credit market in the U.S., but I know European
(20:24):
countries and Asian countries do have more of that.
So yeah, kind of just give your synopsis of where you see this market.
What is your ultimate business model in this regard and kind of who's signing up for these projects?
So when we talk about carbon markets, we have to differentiate between the voluntary
carbon market and the compliance carbon market.
I'll start with compliance first because it's not worth selling into and it's
easier to explain. It is exactly how it sounds. It's compliance because it's
(20:47):
run by a government entity.
The European trading system, the EU ETS, emissions trading system,
is an example of a compliance carbon market where that carbon credit,
I think, has reached close to 100 euros per ton of CO2.
There are many more companies and countries that are launching compliance,
carbon markets, cap and trade systems.
(21:08):
California has a cap and trade system actually in collaboration with Quebec
on the provincial and state level.
And so these are more mechanisms to deal with emissions that exist today.
Again, maybe to take a step back and kind of describe.
When you think about the analogy of carbon capture, the difference between point
(21:28):
source and direct air, I'm sure you've heard this or someone else from your
podcast has said it, the world is an overflowing bathtub.
The bathtub is CO2 molecules.
What do you do when your bathtub is overflowing? You either turn off the tap
or you pull the plug and take the water out.
Point source capture and emissions reduction is turning off the tap.
It's making sure that the CO2 doesn't enter into the atmosphere,
(21:50):
that your water doesn't go into your tub because it's overflowing.
Removing the plug and then letting the water drain out is carbon removal.
We're taking the CO2 out of the atmosphere and putting it underground.
Why is this distinction important?
Because the compliance markets are primarily focused on emissions reductions, on turning off the tap.
(22:14):
They're a market mechanism to incentivize corporations and heavy emitters to
reduce their emissions by deploying carbon capture technologies or other decarbonization measures.
The voluntary carbon market, which is what we're selling into,
is the other thing. It's removing CO2 from the air.
And who would buy this? Why would any company buy a carbon credit on the voluntary carbon market?
(22:38):
These are companies that have high scope three emissions, but very limited control
on how to address those scope three emissions.
These are companies that have made net zero commitments and potentially prematurely
and are realizing that they're going to have a hard time meeting them and also
realizing that there is obligation for them to meet them either from their shareholders
(22:59):
or actually from the government in the United States with the SEC's climate disclosure.
You can no longer hide and say you're doing something when you're not actually doing something.
And then when you look at the stock market and the multiples,
oil and gas companies are trading at multiples of one.
That's it. So it's clear that the investment is retrenching away from heavy emission industries.
(23:19):
And if you're an organization that wants a sustainable future,
that wants to get to net zero, all these sorts of things, you have to have a
real plan with interim targets.
If you're an organization, if you're a corporation that has the government as
one of your key key customers,
then you better have a climate plan because the government is going to start
and governments everywhere will start mandating that their suppliers have plans
(23:43):
to get to net zero or making real efforts to get to net zero.
And so not only are they procuring, like in the sense of the Department of Energy's
$35 million pilot program, not only are governments starting to procure carbon
credits, but they're going to focus on their scope three emissions by forcing their suppliers,
which is every corporation to meet their net zero targets as well.
(24:05):
So who exactly are these folks, right? You have tech companies,
a bunch of publicly announced carbon credit, voluntary carbon credit market
purchases have come from Amazon and Microsoft and Shopify and Stripe.
And these are in the tech side. You have banks, JP Morgan.
Why are they buying credits? Because they're interested not only in it for addressing
(24:26):
their scope three emissions,
which is primarily the portfolio folio companies that they have little control
over but they're also probably interested in resale banks are you know the way
banks aren't trying to save the world i mean they're gonna make money maybe
i shouldn't be too honest in my opinion of banks on the podcast but really.
In your opinion are are some of these companies and our banks buying up the
(24:51):
credit market to be able to control that market down the road when absolutely
it's more than a hundred dollars or Or 100 euros per ton.
Because the supply and demand imbalance is- Hey, whatever.
Somebody's funding it, that's fine. The thing is the supply and demand imbalance
in the carbon credit and the voluntary carbon credit market right now is so
wide that I actually anticipate, even though the costs are very high,
as the costs go down because technology gets better and we deploy more,
(25:14):
I actually think prices will either stay where they are or even increase in
the short term because the supply and demand imbalance is so great.
Yeah. I was actually just about with my next question.
What's the right price per ton for a garden market?
You said $100 a ton or 100 euros a ton right now is the market,
but we've got, in the US, we've got 45Q, which is paying $85 a ton to sequester.
(25:38):
Where does it start to make sense? Obviously, it's going to be up and down in
peaks and valleys for a decade, but where do you and your grand vision crystal ball see pricing going?
So I'm going to give you multiple answers because the real answer is no one knows.
But I'll tell you and I'll postulate a few things.
(25:58):
And I'll start with the darkest answer, which is the price doesn't matter because
eventually things are going to get so bad that governments are going to pay
for this one way or another, whether that's through taxes, whether that's through something else.
Their pressure is going to be ratcheted up
on corporations and governments to act because there's
going to be a horrible horrible event climate catastrophe a loss of life loss
(26:25):
of economic tragedy that's going to force people to act i hope that it doesn't
get to that point but eventually the price won't matter similar how the price
didn't really matter for covid vaccines or whatever, at least initially.
That's answer number one. Answer number two, from a sort of academic socioeconomic
lens, the price should actually be the social cost of carbon, right?
(26:49):
If the cost on our society for every ton of carbon, whether that's on healthcare,
whether that's on defense, on immigration spending, on all of these different
things, things, economists can actually calculate what that cost is.
In Canada, it's about $270 per ton or something like that.
So if you have a solution that is lower than the social cost of carbon.
(27:13):
Then that is the price that you should be aiming to get below.
Not $100, which is just an arbitrary number that the industry decided to peg
on, but the true alternative cost of the alternative alternative situation,
which is we continue down this path.
There's more economic destruction, there's more health and all this sort of stuff.
And that cost can actually be calculated as a social cost of carbon.
(27:36):
And then finally, the third answer, which is the realistic answer,
not the gloom and doom one, not the idealistic answer, but the answer of what
I actually think is going to happen.
You're going to see costs being driven down through deployment to the $100 per ton year range.
And that's where lots of people will want the cost to go.
(27:57):
But in the short term, costs will probably be around $500 to $1,000 per ton of CO2.
On average, CDR.FYI, which is an incredible nonprofit organization that tracks
a lot of these deals, released data recently, And the average cost for direct
air capture is around $700 per ton of CO2.
(28:17):
These are small volumes. This
is industry first movers who are trying to jumpstart an entire sector.
So not every company can afford to pay $700 per ton of CO2.
Most companies are in the $50 to $60 sweet spot of what they are willing to pay for.
(28:38):
And so what I think is going to happen is a basketing approach.
Where you have resellers of carbon credits provide a portfolio,
where you have a large portion of it being sort of less permanent,
cheaper, nature-based solutions that are in the $2 range,
and then a very small premium sliver of direct air capture, mechanical removals,
(28:59):
direct ocean capture at very high price points.
But then when you level it out in a portfolio,
it comes to a price that the mid-market, you know, the Procter & Gamble,
the Nikes, all the other companies in the world, not these big tech companies
and banks, the mid-market can afford.
And when that happens, as time goes on, the costs of direct air capture and
(29:23):
direct ocean capture will decrease.
So the price of that will decrease. You'll see a larger and larger portion of
your portfolio skew towards mechanical removals and a lower portion of that
towards nature-based solutions so that you have increased robustness,
transparency, and permanence in your portfolio.
I think that's how the market is going to evolve in the next few years.
(29:45):
But so, you know, I started off with a scary one. I told you the idealistic
one, and that's the realistic one.
Well, so, you know, thinking about that, how do we actually get there?
And you guys have announced the market ships as of late, and we're talking about
those that are buying the credits.
But who are you partnering with to enable the deployment of this technology?
A lot of it's been under wraps. Feels like Deep Sky is kind of coming out of
(30:06):
stealth mode and opening up these trips one by one.
Maybe you can speak to who's working to make this a reality.
Yeah, absolutely. So we're very unique in our business model, right?
Which is from first principles, if you're trying to build a company that is
project developing carbon removals,
and one of the biggest risks is technology, how do you de-risk that?
You do it by potentially looking at a portfolio approach.
(30:29):
If you have all these different technologies, you don't know which one is going
to win, and none of them have really scaled, and the ones that have haven't
scaled to their full potential, why would you just pick one technology pathway?
So our philosophy is we won't. We'll pick them all. We'll try them all,
and we'll continue to try them until we find the ones that work.
So that's why we're building what's called Deep Sky Labs.
Deep Sky Labs is our testing and validation center where we have one location
(30:53):
for air, one location for ocean.
We are going to be bringing 12 different direct air capture technologies and
companies to Deep Sky Air.
And we're going to be bringing five different direct ocean capture technologies to Deep Sky Ocean Labs.
And we're going to test them and validate them side by side so we can get a
fair apples to apples comparison.
Comparison in Canada we have all four seasons
(31:15):
so we can see how they work in very hot humid
days in the summer to very cold dry days in
the winter benchmark them against one another and understand
how they operate the best technologies that we
identify from deep sky labs we then will commit to and scale for our commercial
facilities and the idea is that we can share similar things like the balance
of plant compressors condensers liquefaction units transportation storage one
(31:41):
of the things that we're doing that's unique is that we are building and maintaining
and operating our own storage infrastructure,
whether that's deep saline aquifer storage or in-situ mineralization,
and in the short term, partnering with those who are doing ex-situ mineralization.
So we've been coming out to market with a bunch of different partnerships.
A few Mission Zero, a company based out of UK doing electrochemical CO2 capture,
(32:03):
Air Hive, another company based out of UK doing fluidized bed mineralization
in a fluidized bed reactor,
both of which are going to be deployed at our Deep Sky Out Labs site in September.
We've announced partnerships with ReCarbon, with SkyRenew, with Captura, with Equatic.
(32:24):
We've announced partnerships with Climeworks and MOU to explore deploying commercial scale facilities.
We announced a partnership with Svante to look at underground sequestration
in Quebec and understand the potential of that. We've announced partnerships
with Isometric to do protocol development for MRV on direct air capture to geologic storage.
(32:45):
We've announced partnerships with Carbon Atlantis, with Greenlight,
two other direct air capture companies.
Those are based in Germany. And I'm probably missing a bunch because we have
many more in the pipeline.
That's outstanding. All right, so we'll just put you on the spot. This is a horse race.
Who's your favorite right now? Which technology is just jumping off the page
(33:06):
that's really advanced?
This is why we need to have Deep Sky Labs. We don't know. We don't know. I'll tell you this.
Let me tell you how we pick these technologies. How do we find which partners
to, what's our selection criteria?
Number one, they all have to have a pathway to low energy intensity.
We are targeting 1,000 kilowatt hours per ton of CO2 because in the future,
when everyone's driving around their Teslas or have their heat pumps,
(33:27):
the competition for those green electrons are going to be super fierce.
Number two, we're looking for technologies that can be entirely electrified.
If your technology requires high temperature, high grade process heat that you
can normally only get from an industrial complex, then that limits our deployability.
We already have to manage renewable electricity and storage and find the interlay
(33:48):
of that geographically.
What more if we have to find high-grade temperature process heat?
And we sure as hell don't want to burn fossil fuels in order to do any of our
capture. So that's off the table. So it has to be electrified.
The third thing is we're looking for technologies that have a simple supply
chain, meaning they do one thing really well, which is capture CO2.
Some technologies produce a bunch of acid. As a project developer,
(34:10):
how are we going to get that acid to market?
What are we going to do with it? Are we going to sell it? Are we going to have to remediate it?
So we're looking for technologies that just capture CO2 and have very simple
feedstocks or a limited number of feedstocks and ideally no byproducts or very
simple byproducts to deal with.
The fourth thing we look for is modularity and scale. You can scale things in two ways.
(34:30):
You can size it up in volume and make something really, really big,
or you can mass produce and number it up.
So we're looking for technologies that inherently allow itself to be sized up
or can be mass produced and mass mass manufactured very quickly.
And the final thing, the fifth thing, which has nothing to do with the technology, is the team.
Our CEO, Damien Steele, he used to lead Omers Ventures, which was a $3 billion
(34:54):
venture capital fund of the Ontario pension plan.
So he knows a thing or two about finding high-performing teams in venture.
And he does a lot of work in understanding and testing our partners on what
is their readiness from a team
perspective and whether they can actually deliver what they say they will.
17 technology. Yeah, that's crazy. This requires a lot of coordination.
(35:20):
I would imagine it requires a lot of hands in the cookie jar from your team.
So last question to wrap is, what is that timeline to validate these 17 to make
your final criteria selection? Yeah, great question.
So DeepSky Labs is going to be evergreen in the sense that, well,
we have 17 technologies now.
As soon as we know that one works or doesn't, we rip it out,
we open the pad up, and then we put a new technology in because we think that
(35:43):
the innovation technology curve is so steep.
And we're talking to one to two different new companies every week.
We've spoken to and assessed over 80 different direct air capture,
direct ocean capture technologies to date.
We visited about 20 of them in person.
And so the innovation curve is continuing to grow. The timelines.
(36:03):
We're starting operations in the fall of this year for Deep Sky Labs.
We, as soon as we have any sense that this thing can be project finance and
is scalable, we are going to start deploying and raising in commercial facilities.
At the same time, we're exploring with partners who are at a larger scale,
potential commercial deployments at the same time.
Like I told you about our MOU with Climeworks.
(36:26):
So the answer is we're trying to do everything everywhere all at once.
We're trying to build deep sky labs at the same time as we're identifying storage
locations, leasing land, and getting off-tick agreements with renewable developers
and virtual PPAs and all of that kind of stuff for our commercial facilities.
As we continue to learn and build Deep Sky Labs, there's so much project development
(36:49):
work that needs to happen anyway for our commercial facilities,
which we're doing at the exact same time.
We hope that by the end of 26, the start of 27, we will start construction on
our first commercial facilities, if not before then.
And our grand vision is that we need hundreds, thousands of these things.
So we want to start designing and building them like data centers,
(37:11):
where you have a set basis design, you can plop them down directly on top of
storage, drill a well, get it done.
And in the long term, you know, build a small modular reactor next to it.
So you can literally just deploy this everywhere. And the reason why we think
the scales and the costs for direct air capture and removals will come down
faster than point source capture is because you have the opportunity to do this
(37:36):
and mass produce on one basis design.
In point source, every single deployment is bespoke. Every flu stack is different.
Every connection point is different. So you're doing so much design engineering for the first time.
And it's not something that you can necessarily take and then put somewhere
else right away. with direct air capture and direct ocean capture,
we can do that and we will do that. Oh yeah.
(37:56):
But I'll ask one last question because that's all fascinating.
It's probably going to be a very impossible question to answer.
What's the runway here for financing? On average, at scale, $750 a ton for DAC,
but you're only getting $100 a ton.
You're upside down for quite some time on this while you're getting them to
scale, testing all these technologies.
(38:18):
This is a huge, huge, huge investment.
I'm sure you have plenty of financing up front and going, but how long do you
think this is going to take and how much total investment do you really need
in all of this to keep this thing going?
So one of the things that makes this possible in Canada is the Carbon Capture
Utilization and Storage Investment Tax Credit, the CCUS ITC,
which is a 60% rebate on any capital expenditure on direct air capture.
(38:44):
So we've taken a bit of a separate tone than the 45Q in the States,
which is a production tax credit.
And by being a CapEx upfront tax credit reimbursable, that really helps to build
a project financing capital stack.
So now instead of it costing a billion dollars to build a plant,
it's only going to cost $400 million.
And then we're going to fill that up for the first few plants with non-diluted
(39:06):
funding, public-private partnerships.
We might have to raise some venture equity and sell equity in order to raise
that money. But then we're going to be looking at infrastructure investors.
You know, there are lots of investors, whether it's BlackRock or Brookfield
or others that have started developing their own climate funds.
And those are the ones that we're going to be targeting as well.
(39:27):
Ultimately, we're willing to give away all of the economics for the first two
plants or first few plants because we believe so much that as soon as we prove
this out and as soon as we build the playbook to build these plants at scale,
that the flow of capital from pension funds and institutional investors that
are looking for returns is going to be so great, like nothing that you've seen before. for.
(39:51):
The reason being is that there is no end to the deployability theoretically, right?
Like all of these other things, if you build a bridge, you can only build so
many bridges, solar cells and solar projects, the returns are getting squeezed to almost nothing.
Most infrastructure investments are in your high single digits when they used
to be in the mid double digits or even so we're developing a new investment
(40:14):
class that has deployability and outlook to capital investment flows for decades to come.
So to be frank, if we can figure out the first few plants, if we can get across
that threshold and improve commercial viability, I have no worries at all about project financing.
(40:37):
It's a hockey stick after that. It's really a J-curve, right?
You've got to go down. You're going to lose for a while, but once you can find that market...
That's great, yeah. I'm learning more that maybe have, you know,
some sort of pathway to help assist in this undertaking.
Where can they find your team? More about Deep Sky. Direct the audience and
(40:58):
we'll see what can come of this. And where can they buy credits from you today?
So my team, we are Canadian-based. You can find us online at www.deepskyclimate.com.
You can find me online everywhere. Just Google Phil DeLuna on LinkedIn,
on the website, wherever. My email is phil at deepskyclimate.com. Reach out.
(41:19):
On the purchasing, actually, so a little confidential information for your listeners.
We're very close to pre-selling all of Deep Sky Labs' offtake for the next 10 years.
And so there may not be an opportunity to get in at that stage,
but for our commercial facilities, yes, absolutely.
(41:40):
Phil, thank you so much for coming on. We learned a lot. Yeah.
Now, your passion, your commitment to all this is just, I mean,
that just bleeds through.
So I want you guys to do it. It's really impressive.
We're still working on finding a strong team. I got between me,
him, and Lily. I don't know who we got. Actually, that is an ask.
(42:03):
We are always looking for people to join our team.
Talent is the one thing we have because we don't build technology.
We are our people. people.
So if you know anyone, any one of your listeners out there that want to go make
a difference, please reach out to me.
Great. Thank you so much. Appreciate it.
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