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What is Third Derivative?
What is Third Derivative, and what are your long-term goals and aspirations in the climate tech space?
Emily Rogers - Third Derivative (“D3”) is RMI’s climate innovation engine. We bring RMI’s deep expertise in the clean energy transition to startups and investors navigating innovation across climate tech sectors. Building and scaling climate hard tech is often a challenging, slow process, yet we’re running out of time. We need to deploy capital and build partnerships at record speed if climate solutions are going to scale quickly enough to protect against catastrophic environmental impacts and address historical emissions and potential overshoot. D3’s focus on ecosystem-building, thought leadership, and education – for our startups and our partners – serves to help our startups overcome the four valleys of death.
Within D3, I lead one of its focused cohorts, First Gigaton Captured. The cohort supports startups working on durable carbon removal approaches. We recognised that CDR startups face a unique set of challenges on their path to scaling. Our focused cohort model provides tailored support to help startups navigate credit sales, pursue new grant opportunities, and attract world-class engineering advisors.
I view D3’s aspirations and my personal ones through the lens of one of the key steps in D3’s diligence process. When we evaluate new startups for our cohorts, one of the first steps we take is to calculate the company’s potential climate impact - can they achieve a gigaton-scale impact once their solution is fully deployed? We want to spend our time and resources supporting the innovations that can have the greatest positive impact on the environment. On a personal level, this is how I’ve navigated my own career path, too. I look for organisations and roles where I can maximise my own positive impact on the environment. That said, working in CDR and at D3 has taught me that there is no single path of maximum impact. As I study the strengths and hurdles of each of our startups, I see the importance of having a portfolio approach. We will need different climate solutions for each problem, geography, and time scale. What is the good news of not having a silver bullet for the climate? There are countless ways that we can each have a meaningful impact.
Biggest Hurdles
What are the biggest hurdles early-stage climate tech companies face to enter the market?
Emily Rogers - If only there were a simple answer and solution for this question! Before starting at D3, I had hoped that each startup would face One Big Challenge - each would have one major hurdle to overcome, and if I could help them leap that hurdle, they’d be on a surefire path to success. You can imagine my surprise when I saw that each of our startups had 5-10 smaller challenges on their minds and I wouldn’t be able to wave a magic wand to fix it all at once.
Within CDR specifically, our startups are juggling a number of priorities: where can they sell their credits? How can they optimise the transport of CO2? If they have direct air capture technology, who will utilise or store their concentrated CO2? If they have storage technology, who will provide that concentrated CO2? How can they efficiently navigate permitting processes? How can they best engage with local communities? How should they integrate and scale up their systems and then find funding for larger projects? And who should they partner with for all of this?
Each startup faces different challenges as they scale - while D3 can’t necessarily answer all of these questions, I consider our program a success if we can remove just a couple of these challenges from our startups’ plates.
Collaboration
Climate change requires solutions across industries. How does Third Derivative foster collaboration between startups and established players in traditional sectors like energy, manufacturing, and agriculture?
Emily Rogers - First, I want to acknowledge the importance of this question. Across climate tech sectors, startups need to work with established industries to integrate and scale their solutions. To name a few examples for CDR specifically, we have more energy-intensive approaches that need to work closely with utilities to ensure there will be sufficient clean energy for their operations; several CDR approaches treat mining waste, so building relationships with mining partners is essential, other approaches benefit from partnerships with desalination or water treatment facilities, where they can get access to brine or pumped water. Almost any approach to CDR or decarbonisation requires thoughtful partnerships with large infrastructure entities.
This is one of the main reasons that D3 has corporate partners as part of our ecosystem. We know it can be challenging for startups to meet and build relationships with these larger companies - we facilitate this by introducing startups to our partners before they even enter D3’s program. We support both the startup and the corporate partner as each group navigates potential partnerships.
This is also part of the reason we’ve designed D3 to be a longer program. Each cohort runs for 18 months to allow sufficient time for startups to build relationships - and sometimes projects! - with corporate partners. Across the D3 portfolio, we’ve seen corporate partnerships dramatically accelerate the progress and funding of our startups, so we are always actively working to bring new partners into the fold.
CDR Innovations
Which emerging CDR innovations are fascinating to you, and why?
Emily Rogers - This is like asking me to choose a favourite child! Joking aside, I genuinely believe that we need a portfolio of approaches in CDR. We’re still sorting out how much the technology will move down the cost curve for many approaches. Or, we need to study the environmental impacts of scaled-up deployment. Some approaches require specific environmental conditions for optimal operations. A landlocked country might not deploy ocean CDR approaches, but it could have favourable geophysical conditions for mineralisation. A region with abundant access to low-cost clean energy may prefer approaches with lower up-front CapEx requirements and higher energy consumption.
There almost certainly won’t be one single CDR solution that is the right fit for every geography and project site, so we need to see continued innovation across diverse approaches. The fun part of my job is that I don’t have to pick a single solution—I can support a portfolio of CDR companies that are each refining one critical path to removing CO2 from the atmosphere.
Investor Appetite
Are you seeing any shifts in investor appetite for climate tech solutions?
Emily Rogers - Yes! Of course, investor priorities are always shifting with changing market conditions and technological advances. In the last year, many investors have changed their tune about CDR. Some investors who shared that CDR was too early stage for them in July have since started asking questions about direct air capture approaches and technologies. With input from a few of our investor partners, we kicked off a deep research project to break down electrochemistry principles in CDR - we didn’t see quite the same appetite for this a couple of years ago. There are three main causes for these shifts: first, government support and funding for CDR has accelerated tremendously over the last couple of years. Second, many CDR approaches and companies are reaching pilot and demonstration scale, paving new paths for CDR deployments, credit purchasing, and CDR project financing. Third, we see new creative products that de-risk credit delivery, such as project insurance or credit ratings.
Beyond my personal experiences, investment data also points to a growing interest in CDR. Investment in CDR and carbon market infrastructure grew from $3.3B in 2021 to $6.7B in 2023, more than doubling in the two-year period. All of this is to say, at a macro level and in my personal interactions, I’m seeing growing investor interest in CDR - and I certainly won’t complain about that!
CDR Challenges
What's the biggest challenge the industry faces in 2024, and what do you think is required to solve it?
Emily Rogers - If I could cheat and pick two, I’d say open system MRV and scaling up demand. We recently hosted a session with Microsoft, Stripe, NextGen and ENGIE Impact where prospective credit buyers could ask these established buyers about their processes and journeys. In the second half of the session, we received question after question about MRV in oceans and fields - buyers and investors want to know how to trust and navigate these CDR approaches while their MRV processes are being refined. This is where I get to insert a plug for my colleagues’ CDR Applied Innovation Roadmap, which outlines the critical steps on our path to scaling up supply.
And on the demand side, so far, there’s been a bit of a Field of Dreams mindset (I hope there are some baseball movie-/CDR-loving readers in the audience): if you build it, buyers will come. This industry wouldn’t be where it is today without the support of early buyers and coalitions, but we need to scale up demand meaningfully if we want to scale the industry. Investors want to see proof of a market for credits, particularly if credits are the sole revenue source for a company. We know that many of these investors are looking for the second and third waves of demand; they want to know just how many entities are willing to pay for CDR. I’ve heard many CDR colleagues say that 2023 was the year of supply and 2024 is the year of demand: we need to see individual actors stepping up to purchase credits or, even better, a change in net zero guidance that will gently but firmly guide actors to where they need to go.
Addressing these challenges will require collaboration, some innovation, and likely a lot of patience. But if we can address these two areas, we will be significantly closer to responsibly deploying CDR at scale!
