We recently hosted the Innovation in Large Organizations Institute with our partner Peter Temes here at our offices in Menlo Park to discuss sustainability as a broad focus area, but decarbonization more specifically. Planetary health has always been a part of Mayfield’s investment focus areas (see: SolarWind), but over the last few years we’ve been giving this category renewed interest, ranging from topics such as new foods and materials, to the circular economy, to decarbonization. In the past, humanity has always made great strides to address planetary challenges with innovation and technological advances, and it is our hope that today we’ll be able to make the technological leaps necessary to better serve the modern world.
A number of fantastic panelists participated throughout the day, and our partners Ursheet Parikh and Arvind Gupta ran their own track around corporate actionability and budget for these new and emerging carbon initiatives. Will there be a budget for these startups in the future as opposed to only venture investment? While the political debate about climate change is important, the decarbonization dialogue ultimately revolves around two significant observations:
- It would be a very good thing if we deploy energy and create human value at scale with fewer carbon emissions
- There is a growing, enormous pool of money to be made doing this
And this is not to sound glib in any way – these two factors are in fact connected and there’s a core flywheel effect. Ultimately, investment won’t be enough to get these initiatives fully in motion; there must be widespread adoption (as there has been with every other historic tech wave). See below for a collection of shorts on the topics discussed, intended to provide an overview of the day, and some of the core issues that people are thinking about.
Key Takeaways
- This is a space that is ripe with opportunity but still full of questions
- Measurement – both in terms of how things are measured, and in terms of how emissions are ascribed – is still severely lacking. This is a problem that must be solved more holistically before the sector will evolve
- Commercial adoption, not carbon credit programs, may ultimately be needed in order to foment real change – but whether or not that adoption is ultimately implemented is going to come down to how governments regulate the space
Carbon Measurement & Corporate Engagement
Content By: Peter Temes, ILO Institute, Mattheiu Soule, Head of BNP Paribas C.Lab Americas, Ryan Pletka, VP, Clean Energy Growth Accelerator, Black & Veatch, and Zora Chung, CFO and Co-Founder, ReJoule
Reliable measures on carbon footprints are rather messy today, and in order for credit programs to be successful, we’re going to need to be able to enact new and more accurate measures sooner rather than later.
We need more large-scale players measuring the same things in the same ways to have real, scaled progress.
On the road to net zero, one of the main ways that companies’ greenhouse gas emissions are measured and assessed is to look at them within three different ‘scopes’ – established by the Greenhouse Gas Protocol – the most widely used greenhouse gas accounting standard globally. Scopes 1 and 2 are owned and controlled by the company, while scope 3 is a consequence of the activities of the company that occur from sources not owned or controlled by it.
- Scope 1 emissions – Emissions from direct use of a fuel, object, process or activity. Coal burns dirty, from a Scope 1 perspective, and natural gas burns fairly clean.
- Scope 2 emissions – Emissions that a fuel, object, process or activity causes in its creation in addition to its use. Natural gas burns clean, but often comes out of the ground relatively dirty – because natural gas itself is a greenhouse gas and direct discharge into the atmosphere is almost always part of the capture process.
- Scope 3 emissions – A full life-cycle accounting for emissions – not only in the creation of a fuel, object, process or activity, and not only in its use, but in the creation of every element of its life. A clean fuel that gets shipped via dirty ships over long distance scores low on Scope 3. Green products with little emissions in their creation and use, if managed by lots of people commuting long distances in private automobiles to a polluting headquarters, will score low – and the whole supply chain feeds into these measures..
So back to our natural gas example: when you look at the flaring off of top-layer natural gas as one of the dirtier parts of creating petroleum – which fuel ought to bear those points for carbon emission? It’s technically a mistake to ascribe that to natural gas. It’s actually a scope 3 contribution to the oil, because it comes out dirty unless you can control it (an expensive proposition). If the contribution is mis-ascribed to natural gas, we will wind up using less natural gas because of the production process of petroleum – a dirtier alternative.
Measurement extends beyond GHG accounting and into large-firm management. For example, turning long-term goals into annual goals, and then indexing that against executive bonuses, is one way to get executives past lip-service to lower-emissions goals.
So how are corporations thinking about these issues today? There are a few major approaches we’ve been seeing as a firm:
First, investment and accelerators: An investment fund is an easy way for companies to dip their toe into the water on relevant technology.
Second, short-term activities: What is the exposure of the business today? And how does that translate into activities? Well that’s going to first depend on the industry. Take banking as an example – a large bank could approach things from a number of different scopes. On scope 1 they could perhaps build data centers, but on scope 3 they could focus on helping their clients with lending, investment, etc. into sustainable assets. So, they have the potential to accelerate their own transition but also help their existing clients (on both the consumer and B2B sides) invest better or find new greenfield.
And finally, transitioning to the future: Consider that for most sectors, climate change is a huge future opportunity. For example, how can organizations take one kind of infrastructure skill set and turn that towards new technologies? Today, a lot of companies view decarbonization as a tax, or a cost of doing business. But consider instead the idea that it could very well be a disruptive growth driver. Challenges like these always tend to come with opportunities – what is the white space that doesn’t exist now, and how, as a company, can you fill it (or partner with other people to fill it)? There’s a lot of re-thinking of old industries happening today – circular fashion, second life batteries, recycling, etc. – and nearly every org will have the opportunity to latch onto trends like these before their competitors if it’s a part of their optic. ReJoule was one core example we got to hear from – helping to repurpose batteries for the EV industry and give them a second life.
A Fundamentals-based Holistic Framework for Sustainability
Content By: Chandrakant Patel, Chief Engineer and Senior Fellow, HP
One point of view on how to reconsider currency in a more sustainable fashion is by using joules of available energy from cradle to cradle. So take a laptop as an example – it’s not worth 800 dollars, it’s worth, perhaps, 900 gigajoules.
In society today, our overall goal is to meet current and future needs of the populace given the pool of supply-side resources available to us, but negative externalities have come to roost and created burdens – one of which is climate issues. And there are different ways we could address this burden in particular. The first way, which we’ve been focusing on today, is CO2 sequestration (with credits being one approach). The second, could be doing a better job measuring the lifetime joules of products and solutions, including the mitigation of negative externalities.
So if we think about this as an integrated supply-demand framework – on the supply side we’d have the cradle to cradle energy required (in joules) for the extraction, manufacturing, operation, reclamation, and negative externalities (waste mitigation). An example of a negative externality would be if you go to the Amazon rainforest and deforest the jungle. You’d need to be charged for the available energy it takes to reforest, and that must go into the cost of the product. Negative externalities should be mitigated right away.
This supply side piece benefits by focusing on local sources of available energy to minimize energy destruction in transmission and distribution + focusing on examining and utilizing available energy in waste streams (this also requires figuring out what energy is useful or not – e.g. high, mid, low grade waste).
The demand side would still look similar: provisioning resources based on the needs of the user on-demand, mitigated by knowledge discovery and policy-based controls. But this would also need to be shaped based on the availability of energy.
So if we look at technology as an example, there are a couple of different opportunities here:
- Reducing the footprint of the tech ecosystem itself
- Using technology to reduce the physical ecosystem’s footprint for a net-negative impact
Today, 75% of the periodic table is in consumer cell phones. So this kind of holistic mentality can be a real business driver:
- Cradle to Gate – Modular design for longer lasting phones
- Gate to Grave – Holistic performance management
- Grave to Cradle – Upcycle of high-value components
Today, this kind of thinking is hard – it’s possible to use economic output tables to calculate joules (e.g. how much energy did all the steel in the U.S. take to produce? How much steel am I using? These two can be used to create an approximation), but it’s fuzzy and somewhat inaccurate. Nonetheless, this can be a useful framework for holistic business decisions. What is the value delivered in joules (e.g. joules saved) divided by the joules of available energy consumed from cradle to cradle? This is a valuable heuristic to keep in mind.
Where is The Money for Decarbonization Today?
Content By: Ursheet Parikh & Arvind Gupta, Partners at Mayfield
Overview
For decarbonization to ultimately have an economic future, it can’t just be a pet cause that people love – at some point they’re going to have to pay for it. And today, there are a number of concerning bottlenecks that may prevent widespread adoption. Inflation and energy are both huge threats. Companies may very well use the current or future economic climate to reset their goals.
When it comes to the tech industry, decarbonization tends to be a bit easier: Companies can drive innovation around product strategy – for example, driving decarbonization for their customers in simulation and manufacturing. “What are your inputs in a shoe manufacturing process (designs, raw materials, etc.)?” A company can do the design process in the real world or they can do it in an emulated 3D environment. That being said, as a society, we’re ultimately going to need solutions not diagnostics – diagnostics can help get to solutions, but not always.
When you look at older industries – their contributions are harder. Take real estate for example: many businesses are attempting to upgrade their commercial real estate in order to lead by example and follow their CEOs’ net zero claims (plus there is a little client pressure as well – renters have the same mandates). But the real estate industry as a whole is extremely conservative and very shy to adopt new tech and products. The largest suppliers and customers are, naturally, drawn to stable and safe solutions, despite the fact that a lot of these older and more established industries like real estate and construction could benefit the most from startup technology on the climate front. The reality is that their risk (and their cost) is more real.
Impact Today
One way that companies from any industry can make an impact is to seek out and curate better vendors. But that’s downstream from them having to stand up decarbonization strategies for their own corporate footprint first. Only then can they get letters out to suppliers and even start to approach this problem – but today that problem is still messy and nebulous. Ideally this could turn into a virtuous cycle, with everyone looking to reduce their footprint, but most companies are still trying to figure out what this really means, and it’s during a time where the supply chain is already severely disrupted.
Furthermore, how is progress even measured? What investors care about, what regulators care about, what they’re rated and ranked on, and what employees care about are all very different. Companies essentially have to build a giant matrix on what stakeholders need: what progress, and what information. Where are there already standards? And what areas do they need to be policed on? For example, if customers are using their cloud – who is responsible for that? Upstream and downstream are all mixed up. This is where third party or academic research could come in – no one wants to be arguing with part of their own value chain.
As a venture investor, Mayfield has to care about a 7-10 year time horizon – we can’t be looking as far as 20 years out – so focused problems are required. No amount of investment, whether from venture capital, or from the government, can make change happen alone. If Tesla was only investor-funded it would not have had this kind of impact. The federal government is making a huge bet right now by putting money towards clean energy tech. They believe that it will stimulate market pull towards investment. But is that a valid assumption? And if not, what would need to happen in order to truly stimulate investment? Barring COVID, we have so far never seen this kind of investment stimulate on-the-ground innovation. Look at the chips act: who gets the money? Intel. That being said, the spirit of the funding can still help, even if it just encourages existing companies (see: Occidental Energy betting on carbon sequestration), but even then, startups are a crucial part of the ecosystem.
So, commercial models are at the core of change happening on the sustainability side. And unfortunately, today it seems that a lot of large companies don’t have the right organization or business expectations to allow them to pivot that hard. 50+ Teslas would need to emerge first. The government has taken the approach of subsidizing good behavior vs. punishing bad behavior. And this year, trading volume for carbon is in disarray due to economic upsets. Furthermore, many companies don’t have real budgets for decarbonization – they are sprinkled all around – because no one wants a large target on their back around this topic.
A lot of this circles back to the beginning of the discussion where we proposed that today, many companies consider carbon footprint reduction a cost of doing business (vs. an innovation opportunity). This mentality pushes corporations towards the lowest cost solutions. For example, there are many operations in India that were independently viable already, but now people are buying credits from them too. So how much of the credits conversation in its current iteration is just a waste of time? Will companies truly start paying a premium for credits that are actually useful? Some vendors today will vet and maintain a portfolio of credits – there’s a set budget – so if X% required is high quality, then companies have to hit that goal and the numbers are a little more “real.” But this is mostly not the mentality we are seeing. Investing in the supply side tends to be better than investing in credit markets. This is because if you’re investing in credit markets you either believe taxes will solve your problem, or you believe you can reinvent production to not need taxes, but people have been very good at avoiding taxes for all of human history.
Finally, there’s also an element of decarbonization that is political: “we will all need to learn to get by with less” vs. “how can we make things more affordable?” In the past, instead of dimming the lights, we got LED lights and saved energy. So, navigating the political element is going to be increasingly important – and we’ve been very sloppy about this so far. Society as a whole will reject the idea of leading a more impoverished lifestyle – so there’s a huge messaging battle happening right now – and our message really needs to be: how can we make the desirable affordable? This has to be at the core ethos of our investing, that consumers don’t necessarily have to consume less. And life twenty years from now doesn’t have to be worse, it can be better. We need to invest and invent new means of production (think biotech as a manufacturing technology). Prolific Machines, one of our recent investments, has the potential to make cell-based meat much less expensive than the meat in stores today. We need a political conversation that is less about regulating and more about empowering innovators – it would go a long way. Asking people to change their behavior creates a moral obligation you want to avoid.