The e-commerce exec building a new carbon market

Mar 15, 2023 View in browser   By Debra Kahn VERBATIM Shopify's head of sustainability, Stacy Kauk, is pioneering a new carbon market. | Courtesy Shopify Stacy Kauk thinks carbon offsets are so 2019. Kauk is in charge of getting the e-commerce platform Shopify to carbon neutrality, which the company first achieved four years ago. After shutting down its data centers and switching to Google Cloud, Shopify turned to offsets, but found quality was inconsistent. Kauk is now at the vanguard of figuring out how to make a market for carbon removal, the hot new alternative. The company created a "sustainability fund" in 2019 and has spent $33 million so far on things like direct-air capture, embedding carbon in concrete and planting trees via drone. It's also working with Stripe, Alphabet, Meta and McKinsey on a pooled $925 million commitment to create a market for removals. This interview has been condensed and edited for clarity. Talk about your motivation for investing in carbon removal. Is it that you think that there's going to be high enough demand that you need to get in now? There's three reasons we're in now. The [Intergovernmental Panel on Climate Change] is clear. Even if we stopped emissions today, we're going to need carbon removal. The second part is the increasing regulatory scrutiny that we're starting to hear in different jurisdictions around corporate climate commitments, corporate climate pledges, what does it really mean? And then what we also know as an early buyer is that there's not much to buy. If I were to crystal ball it, there will be limited supply in future years when companies are starting to feel the need, from regulatory requirements or otherwise, to buy those high quality tons. So we are kind of future-proofing our business. Do you envision that you could also be a developer and a seller of them? That's a super interesting question, because that remains to be seen. You have some companies who don't allow you to trade them, you buy them and they retire them for you. And then we have others that are like, 'No, we're going to make this so properly defined and traceable and tractable. We're going to put it on the blockchain,' or whatever other solution that they want to trade it, and so right now, it's very unclear what that's going to look like in the future. We could hedge our bets here; since we're one of the first players in the market with large sizes of contracts and a small corporate carbon footprint, we will have extra. So what that means in 2030, I don't know. Hopefully, those things become clearer. You signed a letter last month calling for an independent standards body for carbon removal. And then there's the Net Zero Asset Owner Alliance guidelines saying members shouldn't use removals to count toward certain buckets of their commitments until 2030. So do you see what you're doing as trying to create a market now, and then starting in 2030 it should be able to count toward companies' actual reductions under their net-zero targets? I truly see it as a false dichotomy between emissions reductions and carbon removal. We should be focusing on Scope 1 and Scope 2, which is decarbonizing the major sectors and electrifying everything. But we're also going to have this piece of unabatable emissions that are going to continue to happen, and we've already gone too far; we need to undo historical emissions. So we need carbon removal, too. What needs to happen is if we can be very clear around quantification, monitoring, reporting and verification of carbon removal, what is truly additional, is a ton really a ton. If we can do that in a transparent way, where you're going to only have the high-quality projects on the market that are indeed delivering the climate benefit you're paying for, if we do that, that's going to be expensive. Maybe emissions reductions for some of these large emitters are actually going to be cheaper per ton and it makes no sense to buy your way out with carbon removal. So carbon removal should be something that we use alongside emissions reductions that we're going to need in the long term. They shouldn't be at odds right now. Do you think that removal should be able to count toward a company's net zero goals, now? For their Scope 3 emissions? You should be working on emissions reductions. But if you're a small company and you're buying laptops from Apple, what are you going to do about Apple's footprint in your supply chain? Because that's the technology you're choosing to buy. And you have no real power to influence; you can't go to another alternative provider who's providing carbon-negative laptops. So you can sit there and do nothing and follow the rules and wait till 2030 to buy carbon removal, or you can buy carbon removal now. I think we have to do a better job of framing the incentive structures around when it is OK to buy carbon removal, versus when are we talking about buying your way out of reductions that really you can achieve? In 2019, your CEO said carbon removal costs upwards of $1,000 per ton. $33 million for 40,000 tons is $825 a ton. Have you gotten the price down? It's a bit more nuanced than that. In our sustainability fund we have 28 companies, and it's a full range. We've got fully engineered solutions like direct air capture facilities, we have nature-based solutions, like planting trees with drones. We've got everything in the middle: a hybrid where you're taking a natural system, like rock weathering, where the weather breaks up the rock and the minerals come out and they react with the air and then they go in the water and then they get put away for a long time. Pricing for those hard-tech type solutions, the prices are still high. The nature-based solutions, the ones that are more low-tech, those prices are rising because they're in demand, because they're on that lower price point of the market. So they're getting bought up very quickly. About 25 percent of our volume of tons comes from that expensive end, and 75 percent comes from the lower priced end. We want that to balance itself where that average price in those two buckets ends up mapping out and matching together by 2030. What is the role of policy? You're calling for a third-party standard-setting board. Is there also a role for government? I think there's two large areas. Just because we're signing a letter that calls for an independent, not-for-profit-type standards organization, there's nothing stopping that being a multilateral organization that governments stand up. It totally could live there, and maybe it should. The other part that they play is really on the procurement side of things, putting policies in place that support the adoption of emissions reduction technologies in sectors like concrete or steel manufacturing, or fertilizer manufacturing. Those technologies exist, they just need government policy frameworks that make it economically feasible. And I guess now I'm on a roll. So a third thing the government can do is also put it in their own procurement policies. Do you think the government could be helping stimulate the market in the same way that you are? I spent 10 years at the Canadian federal government. You don't buy something that's not certain with tax dollars. You can't take a risk, because it's really not responsible. What we're doing right now is catalytic purchases of carbon removal to prove that something works. Government can do that with research grants and funding initiatives and things like that. But if the government is getting involved to provide a benefit to the public, they need to be buying things that are de-risked. So I see that kind of as our role right now. We can go and try to de-risk some of these things, so that when it's time the government feels comfortable to become a really big buyer.   DOWNLOAD THE POLITICO MOBILE APP: Stay up to speed with the newly updated POLITICO mobile app, featuring timely political news, insights and analysis from the best journalists in the business. The sleek and navigable design offers a convenient way to access POLITICO's scoops and groundbreaking reporting. Don’t miss out on the app you can rely on for the news you need, reimagined. DOWNLOAD FOR iOS– DOWNLOAD FOR ANDROID.     YOU TELL US GAME ON — Welcome to the Long Game, where we tell you about the latest on efforts to shape our future. We deliver data-driven storytelling, compelling interviews with industry and political leaders, and news Tuesday through Friday to keep you in the loop on sustainability. Team Sustainability is editor Greg Mott, deputy editor Debra Kahn and reporters Jordan Wolman and Allison Prang. Reach us all at gmott@politico.com, dkahn@politico.com, jwolman@politico.com and aprang@politico.com. Want more? Don’t we all. Sign up for the Long Game. Four days a week and still free! WHAT WE'RE CLICKING — Silicon Valley Bank is quickly finding its place in the anti-ESG firmament, Sam Sutton reports. There’s little evidence SVB’s ESG policies had any role in its demise, but Republicans are making political hay of its stances on workplace inclusion and climate change. "I think banks should be in the business of banking, not social engineering," Sen. 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