The Google - Holocene Deal: Pricing the Future

On Sep 10, 2024, Google announced the purchase of 100,000 direct air capture (DAC) carbon removal credits from Holocene for $10 million. Given how noteworthy this deal is, including the fact that this is Google’s first bilateral agreement and the price of $100 per tonne is much lower than we usually see on DAC purchases, we invited Holocene’s CEO, Anca Timofte, and Jack Andreasen, Policy Manager Carbon Management at Breakthrough Energy, for a Spaces discussion with CDR.fyi’s Robert Höglund and Tank Chen on Sep 12.

For Holocene, this agreement is a forward sale of their learning curve. They are betting on their ability to nail the science, scale up, and reduce costs significantly within the delivery timeframe. The current costs of DAC technology are generally seen to be $500 per tonne and up. However, Holocene has committed to delivering around $280 per tonne by the early 2030s, based on the $100 per tonne sale price and the $180 per tonne 45Q tax subsidy.

“If buyers want to buy carbon dioxide removal in the future, they need to be in the trenches with us today.” - Anca Timofte, CEO Holocene

Note that the subsidy is based on gross tonnage, not net which means the subsidy per net tonne may be slightly higher.. Let’s also note that Google could be getting a customary first-customer discount and that Holocene’s actual cost per removed tonne may be higher than $280 per tonne.

This deal provides Holocene with several benefits. Google’s involvement as a purchaser strengthens Holocene's credibility, positioning them well for future deals. The upfront payment provides non-dilutive funding to advance their technology. The delivery schedule, extending into the early 2030s, allows time for further technology development and scaling while imposing execution discipline and instilling a sense of urgency. Those who make large sales early and get their facilities built could potentially reap the Matthew Effect, taking a lead among CDR suppliers and securing other purchases which could compensate for any potential discounts on early deals.

For Google, this transaction marks its first bilateral agreement outside of the Frontier Advance Market Commitment. Their engagement is a lift to the durable CDR industry, which has seen 75% of historical purchases through one company, Microsoft. By locking in now at what is generally regarded as the “magic number” of $100 per tonne, Google is securing a favorable price while simultaneously giving Holocene and other suppliers a stake in the ground to work towards.

Based on our conversations with numerous suppliers, purchasers and investors, the industry reaction has been largely positive for DAC suppliers and CDR generally. Google’s involvement sends a strong signal to the market, encouraging further investments and innovation. It also signals confidence in DAC as a solution, demonstrating that Holocene believes strongly enough in their ability to reduce costs over time to commit to a contract based on that expectation.

However, some market actors have raised valid concerns:

1. Execution Risks: What if Holocene fails to scale its operations or reduce costs as projected? This could jeopardize their ability to meet contractual obligations and potentially sour future industry relationships for others.
2. Market Pressures: By setting a lower price benchmark based on where the industry is expected to be in 7-10 years rather than where it is now, there is a risk that venture investor models may be ratcheted downward, limiting the investment appeal of newer, less developed CDR technologies and potentially stifling innovation.

It is worth noting that Holocene and Google are not the only ones who have pursued this “pricing the future” strategy. We have been made aware of at least one other as-yet-unannounced transaction with a future-level price and first-customer discount worked into an agreement with a large corporate buyer bestowing cash and credibility to a CDR supplier.

As much as we see more instances of pricing in the future, it’s worth remembering that it is one approach, not the only one. CDR buyers would be advised not to expect this to become the new standard for all DAC pricing. If suppliers feel pressured into setting unsustainably low prices (and this is not to say that Holocene did), there is a risk that it could stifle innovation or undermine the long-term financial viability of the industry.

Jim Collins, author of Built to Last and Good to Great, once climbed an until-then never-climbed route in Eldorado Canyon by imagining how climbers would climb it fifteen years in the future. While he, and many others, had failed to use the techniques of the day, Collins visualized how it would eventually be conquered and applied those techniques to become the first to do it.

That’s where we are in CDR today. If we focus on the constraints and challenges of the current market, we won’t find a way to the objective of gigatonne scale removal. Scaling CDR requires future thinking. While there is no guarantee that the future thinking in the Holocene - Google deal will work out, let’s give both parties credit for envisioning where we want to be in the future and acting that way today.