How cutting emissions is future-proofing industries beyond the ‘green premium’

This transcript has been generated using speech recognition software and may contain errors. Please check its accuracy against the audio.

Rajesh Swaminathan, Partner, Khosla Ventures: I look at climate as really not a David versus Goliath story, it's a David and Goliath story. Some of the large companies need to partner with these startups because that's their path to having a very competitive solution.

Robin Pomeroy, host, Radio Davos: Welcome to Radio Davos, the podcast from the World Economic Forum that looks at the biggest challenges and how we might solve them. This week: we can transition heavy industries to clean technologies - but how to start? We speak to people aiming to get the first mover’s advantage.

Jennifer Holmgren, CEO, LanzaTech: It's always important when you are doing a new disruptive technology to drive it into the market with first movers and with green premiums. However, you have to develop technologies that will not require a green premium forever.

Robin Pomeroy: For industries that have been burning fossil fuels for decades, switching to greener processes may initially be more expensive, creating what is known as that green premium. We hear from companies determined to bring that premium down to zero, or even below.

Rebecca Boudreaux, President and CEO, Oberon Fuels: The key is to see the green premium as the bridge, right? That's not the destination. The way we can achieve reducing the green premium is by scaling.

Rajesh Swaminathan: The way we have done steel investments, cement investments, were all heavily based on looking at an architecture that will actually give you a lower cost than actually how fossil fuels are done today.

Robin Pomeroy: Follow Radio Davos wherever you get podcasts, or visit wef.ch/podcasts where you will also find our sister programmes, Meet the Leader and Agenda Dialogues.

I’m Robin Pomeroy at the World Economic Forum, and with this look at the first movers who are decarbonising heavy industry...

Jennifer Holmgren: To get rid of a green premium, it's just a deployment story. The more you build, the cheaper it gets, the cheaper it gets, the more you build.

Robin Pomeroy: This is Radio Davos.

Welcome to Radio Davos. On this episode we're looking at the people and companies working to decarbonise big industry in some really surprising ways. If you're interested in technological innovation or if you're interested in real action to reduce greenhouse gas emissions, keep listening. We have some eye-opening real-life examples that are already having an impact.

On this episode, I have a co-host. He's my colleague Noam Boussidan. Hi Noam, how are you?

Noam Boussidan: Hello Robin, I'm very well, thank you. How are you.

Robin Pomeroy: Very well, thank you. You are head of the First Movers Coalition. Keen, very keen listeners to Radio Davos will have heard you before on this show talking about the First Movers Coalition. For those few people listening to this who weren't listening to that, what is the First Moving Coalition?

Noam Boussidan: The First Movers Coalition, FMC by its short name, is a collective effort that was born about five years ago in 2021 and 21 or early 22. And the fundamental premise behind this initiative is that we try and pool collective demand for clean tech, and I mean products, technologies, and services.

By 2030, we try to aggregate those as a strongest demand signal possible that can be sent to the market to investors to really get those markets going because the key issue we're facing today is that those key climate techs for the future, we're talking clean hydrogen, we're taking carbon capture and storage, we're talking batteries, et cetera, a lot of them aren't yet at scale, aren't available at commercial prices.

And so the whole premise behind the First Movers Coalition is that we get companies who are buyers, who are willing to send off-take demand signals to the market. We try and get them to pool it so that they can give the confidence to investors and to project developers to really get going.

Robin Pomeroy: Because you're looking at really big industries here, big, often very polluting industries, that in theory, on paper, there are ways to decarbonize them to make them not polluting or far, far less polluting than they are at the moment. But in the real world, it's very hard because there are startup costs and uncertainty about market conditions and those are the things you're addressing, right?

Noam Boussidan: That's absolutely right. And as a matter of fact, they are called hard-to-abate sectors. It's precisely for a reason. So we have seven sectors that are covered today. Three in the material space. We're talking aluminium, steel, so the metals piece, as well as cement and concrete. We have three in the mobility space, shipping, trucking, and aviation. And we have a seventh sector, which is a bit more cross-cutting, which is called carbon dioxide removal.

Robin Pomeroy: So we had this meeting, you had this meeting, at which I did the three short interviews we're going to listen to today. Just remind me what at that meeting, I was in a room doing interviews, what were you doing on that day, what was the meeting?

Noam Boussidan: So we ran our second edition of what we call the First Movers Coalition Day. And it takes place about kind of midway throughout the year. And it's really the key moment, apart from Davos, whereby we gather leaders at the top level, CEOs and ministers. So that takes place in Davos. And First Movers Coalition Day, FMC Day, we try and kind of take stock of where we stand, where we stands approximately halfway throughout the years. And we gather very senior decision-makers still, but not top-level decision- makers. It's very difficult to get CEOs and ministers always throughout the year, but we get people who are very close to them.

We take stock. We try and also look into specific dimensions. So this particular edition of FMC Day was really anchored around what's working well and how do we replicate what's actually working well, in particular, looking at the broader international context. This took place as well. With a key, with a background of a number of conflicts, including the war in Iran and the Middle East. And so the number of disruptions that are taking place to the energy market in particular. And so we really wanted to make sure that this was a moment where we could spend a bit of time together as an initiative, as a coalition, looking at where our members stood.

Robin Pomeroy: So the FMC Day, it's not mostly the CEOs. As you say, those CEOs of these enormous companies who we really need to get taking action on climate change are meeting at the Annual Meeting of the World Economic Forum in Davos, which happens every January. This, which happened a few weeks ago as we record now, so over the European summer, was people probably closer to the action in many ways. I mean, how did you come away from that day? What did you learn? What inspired you coming out of that?

Noam Boussidan: Look, it was extremely energising and it's, you know, it's a lot of work that goes into putting these meetings together, there's a competing offerings, but it's great when you gather a group of 60, 70 people who are really committed to the cause, they're not committed to cause just for the sake of the cause itself because it only gets you so far. They're committed to a cause because they understand that it's really what is going to make or break their businesses tomorrow.

And that's also why it's so great that they have this direct line of connection to their CEOs, to their ministers. To their principles because that message doesn't kind of dilute itself. They report to them back and forth in terms of the progress that is being made, in terms what's cooking, in terms the challenges that are also being met by their peers, by their competitors to a certain extent, but also in terms of what's coming and what's replicable and what is really helping us to address the key issues that we're facing.

One of the key points I would like to make sure goes through is, this is not about idealism. This initiative was launched five years ago, and back then, we were very aware that the conditions were very different. Climate action was at its peak, the momentum was extremely high, there was a lot of mobilisation, it was all about ambition. FMC Day, five years later, takes you into a place whereby those commitments were made. The ambition is set, the direction of travel is very clear. It's now all about that shift towards delivery. If we want to live up to the commitments that were made, if we want to make sure that we're perceived by the markets, by everyone out there in terms of this is real, this is impactful, this is going to change the world, literally, we need to live up to those commitments and that's hard to do. And that's exactly what was discussed. The fact that it's hard to do the fact that we are not gonna go away from them. And what are the key solutions that we can deploy today in order to actually live up to them.

Robin Pomeroy: One thing you mentioned, that five years ago it was a very different environment, you were setting the goals, now it's really about implementation. I wonder also though, you know, the pendulum swings on climate action, sometimes it's everyone, you know the Paris Climate Agreement, quite a long time ago now, everyone's on board to do this. In some countries, politically there's been a swing away from climate action. People even now talk about green hushing, companies that used to show how green they and now, even if they are green, they're not shouting about it.

Interestingly, the three people I met, they were so energised at this meeting and they were absolutely convinced the direction of travel has not changed at all. But I'm wondering, have you come across that, this kind of slight hesitancy, big companies, they're no shouting from the rooftops that, hey, we're getting net zero by date X.

Noam Boussidan: Look, first of all, your observation that the pendulum swings is absolutely a right one. I've been, myself, personally involved with the climate space or sphere, including international climate negotiations, for more than 15 years.

It is quite clear that when you look at it over the course of the last 10, 15, 20 almost years, we've seen those movements back and forth. But the important thing is not to jump to conclusions and to stay the course.

And so I think why the three people you talked to were so energised by this meeting is precisely that. Because, and that's what really the Paris Agreement managed to do, no matter the political ramifications or changes, the direction of travel is set. The course is set, it's all about trying to understand how we get there.

And again, it is how we got there, not just for the sake of getting there, but it is because what makes economic sense, what makes business sense, and of course, as well, serves the protocols of how do we ensure that the planet remains livable.

Robin Pomeroy: Absolutely. Well, I think the three interviews are about to hear each of those people in their own way make that point. They're making a business case for this. The last person we'll speak to is an investor. So very much putting the case for if you put money into some of these technologies, he's hoping for a big financial return as well as any impact that might have on halting climate change.

Let's go to the first of these three then, so. Noam, this is the chief executive of something called Lanzatec, she's called Jennifer Holmgren. I'll let her explain exactly what she does, but in a nutshell, her company is capturing carbon, which is coming out usually as carbon dioxide or carbon monoxide, from in her case steel plants, imagine a massive steel plant, she is capturing it, but she is not just sequestering it, she doing something very interesting with it. It's making usable, valuable product. This is Jennifer Holmgren.

Jennifer Holmgren: My name is Jennifer Holmgren and I'm the CEO of LanzaTech.

Robin Pomeroy: What does LanzaTech do, Jennifer?

Jennifer Holmgren: Yeah, LanzaTech recycles carbon emissions. So it takes emissions that would naturally be emitted from an industrial site as CO2 and we capture them and convert it to products.

So call it a carbon efficiency play, carbon recycling.

Robin Pomeroy: Now I've looked up a bit about your technology and it seems to involve fermentation, is that correct?

Jennifer Holmgren: Absolutely right. So the way we do this conversion of waste carbon into useful products is actually with bacteria, the bacteria eats the carbon emissions and converts them to product.

Robin Pomeroy: Is this actually working in the real world now?

Jennifer Holmgren: Yes, absolutely. So we have four commercial plants operating in China, taking steel or ferroalloy gases and converting them to ethanol. And we have a plant in Belgium, in Ghent, with ArcelorMittal that also takes carbon emissions from their steel mill and converts them to ethanol.

Robin Pomeroy: So it's literally, if I was to come and look at one of these plants, what would I see? Describe it to me.

Jennifer Holmgren: It looks like a biorefinery connected to the steel mill because it has to be at the steel mill so it can capture the carbon from the steel mill.

And you're used to fermentation of sugar and that looks like big vat process, right? Because fermentation takes a long time. Well, our fermentation takes seconds. So instead you're actually looking at something that looks a refinery rather than a fermenter. Gas in, product out.

Robin Pomeroy: The gas, carbon dioxide itself is a gas, but what you're going to get out of an industrial plant will be lots of other pollutants and things in there. Do you have to actually make it carbon dioxide in before your process works.

Jennifer Holmgren: Yeah, so actually this is a really great question. So we can use carbon dioxide, but we also can use carbon monoxide.

So in a steel mill, often the carbon monoxide is converted to power or it's literally flared, okay? When it is flared usually there are also particular emissions and other emissions that are toxic to our environment. So what we're doing is we're preventing that from happening because we're taking that carbon monoxide and instead of letting it go out the flu, we actually capture it and convert.

Robin Pomeroy: And is there a byproduct as well then from this fermentation? I imagine there's a chimney coming out of the top.

Jennifer Holmgren: That's interesting. So our technology, there's only two products that are made, right? One is the ethanol that we produce. The other is the bacteria itself. So the bacteria is alive in the bioreactor, and we are going to plug the reactor if we just let it divide continuously, right? So we have to remove some of the bacteria. We dry it. It's 90% protein. We sell it as fish food - it's animal food.

Robin Pomeroy: So you end up with this product which is ethanol, and what is that used for?

Jennifer Holmgren: Yeah, so that's a great question. Ethanol can go into marine fuel. So it's currently people talk about methanol for marine, but more and more people are realising that you can put ethanol in the same engines as you do methanol, except it has 40% more energy density. So you put more cargo on your boat.

So that's one direct use. The other use is you can take ethanol and convert it to sustainable aviation fuel. So a drop-in hydrocarbon that can be used in aviation. And we actually have a large commercial plant converting ethanol to sustainable aviation fuel in Georgia at a 10 million gallon a year scale.

Robin Pomeroy: The phrase you used there was drop-in fuel. So these are fuels that can be used on existing, it doesn't require a new technology. These are ships that use fuel, planes that use fuel. This product can be used there.

Then that gets us to the green premium because those companies are buying their bunker fuel or their aviation fuel, usually fossil fuels. Presumably your fuel is more expensive, is it? Tell us about the green premium.

Jennifer Holmgren: So absolutely right, I think it's always important when you are doing a new disruptive technology to drive it into the market with first movers and with green premiums. However, you have to develop technologies that will not require a green premium forever.

There is no industry that can sustain a delta price forever. And so just like solar, just like wind, which were very expensive, just like cellphones, very expensive initially. But we drove them down the cost curve with more and more deployment.

I think that is the same thing we have to do with these new technologies.

So you're used to solar, you're used the wind, those make green electrons. There is no real green premium for green electrons anymore, is there? They are competitive.

The same thing will happen with green molecules, whether it's ethanol or sustainable aviation fuel, these will go down the costs curve the more we deploy.

To get rid of a green premium, it's just a deployment story. The more you build, the cheaper it gets, the cheaper gets, the more you build.

Robin Pomeroy: As well as producing fuel that is not derived from fossil fuels, you're removing carbon dioxide, a greenhouse gas that otherwise would end up in the atmosphere. Are you making money out of that as well?

Jennifer Holmgren: Yeah, so actually our partners are making money. So we have, like I said, four commercial plants in China. Our JV in China just went public in the Hong Kong exchange and they are definitely making money, they have 20 to 30% margins in their operating plants.

Robin Pomeroy: Because there are schemes for carbon removal.

Jennifer Holmgren: So that's really interesting. No, actually they're not leveraging any carbon removal or green ethanol. They're just simply selling ethanol into the road transport market. They do get a premium relative to just plain fossil, but they don't get a different green premium than anybody else that's contributing alternative to fossil carbon.

Robin Pomeroy: So what is the incentive for someone to buy that product then?

Jennifer Holmgren: There's a lot of companies that need to decarbonize and that need to be talking about decarbanizing. And so there are regulations that require them to deccarbonize. So those are the people that are buying it. So in China, it's the Sinopecs of the world.

Robin Pomeroy: Tell us about your journey then from PhD scientist, chemist, I believe, through and you worked in the classic kind of petrochemicals industry, is that right? How did you come to where you are now?

Jennifer Holmgren: Actually, I worked at a company called UOP that serves the traditional petrochemical world. I started working on alternative feedstocks.

There was an energy security play that required alternative feedstocks. When I started doing that, I went ahead and worked on drop in diesel fuel. Of course, from drop in diesel to drop in alternative jet fuel is just one simple step.

And so I developed the technology for UOP Honeywell to do drop-in sustainable aviation fuel. That's the HEFA [hydrotreated esters and fatty acids] route that everybody talks about that uses oils, fats, and greases. And I founded the renewable energy business at Honeywell.

And from that, I realised that we needed to diversify the feedstock pool further, you know, than fats, oils, and greases. And so, I started looking at LanzaTech which can use industrial waste, gasified municipal solid waste, trash, basically rubbish, gasified agri sector and forestry sector waste. And I said, okay, finally a technology approach that can scale the way the refining industry scaled.

That's the thing I think most people don't realise, the world uses 100 million barrels a day of fossil carbon. So, how do we get away from that? You need something that has a massive feedstock pool, and that's what LanzaTech has, is a massive foodstock pool.

Robin Pomeroy: What needs to happen now for global scaling of this to really make an impact? What either just in business terms, in industrial terms, in policy terms, are there big things that you're hoping will happen that could change the game?

Jennifer Holmgren: Well, I mean, at the end of the day, you have to deploy, deploy, deploy. And to deploy you need technology-neutral standards, you need policy that is completely technology-neutral, so that it allows all types of solutions to sit at the table.

A lot of policy is actually feedstock specific. And if you do that, you create barriers. The first time we built our first industrial carbon recycling scheme, we didn't qualify for anything. Nobody understood where we fit.

So I think these boxes need to be technology neutral. The other thing that needs to happen is we have to mentally stop thinking about molecules the same way we think about electrons. You know, 10-year offtake agreements for molecules with a fixed price offtake, which is what's financeable, is very difficult in a world that trades molecules. Nobody trades electrons in the same way. But because solar and wind cut down the cost curve and gap finance with 10 year PPAs, right? We try to do the exact same thing with molecules.

Nobody does that with molecules and so you will end up deploying a few first of a kind that way and financing them that way. You will not finance the molecule energy transition that way. So you've got to think about not one size fits all. But how do you fit to an industry, to an approach?

Robin Pomeroy: Why could you not get those long-term contracts now? Is it because oil is widely available, the price is moving all the time, people are doing futures contracts?

Jennifer Holmgren: It's the combination of all those things. And it's also the magnitude of the problem.

You know, if you're going to have the higher priced molecules today, a 10 year contract on those higher priced molecules is tens of millions of dollars for a company. Committing hundreds of millions of dollars to a 10-year offtake agreement today just is very, very difficult, right? Especially for the industries we work in, aviation. Do they really want to commit to pay $5,000 a tonne when conventional jet fuel is $2,000, a tonne? And do they want to make that commitment for 10 years? That's massive and scary.

That is not true of the solar industry today, right. We're talking cents and pennies per kilowatt. It's just a matter of size perspective.

Robin Pomeroy: So how do you bridge that gap? I guess that's probably what First Movers Coalition's aimed at.

Jennifer Holmgren: It is exactly what the First Movers Coalition is about. How do you build the first ones? Once you build first ones, maybe the green premium gets smaller and smaller so that others can follow and adopt.

Robin Pomeroy: Consumer companies, the companies that will be buying your products, are they rewarded for doing that, for coming in and being, okay, I'll take the first step. I will promise you X number of years.

Jennifer Holmgren: I think that will be true of the first. The first movers will do that.

We work with IAG, and they're willing to do that. I heard Vattenfall talk about it today. But it took persistence on their part, it took visionary leadership, and they are of course a leader in the First Movers Coalition.

The problem is that it isn't enough to create the volumes we need, and so you need the fast followers now to start to jump in.

Robin Pomeroy: We've seen this year, this kind of disruption in the oil supply, in the oil market, because of the Strait of Hormuz. But what some people have said to me is this idea of resilient supply chains getting at least some of their supply of, in that case, energy locally or from different providers. Do you think that will have a knock-on benefit for you and for what you're trying to do?

Jennifer Holmgren: Absolutely. I think energy security is quite important. And that's the beauty of what we do is we use local resources.

I think it's also really important. We always talk about energy efficiency and what I'm talking about is carbon efficiency. How do you make the most out of the molecules you've already dug out of the ground, use them over and over again.

And that extension of the supply that you have purchased from somewhere else generally, that's energy security. And that's really important.

I do think people should also talk about energy diversification. We have spent way too much time with molecules and with electrons coming from the same exact resources. We've got to find other supplies. We've got to use other supplies, we've got to get them down the cost curve.

Robin Pomeroy: Where do you see your industry in five years time or in 10 years time?

Jennifer Holmgren: I think in 10 years time, for sure, we will be cost competitive with the current feedstock resources. I think, in five years time I think we'll transition from people saying these things aren't getting built to a lot of plants being built.

That is what's really important is we've got to stop taking five years to finance the plant. We need to take two years. And if we can do that, we'll build more. And that's what will get rid of this green premium.

Robin Pomeroy: Why China?

Jennifer Holmgren: Why China? China builds things very, very fast and speed matters. I also think China doesn't just build fast. China also prototypes fast.

You know, fast fail, fast build. This is how you get new technologies to market.

You look at what they're doing in batteries. The West is focused on lithium and they managed to find a way to use sodium and lithium and then sodium, which is available. It's plentiful.

I should add that I think the West has fallen into a trap of thinking that China doesn't innovate. I disagree with that. They are innovating. They're not just duplicating.

Robin Pomeroy: When do you see these kinds of plants rolling out? When do think this will just be a normal thing? We'll say, oh yeah, there's one of these down the road from me.

Jennifer Holmgren: Our company is based in North America, but our first Western plant, shall we say, is in Belgium, in Ghent with ArcelorMittal. You know, we are going to have to make that transition in the next five years. I think in the five years, I already have enough projects in the pipeline and industrial sites that you will see construction in the West.

Robin Pomeroy: I saw you doing a talk online and you're saying, I know this sounds like science fiction, you know, creating energy out of pollution. That was maybe six or seven years ago, I think, that talk. Are people still amazed when you say this to them or is it now becoming a bit more mainstream?

Jennifer Holmgren: You know it's interesting. I think that it is becoming more mainstream, but I still see eyes open when I show a picture of what one of the plants looks like and show that it's real. It's taken so long that it's still interesting.

Robin Pomeroy: You're the chief executive officer of LanzaTech, but you're also a scientist. It's not that often, is it? Sometimes, you know, the scientist does the science and the business person does the business. How have you managed to combine those two roles?

Jennifer Holmgren: I don't.

Honestly, I know enough science to be able to talk to my team about it, but they're doing the science. I'm not doing science or engineering. I am not even a biologist. I wouldn't know biology, so no, no. I just know enough to be dangerous.

Robin Pomeroy: That was Jennifer Holmgren, the CEO of Lanzatec. Really interesting Noam, the thing that struck me in that interview, I'll quote her again. "You have to develop technologies that will not require a green premium forever." What does she mean by that and what do you think?

Noam Boussidan: Look the whole question of the green premium has been one that is really something that has come time and again within those conversations and the bottom line is this we're looking at alternative to fossil fuel technologies that are by essence cheaper because we've known how to do these for ages sometimes tens of or even sometimes hundreds of years.

So any alternative solution that we're discussing today be it in the case of Jennifer for sustainable aviation fuels but there are seven other sectors, and there are many technologies that are being discussed here, is the fact that they're going to be more expensive. And that's what we call the green premium.

The alternative technology to fossil fuel, traditional technologies, costs more. Who pays for that? How do we absorb that cost? How is it dissolved over time? Some argue that there should not even be a green premium, the green is indeed sometimes referred, referenced as a bridge type of moment to a new world or a new reality whereby that alternative higher cost technology of today is essentially going to be the base case for tomorrow. And that's essentially what we're aiming at.

But indeed, right now, that's not the case. And so the whole conversation is around how do we cover for this? What are the mechanisms, be they financial and otherwise, that we can use in order to reduce that green premium and to make sure that that technology, more expensive today, is something we can use on tomorrow as a base case.

Robin Pomeroy: Let's hear the second of our three interviews from your FMC day. This is Rebecca Boudreaux. She's the president chief executive of Oberon Fuels, a fairly niche industry sector at least from my point of view because she works in the area of chemicals that are used as aerosol propellants but she makes them from waste materials we're going to hear All about that from Rebecca Boudreaux.

Rebecca Boudreaux: I'm Dr. Rebecca Boudreaux and I'm the CEO of Oberon Fuels.

Robin Pomeroy: Oberon Fuels then, what does Oberon Fuels do?

Rebecca Boudreaux: So Oberon Fuels converts various waste streams to renewable fuels and chemicals. So we can take things like waste leftover from trees. When you break down a tree to make pulp and paper for cardboard boxes, diapers, all the important things in our lives, there is a waste stream from naturally occurring methanol in a tree. So that's one of the waste streams we use at our current production facility. But you can also use any type of organic waste, food waste, agricultural waste, and a variety of others.

Robin Pomeroy: And you're making what kind of fuel?

Rebecca Boudreaux: So that tree waste, we convert to renewable DME, which stands for dimethyl ether. It can be blended into propane to reduce this carbon footprint, but it also is used as an aerosol propellant. So it can be used in the specialty chemical space.

Robin Pomeroy: So, dimethyl ether, DME. That's what everyone needs to know about. And it's sustainable because you're recycling stuff that would otherwise be wasted. And is there a green premium for that? Does it cost more to buy your recycled DME than to buy just DME?

Rebecca Boudreaux: So we think of the green premium really as the bridge. So starting off, we're production at small scale using small scale feedstocks. So it costs more. So there's ways you can offset that.

In the fuel sector, there's often incentives at the federal and state level in the U.S. to help pay for that green premium. But the key is to see the green premium as the bridge, right? That's not the destination. And so the way we can achieve reducing the green, premium is by scaling.

And while we started off at using renewable DME in the fuel sector, we're also expanding the market, so creating more demand.

One example, aerosol propellants. So renewable DMEs is an excellent replacement for hydrofluorocarbons. So it's an environmentally friendly substitute for that. And that gives an opportunity and specialty markets for sunscreen, disinfectants, hairspray, all of these products that are used globally.

Robin Pomeroy: And what scale are you at at the moment?

Rebecca Boudreaux: We currently have one production facility in Southern California. There we are producing renewable DME, initially fuel-grade renewable DMEs. So that's being sold today as a blend with propane LPG, powering forklifts and on-road vehicles.

We're now in the process of scaling up that facility, also being able to make a higher purity form, a renewable DMV for the aerosol market. So we are taking our facility to nameplate capacity. So increasing production there, but also looking at opportunities for additional production sites in the US as well as elsewhere in the world.

Robin Pomeroy: And so you bridge the gap between where you have a green premium, which I guess relies either on goodwill of companies to say, yes, we like what you're doing, we support it, we will pay you a premium for it. And/or there's some kind of regulatory incentives, as you mentioned, that do exist until such a time as these are cost competitive and you're outselling just the other alternatives, the more traditional alternatives.

Rebecca Boudreaux: Yeah, so in the fuel sector, we relied on incentives to help deal with the green premium.

What's interesting with as we look in expanding into new markets like aerosol propellants, the hydrofluorocarbons we are replacing are quite expensive. So we can offer a renewable molecule that is better for the environment, not just from the feedstock perspective, but also the global warming potential as the world looks to cap and reduce the consumption of fluorocarbons. And it's actually cost competitive with hydrofluorocarbons.

And now not only are you getting something with less global warming potential, but you're also getting something from a renewable feedstock.

Robin Pomeroy: What needs to happen in your sector and maybe also just more widely, you know lots of other companies that you've maybe met at the World Economic Forum, the First Movers Coalition, who are involved in sustainable products that were very difficult to decarbonize. What are the key things that need to happen to allow that to scale?

Rebecca Boudreaux: Yes, there's a few key things that have to happen to allow that to scale.

I'm trained as a scientist, so you start off thinking the best science, the best technology always wins. And we know that's not the case. That is just one piece of the puzzle.

In the world of chemistry, you can have all the right ingredients, but if you don't have the right reaction conditions, you're never going to get the product you want.

And it's really the same way in commercialising and growing these markets. You can have the right technology, the science can work. But you also need the entire supply chain to line up, you need the regulations in place, you need all the right people at the table.

And that's where I think the First Movers Coalition is absolutely key, because they create those reaction conditions. They bring governments, they bring customers, the buyers, the producers, they bring everyone together to be able to have those conversations and to be to move forward and help to grow these new sectors.

Robin Pomeroy: I think First Movers Coalition, it's often about longer-term agreements from companies that, yes, we will support this, we'll agree to buy this from you, is creating a market that might not otherwise be there. Is that your experience?

Rebecca Boudreaux: That's my experience and it's been interesting over the 15 years I've been with the team at Oberon moving this technology to commercialization, expanding markets. We've had partnerships with Volvo trucks, Mack Trucks, Ford, Suburban Propane now working with Aeropress, the largest manufacturing distributor of aerosol propellants in the U.S., as well as L'Oreal. What's interesting in working with these large corporations is making sure you have the right decision-makers at the table, the people who can champion it and also bring in the procurement team, bring in safety, bring in R&D team, bring in all the key stakeholders to move this forward, because it's not the same as what they've already done.

Right, so I'll give you an example. We were working with one company and they used the fossil version of DME and we have the renewable version. However, the protocol they used even on testing couldn't exactly be translated to the renewable version. And so they needed to figure out, how do we do this? Normally, if someone has a supply, we're like, well, we don't have your aerosol-grade renewable DME yet, but we will in x amount of time. Now it's about 60 days from now. So how do they test it? And so these are the conversations you have to have, because what exists in the corporate infrastructure doesn't necessarily work for something new, right? So something innovative.

So you need those key champions. Who can bring all the stakeholders to the table in the corporate.

Robin Pomeroy: Yeah, and you're disrupting, aren't you? If people have been doing something one way for decades. It's like moving an oil tanker around, isn't it? I would imagine, I've not done it, but to go into a boardroom and say, okay, we can now provide this, but it means you've got to change one or two things. Does that, is that a frustrating thing? Is it a fun challenge? Be honest with me.

Rebecca Boudreaux: It is a fun challenge. Yeah, at times it can be frustrating, but it's amazing when you see the ship start to turn and you see that power of the corporation that has all of these people behind it and how once you turn the ship, it can move quite quickly.

And it's beautiful to see an example of L'Oreal. So they created the L'Accelerator. I mean, we were fortunate to be one of 13 companies that selected out of a thousand globally to be part of their first cohort. And it's led by their Chief Corporate Responsibility Officer. And she, through this programme, created it and able to bring all the stakeholders to the table. So as we look to test our new renewable ingredient for their applications, bringing procurement to the table, safety, R&D, all the right teams to the Table. But it takes that champion and that structure inside the corporate to be able to do that and is a great example of a way to navigate that.

Robin Pomeroy: You notice a difference in political climate? Because you mentioned a corporate sustainability officer. Sometimes these things are all the rage and sometimes they're a little bit out of fashion. Does that make a difference, in the kind of work you do? And I'll ask a second question then. Obviously, it all comes down to the bottom line eventually. If a product isn't going to increase a company's bottom line, or at least it's going to make the bottom-line worse, we could take this one because it's corporately sustainable and responsible, but we're going to make less money. In the long run, people aren't going to do that.

There has been, I think, certainly in the West, a shift away from corporate social responsibility. Do you really notice that? Or is that just noise that the rest of us are hearing?

Rebecca Boudreaux: You do see that, and there's a shift in the conversation.

It used to be, how does your product help us on the carbon front? Now the conversation, the breath right after that is, what does it cost, when can I get it, and how does it scale?

And I think that's also, it's the political environment, but it's also the maturing of the sector, right?

Because you want the sustainable solution to be the right business solution. And that's what happens as the market grows. That is the goal to get to.

So you see a shift, but I think it's an important shift and it's going to help the market continue to grow by making the sustainable choice the right business choice.

Robin Pomeroy: That was Rebecca Boudreaux, President and Chief Executive Officer of Oberon Fuels. Noam, she used the same expression you did earlier, this idea of a bridge, the green premium, i.e. the extra cost or the extra price you're paying for something that is greener, she called it a bridge. It's a bridge for now. It's to get us where we need to be, by which time these technologies, such as the one her company makes, will be cost competitive. It's really, it was a running theme on your FMC day, wasn't it?

Noam Boussidan: It is absolutely at FMC Day and the previous five years.

But it's interesting to notice how the debate over the green premium has evolved. When I joined those conversations and I embarked during the journey of FMC, a lot of the conversation you used to have at some point would hit the roadblock of, yes, but there is a green premium. So there is willingness, there are partnerships, there's a lot of political will within the companies with policymakers, but you hit the roadblock of there's the green premium and who pays for it.

And actually what we've seen lately, in particular earlier this year, we had a metals round table with the First Movers Coalition. We also had an aviation day, so in a way kind of more focused types of conversations around some of the seven sectors that we're covering and informed by the global geopolitical context, that evolution of the notion of green premium itself, some call it to what they call, they say a security premium.

And the premise here is the fact that what you're paying for actually is no longer just necessarily the carbon benefits of the alternative product, but actually it provides you with a series of benefits that you wouldn't otherwise get.

For example, diversification of your sources, where the Strait of Hormuz is being blocked and 20% of the global oil and gas flows are kind of hindered, where do you get your supply? Security of supply is a big piece of the equation.

So there's all of these pieces whereby if you look at the additional price that you still have to pay in order to get to different kinds of technologies, you get also a number of added benefits that go above and beyond just quote-unquote the carbon benefits per se. And that actually is opening up a whole new field, a whole avenue, a whole way of thinking about why would you make those investments.

Yes, today, they are still, to a certain extent, more expensive, and it's all about deployment, it's about scale. But the reasons as to why you would make those investments, to convince your boardroom, ultimately your CFO and or your CEO, go beyond the only potential carbon benefits that you may get. That's significant shift. Has been happening, we've witnessed it, and it's really quite striking.

Robin Pomeroy: Well, let's talk about investments then. This is the third and final interview that I did at the FMC Day. It's not someone who's making new technology, it's someone who is going around the world looking for those new technologies to put his money in.

This is a phenomenal interview with Rajesh Swaminathan of Khosla Ventures. It's based in Silicon Valley, as you'll hear in this. And as I put it to him, is anyone in Silicon Valley really interested in green technology? Surely all the money is going into artificial intelligence right now for the last three years. He has some very interesting things to say because indeed his company, he says is one of the earliest investors in OpenAI, for example. So they're not messing around. They're not doing this for fun. This is really nuts and bolts investment, return on investment. Let's hear from Rajesh Swaminathan.

Rajesh Swaminathan: This is Rajesh Swaminathan, partner at Khosla Ventures, been driving many of our climate investments over the last six, six and a half years.

Robin Pomeroy: What is Khosla Ventures?

Rajesh Swaminathan: Khosla Ventures is a Silicon Valley venture capital firm been around for about 20 years, been investing in CleanTech 1.0, climate 2.0, everything in between. It's a generalist firm, we invest in other areas as well, but climate continues to be a big area of focus for us.

Robin Pomeroy: If you're in Silicon Valley investing in exciting things, I'm thinking computer technology, artificial intelligence, self-driving cars, why would you be interested in climate change?

Rajesh Swaminathan: We invest in those things as well, and I'll give you a good example, but we started investing in clean tech 1.0 20 years ago, because it was so important, it was very important not to make those investments. So it was absolutely needed 20 years ago, it's even more needed today.

We've been investing in fusion, cement, steel, geothermal, all of those things that are high impact and changes the world in a big way, if done right.

And we are a generalist firm. We invested in Commonwealth Fusion in 2018. Around the same month, we invested in OpenAI. We were the first institution to invest in Open AI. So I like to say we think both are trillion dollar companies, just the timing might be a little bit apart in terms of when they get there. Both are high impact, and that's why we invested climate.

Robin Pomeroy: So OpenAI, what was the other one?

Rajesh Swaminathan: Commonwealth Fusion Systems, CFS, it's a nuclear fusion company. They are the leading technology provider for nuclear fusion, well on their way to get to Q greater than one, which proves nuclear fusion is feasible, economical.

Robin Pomeroy: It's funny, nuclear fusion is one of those most probably classic Silicon Valley style stuff, because it sounds amazing. It sounds science fiction. Is it yet proven? You're going to tell me that yes, it is the last 20 years you've seen it, but that's the kind of things you might be thinking of investing in. This is an amazing idea if we could make it work.

Rajesh Swaminathan: Started around 2018, but the reality is people have been working on nuclear fusion for the last 30, 40 years.

The key unlock that happened once CFS started working on was their focus on a high-power magnet. And once you get a much higher power magnet, you can actually reduce the system nuclear fusion much smaller, and that makes it economical.

So the big difference between nuclear fusion 30, 40 years ago versus now is the entrepreneurial Silicon Valley mentality to commercialise a product versus sitting in the labs and just de-risking the science piece without thinking about the engineering piece. And that's what has happened in the last eight, 10 years in a very big way.

Robin Pomeroy: Are there any other technologies that have really, really grabbed you, kind of emotionally, you thought, well, this is just amazing, got to be part of this?

Rajesh Swaminathan: Geothermal is another one.

It's just amazing because if you look at it's nuclear fusion and geothermal are the only 24-7 base load power capable systems. Solar batteries are great, but you're never going to be 24-7 base load powered consistently.

So that's why these are the two things that attracted the most attention for us. So we invested in CFS long ago. We've also been big investors in super hot rock geothermal. We do think geothermal, super hot rock geothermal will be commercial earlier than nuclear fusion, but both have a role to play in making sure you can get to less than five cents a kilowatt hour 24-7 base load power.

Perfectly timed for all the things that we need for AI and data centres.

Robin Pomeroy: Silicon Valley investors are probably used to, and you'll correct me, I'm sure, putting money into great sounding new tech, knowing it's not going to have a return on investment straight away.

At some point, you want your money back with interest. How do you decide that? Because a lot of things we're talking about here, at the First Movers Coalition, things you can see it would be a good idea to make aviation fuel out of recycled carbon, but it costs two or three times as much as classic aviation fuel right now.

How do you get your head around that and decide, I'm ready to put my money, my company's money, into this?

Rajesh Swaminathan: Yeah, you put a couple of filters, right?

The first filter is, is this going to be the highest impact technology that will change the world? And we said there are only dozen technologies, dozen entrepreneurs that we will care about. We won't care about all the 50 other ideas that come up in climate.

The dozen ideas, few of them are, in fact, very relevant to what FMC is doing, right?

But if I look at baseload power, it's geothermal and fusion and everything, a lot of things that FMC's doing, cement, steel, green hydrogen, carbon capture, SAF, shipping fuel, all of them are kind of big impact. Some of them are 4-6% of emissions.

So once you set your true north on the biggest impact technologies, then you go one level deeper and say, what's the best technology I can invest into within that sector?

But the measure of technology is not just phenomenal science, phenomenal engineering, highly disruptive IP and all that stuff. The biggest focus we have is what we call as the 'Chindia' price, which is a nice way to express cost entitlement is what we care about. At the end of the day, most of it is commodity. Nobody is going to pay a huge premium just because it's green.

And because we have been doing this for 20 years, in the last five to six years during the hype of climate 2.0, none of our investment memos captured anything about IRA, green premium, tax credits, all of that, and intentionally so.

What we spent a lot of time was on technoeconomics. What is the cost? From a capex [Capital Expenditure] and opex [Operating Expense] perspective, how do I actually get this to be cheaper than commodity fossil fuels? And that's our kind of true north in terms of how we were measuring where we need to invest in.

Lots of examples, the way we have done steel investments, cement investments, we're all heavily based on looking at an architecture that will actually give you a lower cost than actually how fossil fuels are done today.

Robin Pomeroy: That's so interesting because I think seen from outside, green technology has been seen as it's a way of achieving environmental sustainability, decarbonisation. What you're saying is, yeah, it is aiming to do that, but you're going to do it cheaper than the current status quo to get your head around it being cheaper, if not today, then in five years, give us an example of that.

Rajesh Swaminathan: Yeah. So when we started looking at steel, we said, going back to the filter, this is too, too important not to invest.

So then we looked at all the innovative ideas that were coming up in the steel industry. There were very interesting ideas using molten electrolysis. There were interesting ideas in using electrochemistry to disrupt steel. There were ideas on doing hydrogen with solid state DRI, all of that stuff.

But the biggest issue, phenomenal entrepreneur, great ideas, you know, very passionate about solving the problem. But this was like shooting a house fly with a cannon, right? It was too expensive to go after a commodity industry problem. So we ended up not investing in many of those approaches for those precise reasons.

Then we saw a company called Hertha, which is actually here part of the WEF and Laureen, the CEO, is here. They were actually having a capex architecture that's lower equipment, less number of equipment than today's coke plants using blast furnace and basic oxygen furnace. So we really liked the architecture because that had the potential to be both low capex and low opex and they had a single step process to make steel.

That was disruptive because suddenly you can take that approach to fine tune your product either from high purity iron for making critical materials like magnets or commodity steel or electrical steel for transformers. So that was very interesting for us to invest into, being big fans.

The other key aspect is we look for how do you deal with the most critical part of a technology with minimal dollars? So with just 15 million dollars, they were able to get to one tonne per day, 300 tonnes per year kind of a plant. Whereas most other approaches, because of this cost issue, have raised 200, 300 million dollars and nowhere close to one tonne per day.

That's the mentality and that's the output you get if you focus on cost as a single kind of biggest metric that you want to get to. And that's on the steel side of things.

If I take the example on hydrogen, it went through a hype cycle, went down for a bunch of reasons. The reason being most people came out of the electrolyzer world, they were at $7, $8, $9 per kilogramme. And even with the IRA, the Biden administration was providing $3 per kilogramme, they still wouldn't get to be a cost competitive solution.

When we looked at all of those approaches, we talked to all the PEM companies, alkaline electrolyzer companies. Instead, we bet on a company called Verdagy because they didn't start as an electrolyzer company. They were focused on a chloralkali solution that was going after ethylene dichloride to manufacture PVC. And guess what? If you're going after a commodity chemical like EDC, you have figured out a system that's even much lower cost than what hydrogen needs to be. They had a large area, high current density, all kinds of very interesting technology innovation at the system level that convinced us this is the right architecture you need to pick to go after $3 per kilogramme. And five years later, today, they are actually at $3 a kilogramme without any kind of IRA green premium needed. And they built a Gigafactory that gets them to $2 per kilogramme in the next two, two and a half years.

Robin Pomeroy: What were they making? You said, what was the chemical?

Rajesh Swaminathan: They were making ethylene dichloride for making PVC pipes, and therefore, they had to come up with a system architecture that's really, really cheap. And now we were able to repurpose it for hydrogen. Now they built a gigafactory with the COO comes from VP of manufacturing at Tesla. So really engineering mentality in terms of scale up and everything else. There is a strong demand for countries like India to go after hydrogen. Simply because natural gas is very expensive there.

Unlike U.S., they're not able to produce natural gas internally, so the grey hydrogen that they get is very expansive. So if we can get to green hydrogen that is in the $3, $2 per kilogramme, that's a phenomenal market for countries like India.

So these guys are capitalising on that, and they're cheaper than Chinese electrolyzers, which doesn't happen often.

So that's what I mean by, even when we do the seed investment, we spend a lot of time on the techno-economics. If you don't get that right, nothing else matters.

Robin Pomeroy: If we go with what you're saying here, all these problems will fix themselves by pure capitalism. You've got smart investors with enough money to take the risk in projects that they've worked out are going to work out at some point. What are the barriers then that need to be overcome to scale up some of these brilliant technologies?

Rajesh Swaminathan: I think regulatory makes a difference in terms of, but you can't build a company assuming the regulatory support will be there. You have to build a country assuming you can get to the cost points and take the regulatory support as a nice to have, as an icing on the cake.

The green hydrogen companies example, if you're getting to $3 per kilogramme as a cost basis, if we get a $3 for a kilogramme subsidy, then you have a phenomenal margin on the company. So it's good to hope for some of those regulatory support to pull it through the market, but you don't want to build a company based on that.

Other one is certainly around the off-take agreements, which is where I think FMC could make a big difference in terms of driving a precise, a good market signal that if you meet the cost objectives, we want to adopt this solution.

So I look at climate as really not a David versus Goliath story, it's a David and Goliath story. Some of the large companies need to partner with these startups because that's their paths to having a very competitive solution.

Particularly when a lot of this geopolitical stuff is happening in the world, it's very important for the Western world to build a competitive advantage. Otherwise, we will lose every industry like what we have lost in the past.

I'll give you just my own example. I was in Bell Labs. I have been in semiconductor industry. I've been in solar and batteries. I've in four industries where the innovation actually happened in the Western world. The actual manufacturing and scale-up is happening China.

We cannot afford to lose that, both from a geopolitical perspective, as well as building competency in these countries to actually have manufacturing jobs, like real wealth creation, all of that stuff.

So we need to be supporting the cement, the steel, the geothermal, the fusion, all these industries. This is really a source of wealth for these Western countries not to lose out on.

Robin Pomeroy: Yeah, I mean, we were speaking to Jennifer Holmgren of LanzaTech, and that's a company that you invest in. And most of their work so far is in steelworks in China, and it's a US company.

Rajesh Swaminathan: Yeah, it is a US company. But when everything fell between the cleantech 1.0 and climate 2.0, this was a very creative way of developing the technology and commercialising the ethanol piece of it in China by partnering with the steel companies there.

Now LanzaTech has an ownership in the China entity, but what it has also helped to show the world that ethanol that you produce using Lanza technology can be highly, highly profitable.

Now, as the next step, the company is really about taking that ethanol to make SAF, which is what they built in the Georgia, Atlanta facility through LanzaJet, which LanzaTech owns 47 percent of it. So it helped us commercialise that piece of manufacturing SAF as well. Now, the world knows that you can actually produce SAF. And this is the most scalable approach to producing SAF. Because we did that partnership with the steel industry, we started with China, but LanzaTech has built that in Europe as well with ArcelorMittal and you would have heard that from Jennifer as well.

Robin Pomeroy: I did, yeah. SAF, of course, she mentions sustainable aviation fuel.

So what is it then, what does Europe need to do or indeed the United States to encourage the growth of these kinds of industries here?

Rajesh Swaminathan: I think the policy signals are very important to continue to say this is critical, whether it is for geopolitical energy security.

Even in the US, if you look at it, I can call it as geothermal or I can call it a 24-7 baseload power for AI data centres. Or I can call it as drill baby drill, right? It doesn't matter what you call it. At the end of the day, this is really leveraging the oil and gas capability with the geothermal capability that exists to provide clean power for AI and data centre world to really give the power security that's needed.

Because as you think about AI, the country that has the best language model may not be the winner. The winner will be somebody who has right access to compute and energy. And that's going to be very, very critical to be successful. And there are not too many solutions out there, so we need to be supporting these companies to make them successful.

Robin Pomeroy: Imagine I'm a Silicon Valley billionaire, but I've yet to invest in any sustainable technology. What's your tip? Where should I put my hundreds of millions of dollars or my millions of dollars or whatever?

Rajesh Swaminathan: I think critical minerals is a big one, right? So we've been investing in a few things in that area and we'll continue to invest more.

There's an interesting intersection of AI where you can actually discover these minerals much faster as a greenfield opportunity or a brownfield opportunity, or actually use AI to actually deploy that within mining to make digging out the minerals much faster, much cheaper. That's a big opportunity and we are very bullish on that sector.

Robin Pomeroy: Rajesh Swaminathan of Kostla Ventures, they're investing in fusion, cement, steel, geothermal, he's doing it because he sees long term that they're early investors in some of these things, they've got to make their money back.

Noam Boussidan: Absolutely and so you know talk to Rajesh about green premium and I can tell you that he's going to tell you, We don't want any green premium. We actually want significant returns on investments. We don't t want subsidies We've heard him loud and clear. He's not looking into a world whereby those technologies are funded by subsidies. We want those technologies to be succeeding on their own by their own merits, and that's what they're looking at.

Robin Pomeroy: We're coming to the end of time here, Noam. What's the next milestone for FMC?

Noam Boussidan: We'll be in New York for New York Climate Week and we'll have actually a session discussing specifically, you guessed it, the Green Premium and we've called it Beyond the Green Premium at our own World Economic Forum Sustainable Development Impact Meetings. So stay tuned for more.

Robin Pomeroy: The Sustainable Development Impact Measures, there'll be lots on that across the World Economic Forum's website. And you'll find more on the First Movers Coalition on our website. I'll put links in the show notes. Noam, thanks very much for joining us on Radio Davos.

Noam Boussidan: Thank you so much.

Robin Pomeroy: Radio Davos is one of three weekly podcasts from the World Economic Forum. Find them all at wef.ch/podcasts - listen on any podcast app and find them also on the YouTube channel @wef/podcasts.

This episode was written, hosted and edited by me, Robin Pomeroy, with studio production by Taz Kelleher. Radio Davos will be back next week, but for now thanks to you for listening and goodbye.