Welcome to Powering Sustainable Ideas, a new podcast series from RBC Capital Markets where we interview the leaders and companies powering the sustainable future. In this episode, you’ll hear a conversation that took place during the Energy Disruptors UNITE Summit in Calgary, back in October.
Sarah Thompson, Global Head of Sustainable Finance at RBC Capital Markets, sat down with Damian Steel, CEO of Deep Sky, to discuss CDR, or carbon dioxide removal, in the fight against climate change. Now, let’s dive into the conversation.
Sarah Thompson 00:01
Thank you all for joining us. My name is Sarah Thompson, and I lead the sustainable finance group for RBC Capital Markets. It is my great pleasure to be joined here on stage by Damian Steel, CEO of Deep Sky. Damian, you had a career in venture capital, including 13 years with Omers ventures. How did you find yourself at Deep Sky 12 months ago?
Damian Steel 01:10
So I was an operator-turned venture capitalist. I've spent the last 15 plus years as a VC backing early stage tech companies, and so I like to tell everybody I'm not a climate expert, I'm not an engineer, I'm not a scientist, I'm somebody who's surrounded myself with new technologies, new innovations my whole life. I've seen lots of industries start and fail. I've seen lots of industries start and succeed. And the connection point here is the founder of Deep Sky is a guy by the name of Fred Lalonde who is also the founder, CEO of one of Canada's most successful private tech companies, Hopper. And at Hopper, we had a program called Hopper Trees, where for every airline ticket we sold, we planted two trees. Very simple. That program started, Fred, the founder, down this rabbit hole of unpacking climate and the problem, and like many of us who spend any time looking into it, he came out the other end completely terrified. Said, ‘I have to do something about this.’ So, he started Deep Sky. He then went around to the shareholders of Hopper, and we all kind of pitched in, made a small investment, almost blind. And so after making that seed investment, he cornered me in my office one day and said, ‘Hey, I want you to come and lead this company.’ And that started a three week conversation, which ended with my leaving career, and it's been an absolute whirlwind for the last 12 months. I've loved every minute of it. Half the time I have no idea what I'm doing, but it's exciting. I think it's important. And to jump to the punch line when people ask, ‘Why did you do that?’ It's very simple. It's the single greatest opportunity I've ever seen in 20 years doing venture.
Sarah Thompson 03:26
Okay, so we'll unpack that a little bit, but maybe first, I think carbon removals and direct air capture specifically has seen a surge in interest and investment over the last several years and a number of companies entering this space. What makes Deep Sky different?
Damian Steel 03:49
Yeah, so Deep Sky is an IP-agnostic project developer. So what I mean by that is we don't make our own technology. That's super important, because as far as I can tell, today we're the only IP-agnostic project developer looking to do carbon removals in the world. I hope that there's many, many others sometime soon, and the example I give to people is, there's a reason that renewable developers don't manufacture their own windmills or manufacture their own solar panels. I believe strongly that there's a difference between the creator of IP and technology and the builder of projects. I'm learning that the hard way right now. I'm learning firsthand how incredibly difficult it is to launch these projects. And so we are starting a company where we raised a bunch of money, raised about $75 million in a Series A, and we're using that to go around the world. We've met every single direct air capture company that exists. Direct air capture, just because we're in Alberta, is very different than CCS. CCS – put a cap on a chimney – you suck out the CO2 before it goes in the air. What I'm talking about is you put these pieces of equipment with big fans on it in the open field, we suck in the air of this air – right here in this room – we use different technologies to remove the CO2 and then we store it three kilometers underground. The underground part we know how to do really well. Oil and gas industry has been doing this since the 70s. The difference is they do it to pump out more gas. We're doing it and leaving it there and storing it. The removal part, that technology is relatively new, relatively I say, because there's actually about four companies that have been around for over 10 years. And this is very common in tech world. You've got a couple companies that start, they do all the hard work. Some time goes by, and then there's a flood of new companies that hit the market. That's where we are today. So there's over 100 direct air capture technology companies that exist today in the world. There's probably a new one that gets created every month or even couple of weeks. And all of these range in terms of the type of tech they use to do that thing, of removing CO2 from the air. And we're looking to build commercial-grade facilities, which I define as removing a million tons a year of CO2 – using these technologies.
Sarah Thompson 06:02
So, maybe on that point, talk a little bit about the role that DAC will play in helping us achieve net zero emissions, maybe in the context of other solutions and technologies out there.
Damian Steel 06:15
So, just to get it out of the way, I think we need all solutions. Okay, so while Deep Sky is very, very focused on carbon removals, I think we need to invest in everything. And so I think when you look at our goals as a society to decarbonize, the IPCC has us being net zero by 2050. In order to achieve that by 2050 the estimate is that we need to be removing, not capturing, removing, 10 gigatons of CO2 a year. That's 10 billion tons of CO2 a year. Why? Because there's certain things that we do that we just can't decarbonize unless none of you plan on flying ever again. And trust me, there's not enough corn in the world to make enough SAF fuel. As I think about true ultra scale mechanical – which means we just build it – is the one solution that is absolutely scalable. It also happens to be the most expensive solution – no surprise – but we're in the early days, and we think we can bring that down. But that's the goal, 2050 we need to be removing 10 gigatons a year. What we're talking about, in that, is one commercial facility which has yet to be built on this planet, at full scale, would be about a million tons a year, and we need to be removing 10 billion.
Sarah Thompson 08:05
So, scalability is key. And that is, as you say, one of the benefits of direct air capture, including, other benefits, like relatively low land use requirements, to some extent, site flexibility. I'd like to talk about the energy intensity of direct air capture and that's because a lot of energy is required to separate carbon from air, and how, therefore, do you think about that in the context of a net zero emissions goal and being sort of net emissions efficient with these plants?
Damian Steel 08:50
Yeah, unfortunately, I don't have a good answer, but you bring up a good point, which is, this is not a technology problem. I also happen to have this immense faith that smart engineers can pretty much build anything if they put their minds to it. What I'm concerned about is we need renewable power to power these sites. There's no world where we can use natural gas and capture the CO2 from natural gas, and then, you know, create a removal site. So we need more renewable power. That's the bad news. The good news is, in Canada, I actually think we are a leader in renewable. You know, we have a couple hydro grids already. We've got room to build much more renewable. Alberta is a leader in that. And then the last thing, which is early days. And so this is a hypothesis we're working on. But the nice thing with direct air capture is this variable. What I mean by that is it doesn't need to be on all the time, 24/7. And there's actually certain technologies where there's different pieces of the technology that can run at different times in order for the whole system to be going 24/7, and so the reason that's important is, if you think about what we're doing to our grids, you take a hydro grid as an example, like Manitoba, Quebec or British Columbia, and Quebec is a great example. Quebec is publicly stated. They're building one of the largest wind power sites in Canada. I believe they're trying to add 30% capacity to their grid, which sounds great, but you're loading up the grid with a bunch of variable supply, and you've got variable demand. And so what you’re essentially doing is you're actually increasing the delta between absolute peak availability and base load demand, which, I'm no power expert, but I'm told there's a problem. And so I hope the theory here that we're trying to work on with some of the utilities is, is there a way that we can build DAC facilities to actually help balance the grid. So can I come into an environment and say, ‘You know what, I don't care about the available capacity. I'm not going to touch any of it because capacity means peak. What I'm going to do is I'm going to go and gobble up all the excess electrons that you could be producing throughout the day, but that you're not using or you're curtailing in whatever way. And is there a way that we can turn DAC as an arbitrage on excess electrons, turn them into carbon credits?’ So, you know, generate revenue through carbon credits. Decarbonize our environment and help the grid would be the trifecta – that’s the hypothesis, just to be clear.
Sarah Thompson 12:26
So you've just broken ground on the construction of your research facility, Deep Sky Labs, here in Alberta. So just maybe building on your comments about the renewable energy landscape in Canada and the opportunities or challenges in Alberta for that manner. Why did you choose Alberta for this first project? And what do you see as a path for development in the province?
Damian Steel 12:51
My own personal goal and ambition is to build 100 commercial facilities across Canada before I'm done. We’re starting with a test facility. It's a small, relatively small facility, six acres of land up in Innisfail, and what we've done in that facility is we've gone around the world, met every DAC company. We picked the best eight, and we bought a prototype. So we paid them. They're being manufactured. They're European, U.S., there's a Canadian company. And they are in the process of being shipped to Canada. We are building a site in Innisfail, which will be the world's first carbon removal Innovation Center, and so we're going to set these eight units up side by side. Nobody's ever picked different tech because everybody's focused on one. We're going to put them side by side, and we're going to test them, and we're going to learn, we're going to share the data with those partners. And we've got access to renewable power. We've got access to storage. We will produce carbon credits. The number is not significant, and we're going to see how these things operate. We need to test how do they work in the cold – so most of these technologies don't love the cold, which we have an abundance of in Canada –
see how they work in the summer, and ultimately, we want to use this facility to take the best of technologies out of that facility and expand them into commercial sites. Why Alberta? One, there's a financial reason. So, in Canada, we have the CCUS ITC, which stands for investment tax credit. That's a federal program that exists, which essentially gives a 60% rebate on all capex related to carbon removal. So, that is absolutely critical for first-of-a-kind projects like ours. Unfortunately, to access that ITC, you have to build within a province with approved subsurface regulations. The other thing Alberta has is some of the best storage on the planet. We have identified storage capacity underground, in Alberta, Saskatchewan and Manitoba, that's big enough to basically store every ton of CO2 humanities ever put up in the air – like, let that sink in for a second. And so the subsurface exists here. And then, the actually found a renewable project where we're buying over half of the capacity through a virtual PPA. So the stars aligned. The last thing is the talent. You know, nine out of every 10 engineers I interview happen to be from the energy sector, no surprise. And so, not only is this great for Alberta, but maybe I'll just parallel this into a larger comment, which is, and we don't have time to talk about all the science, because it would be a big rabbit hole. If you believe the science, and you believe what we need to do in order for our children to live a life that all resembles the one we have the luxury of living, we need to build a multi-trillion dollar industry. And I say that broadly, not just carbon removals, but the whole sector. And we need to build an industry that's multiple times the size of oil and gas industry, and we need to do it really, really fast, faster than I think we realize. Canada has all the elements to be a global leader in that industry. What Saudi is to the oil and gas industry, Canada could be for the carbon removal industry, and Alberta is the epicenter of that.
Sarah Thompson 16:56
I want to talk about demand, but before I go there, you talked about renewable energy capacity, you talked about storage, you talked about talent. How did the community of Innisfail receive you?
Damian Steel 17:30
Community engagement is a part of our business that, frankly, I'm learning very quickly. In Innisfail, specifically, we went out of our way to make sure we educated, first and foremost, we held sessions across town, we held two open houses, and the important part to appreciate for a project developer –community engagement is not a one-time thing. So there's a long plan of working closely with the community, helping not only educate but first hire local people in the community. And the thing that excites me about carbon removal and this potential enormous industry is this albeit small test and innovation facility could be a breeding ground for new talent in what, clearly my bias view is that it could be an enormous opportunity.
Sarah Thompson 19:03
Okay, let's get back to demand. So we talked about some of the benefits, we talked about some of the challenges around energy consumption. I would say that the energy intensity of DAC is maybe one of the things that makes these credits more expensive. So how do we scale? How do we bring those costs down, and how do we expand demand for consumption of these credits beyond some of the early tech buyers?
Damian Steel 19:47
Yeah, I mean, that's the ultimate question. So just to answer the first part, it's really expensive today. We have proven as a society that we are really, really good at driving down cost of technology. Solar is a perfect example. If you look at any forecast, if you go back in time and look at any forecast of the future cost down of solar, we'd beat everyone. The true cost of removing a ton of CO2 using DAC is over $1,000 a ton, which is crazy. But do I think we can get it down to a range of 200 to 400, absolutely. The new equipment is 100% electrical. We think that we could get it down to about 1,000 kilowatts an hour per ton of CO2 removed. That's the magical number we're working towards. But like all things, we will get the cost down. I'm not concerned about that. On the market side, there is no market today. I mean, to call it a market would be a gross exaggeration, there's what we call a voluntary market, which has some really leading companies, like RBC, like the tech companies, who are taking a very forward looking view. It's frankly, partly philanthropic to help launch an industry, and then you have a bunch of government support. And without government support, these things would not get off the ground. By the way, that happens for most large infrastructures. If you go back in time and look at their first-of-a-kinds, you just have to have that kind of support. So that's where we are today. I have a strong belief this market needs to be regulated in some way. And what I mean by regulated, I don't mean like taxing individuals. I mean it's like we need something we can trade, like we need a commodity or a security that's a carbon credit. Otherwise, I just don't think you have true liquidity in a market. The good news is, the commodities regulators in the US have been working on this for the last year. Nothing moves fast, but they're moving on it. I think if they come out, I think Canada probably copies that. But you are seeing a market come together slowly. But I refer to it today as the Wild West.
Sarah Thompson 22:31
For sure, and that makes it difficult for buyers like RBC to dip their toes in.
Damian Steel 22:36
Here's a great example, this labs project, we're working on a bunch of customers, on a 10 year off-take, on a very small number of tons. At the beginning – we're not there now, we're dealing with much fewer customers – but at the beginning, we had eight genuinely interested customers. All eight wanted it to be on their own purchase agreement. These are like 90 to 100 page agreements. Name me another industry where that happens. It was crazy. And so, it's just a little, silly example of how immature the market is, and we as an industry need to keep plowing forward and getting it to a scalable position, which we are far from today.
Sarah Thompson 23:20
So maybe pivoting a little bit. I want to ask how, how do you go about building a team that is dedicated to delivering these projects? What's the mix? Who are you looking for? Who have you seen join? Talk to us a little bit about the sort of HR component.
Damian Steel 23:42
Yeah. So we're extremely unique as a company. So, I believe that in order for this to succeed, we need to release ourselves of the shackles of how things have been done in the past. In order to have a company that is based on first principles, you need something that I refer to as smart creatives. Smart creative is somebody who questions everything. It can be a little overwhelming, have a company full of smart creatives, but that's what we're trying to do. So what that means is, if you look under the covers at Deep Sky, what you won't see, and I'll say this because I am one, so I can say it, you won't see a bunch of old white guys who've been there and done that and built many natural gas facilities. It's not to say we're not going to layer an experience, but the core of our company is going to be individuals. It just so happens that what I'm describing skews to a younger age. We're going to do things differently. We are going to make mistakes, right? The only thing I won't risk, the only thing is safety, period. Everything else is on the table because I'm working backwards from building 100 megaton facilities in Canada. I believe we need about 10,000 of them globally, and so nothing in between matters. And the only way we're going to achieve that scale is to take risk, be creative, and find people who are just crazy enough to do that alongside me.
Sarah Thompson 26:46
Cool. Picking up on this thread about, we have to make mistakes. What have you learned so far? What is your advice, maybe to others in this space, and what do we need to do, generally, going back to scalability, to really grow this space.
Damian Steel 27:08
What's become painfully clear to me is that this is a war that we need to fight as an ecosystem, not as one company. The challenge is too great, the opportunity is too great, frankly. And so, it's being open to working with other industries, being open to working with other companies. I believe that sincerely. It's whether it's a lesson or not, I don't know, but that's kind of the number one takeaway that I have, that I try and share with whoever asks, because I think it's not something I see all the time, to be honest.
Sarah Thompson 28:12
What's one thing that you are most excited about in the next 12 months?
Damian Steel 28:23
I'm excited about actually getting a commercial site off the ground, and longer than 12 months, I'm excited that we can actually solve this problem. I have an unhealthy level of optimism. I've spent a living backing people building the impossible If you take a step back and you look at what human beings are able to do when their backs are truly against the wall. It is incredible. In this case, I think we just need to realize the wall is right behind us. And what excites me is the potential to actually put a dent in this problem, because I think we can do it. And as I said before, I think Canada can be a leader. And that, to me, just makes me very proud.
Sarah Thompson 29:19
Great. Well, that is a very positive and optimistic note to end on. Thank you, Damian.
Damian Steel
Thanks.
OUTRO: Thanks again for listening to powering sustainable ideas. Brought to you by RBC Capital Markets. Please remember to subscribe to get more great content and be alerted about future episodes. This episode was recorded on October 1, 2024, If you'd like to learn more or continue the conversation, please visit rbccm.com/poweringsustainableideas, See you all next time.