The MIT Catalytic Climate Finance Project: Unlocking Investment for Climate Technologies

We're here to talk about the MIT catalytic climate finance project. What is the problem that we're trying to solve here? There are a lot of key green technologies that have been developed and that will still be developed in the future, but they often lack funding. And this funding can be quite substantial to scale them in order to take off. And we here at the MIT catalytic climate finance project, we want to target those green technologies. We want to design markets and financial instruments to make sure that they get the financing in order to become cost competitive to compete against brown alternatives. What kind of technologies are you hoping will get acceleration and scale and the light of day through this type of mechanism? Green steel, green concrete, green hydrogen, green aviation fuel, green shipping fuel, green ammonia, and so on. Basically, all those major commodities that cause CO2 emissions. The image that's coming to my mind is like you've got these cool new technology companies that are uh developing the new green ammonia, the new green steel, the new green cement, and they want to bring into the market, but their immediate next step in the supply chain is some low-margin business that's not going to pay for that green premium. So, there's this kind of thin pipe where it's kind of getting jammed up. But, further downstream, you might have these tech companies or others that have a little bit more breathing room in their profit and loss statement, a little bit more willingness to pay. And so, the question is what kind of mechanism can you create that could bring some of that money over the line to these startup companies to help them get their products to market and sort of squeeze down into the that narrower pipe of the cost structure of the supply chain. Is that an Is that an okay sort of metaphor? I think that is a great metaphor, and that's exactly what we want to do with um those financial instruments and the markets that we want to design. You used the term catalytic, so it's the MIT catalytic climate finance project. Can you say more about what you mean by catalytic in that situation? — Catalytic means that we want to draw in traditional capital. So, what every dollar spent in terms of um climate-oriented capital, we want to draw in more ca- traditional capital in the future. And the way we see it is that once we scale certain technologies, and then they become cost competitive, then they would outcompete brown commodities and brown technologies, and by that draw in a lot of um additional traditional capital. How do you have that kind of crystal ball about what technologies are going to be cost competitive in the future? Long story short, it is hard. Right, it depends on the individual technology. We have done such an exercise with solar energy, for example, and that was actually fairly successful going back 10, 15, 20 years. One exercise would be, for example, doing um forecasting learning curves or cost curves of certain key technologies. You could also just give a potential minimum price of a green commodity, because sometimes you just know that certain technologies cannot go lower because of certain physical processes and boundaries. For example, a technology that we should not try to scale, because it will never outcompete a brown commodity. — Yeah, and I I keep thinking about direct air capture, right? Where you're trying to pull CO2 out of 450 parts per million in the atmosphere. There's a fundamental thermodynamic limit there in terms of how efficient that machine can be and how much energy it's going to require to remove that CO2. And so, people say, "Okay, it's $1,000 a ton now, it's going to decrease. " But, nobody in their really thinks that we're going to get below $200 a ton. And so, there is that kind of a general view that there is a minimum price based on the just thermodynamics and intensity of that process. So, that's kind of an example. It includes that we need a lot of HVACs to actually suck the air into those facilities that actually then store and capture the CO2. And who owns all the factories everywhere? Climate change is a really urgent threat. We've already warmed the planet 1. 5°, and scientists are warning that this is the part where we get close to these tipping points where the climate can actually start to run away, where we have reinforcing feedbacks and the planet getting warmer and warmer. So, there's a real sense of urgency here around any innovation around climate. And I'm just curious, how do you think about that pacing of the work and urgency? And are these mechanisms that you're talking about up to the challenge of tackling this big global and urgent

set of issues? — In the catalytic climate finance project, we certainly want to go for technologies that are broadly used or commodities that are broadly used. By scaling those technologies, we hope to create positive tipping points, because once they are scaled and they start getting adopted, then this would be a positive tipping point that would hopefully slow down the negative tipping points that a lot of academic researchers, climate um scientists actually point out that will happen in the future. Solar energy, of course, it's the most widely adopted energy source at the moment. It wasn't like that 20, 30 years ago. The technology is actually fairly old, but until it became cost competitive and the grids were ready to integrate them in a mass fashion, that took quite a while. And that was a joint effort with policy and subsidies. And so, this is actually a great case study for what we want to do, a great example. What kind of companies would want to provide this sort of subsidy or support for green commodities? The most active companies in that space are actually the large tech companies. Those hyperscalers, due to the fact that they want to build so many data centers, they're seeking ways in order to offset not only the emissions that come from the energy production, but also um just from building the those data centers. Yeah, they're very curious about it. The but the big question that remains is actually for them is um if they, for example, pay a higher price for a green commodity, is how can they get rewarded for that? So, it sounds like what you're saying is that these are not competing mechanisms, but potentially complementary. Yes, I do think so. I strongly believe so. Why is MIT a good place to be doing this work? I think the answer is very straightforward. It is that we are a large engineering school, but we also have a business school. And so, we can actually create connections between the engineering part and the business part. I think in the past, what you see actually when you look at the methodology of carbon offsets, finance and and economic and accounting scholars have not talked enough to um engineering scholars. And the catalytic climate finance project wants to make this connection. We are already seeking out certain projects and working with engineers, which um I personally think is very rewarding, because I learn so much about concrete, about green steel, something that I would never learn if I was just uh in my four walls of the business school. I think also that often we need to, when we think about financial instruments or market designs, we need to take into account the specificities of certain technologies. I think this is really what the uh um our project wants to do. We really want to basically create the best, again, financial instruments and market designs for each technology.