While the global market for carbon credits is experiencing significant growth, the momentum in Africa is comparatively slower. In 2021, only 22 tonnes of carbon were retired by projects in Africa, a small figure compared to the 1.5 to 2 gigatons we need to retire by 2030. Nevertheless, the Africa Carbon Markets Initiative anticipates a substantial shift, projecting that Africa will generate 300 million carbon credits annually by 2030, unlocking $6 billion in revenue and generating 30 million jobs.
African tech startups and investors are recognizing the carbon credit market's potential and taking action. Startups are creating projects, developing technical capacities, and establishing the necessary technological infrastructure to facilitate broader market participation. Investors are anticipating great returns in this nascent market in Africa.
Against this backdrop, CIFAR Alliance's Climate Tech Venture Investing CoLab, chaired by the Catalyst Fund, recently held its first in a series of investor deep-dive webinars. These sessions facilitate discussion on impactful, scalable, and commercially viable climate investment opportunities. The primary goal is to foster connections between startups and investors in the climate resilience tech space. Each webinar within this series features an investor, and a leading tech startup focused on building climate resilience.
This first webinar, 'How can Africa lead on Carbon Removal and Why are investors betting on it,' was hosted by Maelis Carraro, the Managing Partner at the Catalyst Fund and CoLab chair, and featured Fiona Mugambi, Chief of Staff at Octavia Carbon, and Alex Blumberg, an angel climate investor.
Octavia Carbon, a Catalyst Fund portfolio company, is constructing the first commercial Direct Air Capture (DAC) machine in the Southern Hemisphere. Fiona emphasized that Octavia is able to take advantage of Kenya's ideal conditions for DAC: "Kenya has abundant renewable energy, especially geothermal, needed to power the machines. We also have suitable geology, favorable for permanent CO2 storage." Acknowledging that these advantages would not be fully realized without a skilled workforce to leverage these natural resources, Maelis added that Octavia Carbon boasts an exceptional team of engineers capable of achieving the organization's mission while driving down the cost of DACC. Cost is a particularly important barrier since DAC credits currently cost between $600-1000.
"Here at home in Kenya, we have experienced the firsthand effects of climate change, and because of this, we understand the unwavering urgency to really fight climate change. We also build our technology to leverage the geothermal resources we have in the country, and we can drive down the cost curve tremendously," elaborated Fiona.
One of the qualities investors look for in a team is their belief in their product. Alex, an angel investor in Octavia Carbon, noted that the team exhibited distinctive energy, unwavering belief, and a focused approach that he considers the "secret sauce" that differentiates successful teams from others.
Another reason for Alex's investment is his perception that the carbon market is at a crucial inflection point. "The world is going to need more and more things made with clean energy and clean technology, and that seems like it's something of an inflection point," he elaborated. He compared this to the inflection that led to the expansion of global trade post-war, as seen in places like Singapore, South Korea, and China, which were poised to take advantage and became the world's workshops. If this holds true, regions capable of supplying clean energy, such as Kenya, will have a significant advantage.
Although DACC is comparatively more affordable in Kenya than in many other countries, the costs remain high. Fiona compared the current DACC costs to the early stages of solar technology to address this matter. She expressed confidence that, with advancing technology, the solidification of supply chains, and commercialization, the cost of DACC will undoubtedly decrease. She encouraged investors to bet on their company because although costs to produce might be high now, they will come down even as prices for their product increase.
Alex agreed, saying, "It's one of those weird lessons that somehow people never learn, that things go down the cost curve. And I know people talk about it all the time, but it seems hard. I'm old enough to remember when there was a thing called a calculator, and it was really expensive. That wasn't that long ago. It cost more than an iPhone to buy."
Octavia Carbon has already sold nearly half a million dollars of carbon credits. Their clients include Milkywire, Agendi, and Kilimate.Co, among many others. In terms of a substantial investment upside, Alex said that corporations and households in wealthy countries have already committed to buying carbon credits, another reason he invested in Octavia. He said, "All Octavia has to do is build the plants, run them, and bury the carbon in the ground. They do not have any logistics or shipping problems, they don't have to worry about how it will arrive, and they don't need a cold chain. And you've got a built-in customer base. It's like a pretty ideal product for me."
Similar to any other investment opportunity, DACC comes with its potential downsides. Some investors may harbor concerns about the nascent nature of the market, questioning its depth or expressing reservations about the ability of the innovators behind these technologies to deliver. There may also be apprehensions about market compliance. Despite acknowledging these possibilities, in the broader climate arena, where pessimism often prevails, Maelis noted the reassuring prospect and potential inherent in solutions like DACC and the potential they have to drive green growth. She also underscored the significance of patient capital, emphasizing its crucial role in supporting startups as they establish themselves in this evolving sector.
Keep an eye on our social media channels for the dates of our next webinar discussion, scheduled to take place within the first quarter of 2024