McKinsey signs on for $1 billion carbon removal investment initiative

18 April 2022 3 min. read
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Online payments company Stripe has launched a future investment initiative to accelerate the development of carbon removal technology, with McKinsey among its big-name launch partners.

Global management consulting firm McKinsey & Company has joined with global tech heavyweights Stripe, Alphabet, Meta and Shopify to launch a more than A$1 billion commitment toward supporting the development of new carbon removal technologies over the next eight years.

The establishment of the corporation, named Frontier, follows hot on the heels of the consultancy’s newly-launched McKinsey Platform for Climate Technologies.

McKinsey co-launches carbon removal investment group Frontier

A subsidiary of Stripe, the Frontier initiative has been set up as an advanced market commitment (AMC) – an investment model which aims to guarantee a future market for carbon removal technologies that might otherwise be deemed too expensive for buyers to drive prices down and achieve scale. Here, the parties say, the intention is to expand the global supply of carbon removal rather than increase competition for the supply that currently exists.

Frontier will both facilitate low-volume pre-purchase agreements for new carbon removal technologies and invest in future tons of carbon removal to help scale effective technologies, its founders stated. “This AMC model was first effectively used to advance pneumococcal vaccines, and can be effective because they send a strong and immediate demand signal, encouraging further innovation and development of new technologies in the space.”

According to recent Intergovernmental Panel on Climate Change (IPCC) figures cited by McKinsey, carbon removal efforts will have to significantly ramp up from the 0.1 gigatons of CO2 level currently being managed to an average of around 6 gigatons by 2050 if there is to be any hope of limiting global warming to 1.5°C and sparing the world the worst of its effects.

That threshold can no longer be achieved through emissions reductions alone. Meanwhile, the current pipeline of carbon removal projects is forecast to fall short of the required 2025 volume by 80 percent.

McKinsey says that bumping up carbon removal to the necessary levels will take an extraordinary effort in building new capital projects, developing specialist skills and scaling supply chains. “Frontier will play a catalytic role in enabling the supply of high-quality carbon removals,” said McKinsey senior partner Dickon Pinner.

Yet once carbon removals are deployed at gigaton scale, McKinsey contends the average cost could dramatically decrease, saving anywhere from $4.2 trillion to $8.4 trillion compared to current costs and possibly creating as many as ten million new jobs by 2050. In addition to its monetary commitment, McKinsey under the partnership will also be providing pro-bono advisory support to carbon removal startups and businesses taking part in the initiative.

The consultancy’s participation in Frontier is being led by McKinsey Sustainability – the firm’s ESG practice which launched last year to support organisations in their net-zero agendas – and which in turn this month launched the McKinsey Platform for Climate Technologies.

The McKinsey Platform for Climate Technologies is structured around ten technologies the firm believes are critical to decarbonisation, ranging from hydrogen and battery storage to alternative proteins and nature-based solutions.

McKinsey’s bid to support future technology follows the sharp criticism the federal government received last year for its net-zero modelling, with the CSIRO famously overlooked for the work in favour of McKinsey. Primarily tasked with assessing the timelines and deployment pathways to achieve the government’s low-emissions technology investment goals, much of the criticism centred on the reliance of ‘further technology breakthroughs’ to reach a 2050 net-zero target.