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C-Zero's Zach Jones on how methane pyrolysis can accelerate the energy transition
166 Plays1 year ago
Mike, Anthony, and Karthik discuss SEC regulations and nuclear power, then are joined by C-Zero's President and CEO Zach Jones to discuss where methane pyrolysis fits in the energy transition.
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Transcript
Introduction and Eco-Terrorist Attack Discussion
00:00:09
Speaker
Hello, and welcome to Innovation Matters. It is the podcast about sustainable innovation. I'm joined here by my two co-hosts, Karthik Subramyan and Mike Holman. How's it going, fellas? Doing all right. You committed any acts of eco-terrorism recently, Anthony? No, I was not. I want to stay for the record. I was not in Berlin yesterday. I have actually never been to Berlin. Missing out, I got to say. Berlin's a great city. Yeah, it's a great city, yeah. I know. I do actually want to go to Berlin.
00:00:38
Speaker
and not just to visit the landmark of the burned down telephone pole. So what we're talking about here is there was basically a, assuming ecoterrorist attack on a electric utility pole that's connected to Tesla's Gigafactory in Berlin that basically shut down the Gigafactory. They burned the pole, the factory got shut down. It's funny, I guess I would say,
00:01:08
Speaker
First of all, it's funny what bad stuff happens to Elon Musk, so let's just get that out of the way right there.
SEC Climate Disclosure Rules and Scope 3 Emissions
00:01:13
Speaker
On other legal matters, we got this week a ruling from the SEC, that's the Securities and Exchange Commission, basically finalizing the climate disclosure rules for
00:01:27
Speaker
publicly traded companies in America, which is important because there are a lot of international publicly traded companies headquartered in America. So supplies to, you know, your big apples and Amazons, you know, who will be talking about later the rules.
00:01:42
Speaker
have been watered down, basically. The SEC was considering, among other things, asking companies to estimate and disclose not just their scope 1 and 2 emissions, that's direct emissions and then emissions from things like transportation, but also their scope 3 emissions, which includes
00:01:59
Speaker
all of the emissions from all the inputs into your processes. So if you are making plastic parts, the emissions attached to the production of those plastics are scope three emissions, right? Or if you're making fuel, the combustion of that fuel is scope three emissions. And the thing about scope three emissions is they're obviously much, much, much higher than scope one or two emissions in no small part just because it's a very expansive category of things.
00:02:26
Speaker
It's good because hopefully we will get some enhanced disclosure. And I think that type of thing is generally good, although we might not actually get any enhanced disclosure. But yeah, we missed out on the scope three. Mike Kartik, I guess how important
00:02:42
Speaker
is scope-free disclosure because I'm actually a little bit sanguine on this because A, it's basically impossible to know. I mean, we talked with Isaac Brown a couple of weeks ago and it's basically not really knowable, especially for a complex supply chain.
00:02:57
Speaker
And everyone's scope one and two emissions sort of added up together constitute all of scope three emissions, right? Like someone's, your scope three is someone else's scope one. So how important is it to have the scope three disclosures? Like how much would that really move the needle, do you guys think?
00:03:16
Speaker
I don't know that it would move it a huge degree. I think it's really useful. I mean, one of the things that we hear a lot in talking to clients, right, is that they are starting to care a lot more about understanding their scope three emissions. So I think that one of the reasons that this may not be as
00:03:32
Speaker
as significant is because a lot of companies are starting to look at this already in their supply chains. Now, the pushback a lot of this obviously is coming from the oil and gas industry, fossil fuel interests who don't want to report on that because they don't want to report, many of them don't want to report on any of it. But obviously, if you think about oil and gas,
00:03:56
Speaker
The nature of it is that the vast majority of your emissions are going to be scope three because your product is getting burned to form CO2. So those sort of downstream emissions are obviously enormous for the oil and gas industry. But for most industries, you're more concerned about the upstream emissions in your supply chain.
00:04:16
Speaker
And a lot of companies are starting to look pretty closely at that already anyway. And I think it is, that's I guess one of my general questions about this is I mean, so many companies are starting to do more reporting on their own. You have things like the carbon disclosure products you can go through and like a lot of like the big sort of blue chip companies are reporting on there anyway with varying qualities of grades on their reporting that they're getting.
00:04:44
Speaker
But a lot of them are on there. This rule would have done more to make that more universal. But a lot of it is happening anyway, even without the SEC forcing anybody to. Yeah. One thing that stands out for me, Anthony, and I concur with you when you say that it's not going to move the needle much. Because if I am buying apart from someone else, the carbon emissions associated with that would be scope three.
00:05:13
Speaker
manufacturing that part would be part of scope one and two for that manufacturer or supplier. So they're already going to be accounting for it. But one thing I don't get from this specific SEC ruling is that small scale companies need not report their greenhouse gas emissions. So this mainly applies to large companies.
00:05:30
Speaker
But if you look at a big company that's going to rely on, let's say, the small scale industry for specific components, or if you have a supply agreement with just this one particular supplier who's producing it just for you in minimal units, it's still going to affect and impact carbon emissions overall, but it's just that they don't have to report it.
00:05:51
Speaker
Now, obviously, we know companies like Apple, they want to, also being an Apple fanboy, I have to put that out there, of course. They persuade their suppliers to account for their emissions and go carbon free, putting up solar plants and making them source low carbon electricity, things like that. I think that would come across kind of as green washing at this point, where they say, oh, our scope three emissions are also accounted for.
00:06:18
Speaker
Ultimately, even without ruling, companies should be forthcoming and they should look at their own scope 1 and scope 2 emissions. And if scope 1 and scope 2 emissions are largely taken care of, then as there is a lot of overlap between different scope 1, scope 2, and scope 3 emissions, because there is a perspective involved and a frame of reference, I think you can curb most emissions.
Impact on Supply Chains and Independent Movements
00:06:40
Speaker
It shouldn't be a big issue.
00:06:42
Speaker
I think, you know, the benefit you're talking about is probably the most compelling reason to actually have scope three emissions disclosure, right? Like if you force all it, basically, if you make big companies more responsible for their supply chain, then they're going to push their supply chain, you know, suppliers to, to decarbonize. And that is good because we do need, we have all these small companies, right? And we do need all these small companies to decarbonize.
00:07:12
Speaker
The problem with that, I guess, is that disclosure is really step zero to that. You know, you look at Apple, their supply chain decarbonization efforts are quite high intensity. I mean, they're sending, first of all, in-person auditors to all their suppliers, right? And they're able to do that, not just because they're a big company, but specifically because they're Apple, right? And they have a very, very dominant position in the market. A lot of their suppliers are supplying just to them.
00:07:39
Speaker
and if that's like 90% or 95% or 100% of your revenue is a company and they say, hey, we need to send someone to your factory, you're not gonna say no, right?
00:07:49
Speaker
That's a level of supply chain control that a lot of companies don't have. Auto OEMs are kind of, and aerospace OEMs are probably companies who could also get away with that type of thing. But it's a lot of midsize companies in the plastics industry couldn't. And then you have to invest a lot of money. You have to actually change stuff. And Apple is giving out hundreds of millions of dollars of loans and grants to its supply chain. It's investing a ton of money.
00:08:16
Speaker
into its supply chain to build solar farms in China and stuff. That's all really great. Apple has an extremely commendable supply chain sustainability effort, but it's very expensive. It's paid for by the fact that Apple's a premium product and people want it to be sustainable. And Apple and other, Apple maybe a little bit less so, but especially companies like Amazon and Microsoft or Microsoft and Google, better examples.
00:08:44
Speaker
are playing this game on easy mode, right? Because they have just the share of carbon emissions that they just by the nature of their business, right? The number of carbon emissions, the amount of carbon emissions that they have per dollar of revenue is just vastly smaller than it is for, you know, if you're making a car, if you're making cement or some steel or something like that, right?
00:09:07
Speaker
There's a lot more. It costs a lot of money, but it's a much smaller percentage of their revenues to do than a kind of an equivalent effort for an automaker or whatnot would be. Apple is kind of on its own. Even though a company like Apple and Google, Microsoft, Amazon, you call these companies out, their revenue per emissions is really high. They have a ton of revenue and not that much emissions.
00:09:36
Speaker
None of them are going as far as Apple is. It's still an outlier here in terms of what it's doing, right? So even among these companies, you don't really see this type of intensive effort. They all have supply chain sustainability efforts to a certain, like greater or lesser degree, but much, much less intense than Apple. So, you know, scope three disclosure step one is basically what I'm saying. Yeah, I was just curious, you know, because if you're trying to measure this metric using, you know, let's say
00:10:05
Speaker
a ratio that involves the amount of carbon dioxide you emit in tons divided by the total revenue you make in dollars. I don't think that's the right ratio you should be looking at, personally speaking. I think you should look at something like number of products sold, or there should be some other metric that makes more sense. I don't think you should be looking at ratios at all. Exactly. I don't think you should be looking at ratios. Ratios don't matter. And this is like every chemical company wants to talk about their carbon intensity as a function of tons per ton.
00:10:35
Speaker
And I'm sorry, but that doesn't matter. Like you have to achieve net zero, like absolute emissions are the only things that matter. I agree with that. The other thing I want to say about this is, you know, the thing about these SEC disclosures is they only apply to publicly listed companies. Right. Which I've called this out in a blog post in the past, but like there's no distinction. The private public distinction is based on, you know, the historical events of the Great Depression. Right. And like the big Wall Street crash of the 1920s and like this idea of
00:11:04
Speaker
the public being exposed to rampant speculation.
00:11:08
Speaker
It's a financial framework, which I think has worked really well, you know, and we haven't gotten nearly as much, you know, sort of, there's this era of modern financial regulation that we're in, and it mostly works. Some notable issues aside, the private-public distinction doesn't make any sense for climate interventions, right? Like, doesn't matter if you have a private company emitting a bunch of carbon or a public company, it's exactly the same. So like California, for example, they have their own disclosure requirements,
00:11:35
Speaker
and theirs actually apply to all companies over a billion dollars operating in California, private and public. And so that framework is already much better than what the SEC was going to do anyway.
00:11:49
Speaker
And California is like the sixth largest economy in the world, right by itself. So, you know, I think we're between California and like the EU, we're probably just moving towards scope through disclosure anyway. And if we can move towards that with private companies included, then
00:12:07
Speaker
will be in a better place. So, you know, the SEC stuff, it's disappointing. The fact that it's still probably going to go up to the Supreme Court and get tossed out is frustrating. Like if this had happened 10 years ago or 20 years ago, it would have been really, really sick. The fact that it's only happening now in 2024 and it's going to get thrown out anyway
00:12:27
Speaker
It's just like, all right, whatever. The time to have done this was 20 years ago, so it's fine, I guess.
Nuclear Energy and Amazon's Data Centers
00:12:32
Speaker
But speaking of big companies like Amazon, Mike, you wanted to flag up a news story that you found on Amazon. I mean, I really just wanted to tee Karthik up for this one because Amazon's going nuclear. Yeah, they are. Amazon is going to purchase data centers that were owned by Talon Energy, it's a utility firm.
00:12:53
Speaker
They are in Pennsylvania, so they own the Susquehanna. Is that the place? I think so, yeah. So that nuclear power plant powers these data centers and Talon Energy will be selling these data centers to Amazon for 650 million US dollars. So it's pretty big because I think for Amazon, it basically means they have direct connection to the nuclear power plant and they're still going to be in partnership with Talon Energy.
00:13:20
Speaker
Talon Energy has these power purchase agreements where starting 2025, every year, so the total data center requires about 960 megawatts of power.
00:13:30
Speaker
And they're going to ramp up as the data centers come online. So every year, starting 2025, they're going to ramp up by 120 megawatt. And when 120 megawatt comes online, they're going to have a fixed price as per the power purchase agreement. And after everything comes online, they're going to have a price above the average selling price over those years in that power purchase agreement as a fixed contract. So they're just going to be purchasing power from the nuclear power plant that's directly connected to this data center.
00:14:00
Speaker
before maybe spotting other interesting aspects of this. I think the most interesting thing for me with this news is that the data center has direct connection to the nuclear power plant is co-located with it on campus, which is pretty big because co-location for nuclear is not something that's been done in the past.
00:14:18
Speaker
Karthik, do you know, is this nuclear power plant one of the existing ones in Pennsylvania that was built in the nuclear boom 50, 60, 70s era? Yeah, this is one of the large scale power plants. I think there's going to be a renewing license, I think, in the 2040s for this one if they want to continue operating this one, but it wasn't specifically built for this. I think they also built the data center after building the nuclear power plant. Yeah, it was built in 1983.
00:14:47
Speaker
So, I mean, nuclear is just obviously like a slam dunk for a data center, right? Like data center requires very consistent energy. Nuclear is extremely, extremely reliable, right? It's the most reliable form of energy in the world, basically, right?
00:15:02
Speaker
and it's totally decarbonized. This is just like a slam dunk. Is there any downside to this or is the only downside that we basically can't replicate it because it's really difficult to build nuclear right now? I would look at it from a couple of different angles. The first one is looking at the co-location part with the data center.
00:15:23
Speaker
There have been a lot of concerns in the past as to why this hasn't been tried before when data centers have come up. And the reason for that is whenever you co-locate anything with a nuclear asset, you have to look at the risk profile for that nuclear power plant and that completely changes. What if the data center catches fire? Then what happens to the nuclear power plant? Not just the other way around. I mean, if the nuclear power plant goes boom, then you don't care about everything else, God forbid. But if you look at the data center and something happens there, then
00:15:51
Speaker
That's where all the regulations start looking at safety perimeters. How close can it get? Should it be far away and things like that? And while I was working on our economics of small model reactors report, where a lot of small model reactor developers talk about, oh yeah, we are going to have smaller safety perimeters because the reactors are just smaller in size. The experts that I was able to talk to for that report were quite skeptical themselves. And they said, you know, while regulatory backlash might not be the thing, public backlash could be huge.
00:16:21
Speaker
because they're going to get scared. Let's say you have a natural gas facility or a chemicals facility next to this nuclear power plant. So you're going to have appropriate safety perimeters and distances. So taking that into consideration, I would maybe challenge the use of nuclear for co-location. I might think of something like perhaps geothermal, it's been done before. So furrow energy operates the world's first, or I think at least the US's first enhanced geothermal system to power Google's data centers in Nevada.
00:16:50
Speaker
I see that kind of a threat coming in. Well, what's the advantage of co-location? Because to me, the grid in Pennsylvania is mostly powered by nuclear. There's a lot of nuclear there. Why not just attach it to the grid somewhere else in Pennsylvania? What's the advantage of co-location if it brings these regulatory hurdles, which I didn't realize?
00:17:15
Speaker
Yeah, I think right now they already had the data center built there so it was just co-located as is. So I think it was just coincidental and not by design. I don't think they co-locate or perhaps I don't know the full history of the data center themselves because
00:17:32
Speaker
Well, the data center was built by the company that owns and operates the nuclear plant. Exactly. That's why they built it there basically. Correct. They had all that. Exactly. Yeah. So they built it together and it was not by design for Amazon, right? They're just selling the assets. But in terms of collocation for other assets, the fact that especially generation four nuclear can be this combined heat power source and transporting heat is very difficult, right? You're not going to just send pipe steam
00:18:00
Speaker
five kilometers downstream. Your steam is going to lose quality. You're going to have different vapor percentages and things like that. That's going to completely spoil the quality of steam. So I think that's where co-location becomes interesting. Would you rather pipe hydrogen or would you have hydrogen in a tank with an electrolyzer nearby? But that's where co-location makes sense. But that's not a data center, exactly.
00:18:20
Speaker
Right. The data center does not make use of low grade waste heat. It produces more low grade waste heat.
PR Benefits and AI Energy Concerns for Amazon
00:18:28
Speaker
Exactly. But that's where I think geothermal makes more sense than nuclear and has already been done before in the US. I think it was just by design that this happened specifically. Maybe, I don't know, Mike, maybe you'll see some other angle in terms of why data centers with nuclear.
00:18:45
Speaker
Well, I think there's also there's a bit of a PR angle as well to, you know, to going back to the previous conversation or a bit right for these companies to show that they're that they're decarbonizing. There's a lot of concern right now about the energy use of AI in general, AWS is a big, you know, cloud provider for a lot of AI applications.
00:19:07
Speaker
And so being able to point to ways that they're decarbonized, for Amazon to be able to point to and to have more options for ways that they're decarbonizing their data centers, I think is good for them in that respect. Though, again, I think I'd also be more interested in seeing things that decarbonize some harder to decarbonize areas because data center
00:19:33
Speaker
as we, I think we've talked about on here before, like data center electricity usages as a percentage of total electricity usage is basically flat, actually a little bit down over the last 10 to 12 years, according to the IEA, which I think is surprising for people, because obviously the number of data centers and the use of them has, has increased pretty, pretty dramatically. The impact on people's lives from data centers. The impact on people's lives, exactly. We all, we all, we stream much more and all the rest than,
00:20:04
Speaker
than we used to, but the fact is those data centers are also getting computation and all of these things is getting much more efficient and
00:20:14
Speaker
and data centers are also relatively easy to decarbonize. So the energy use from AI is not something I personally worry about a lot in the grand scheme of things, but a lot of people do. And that's, I think, a major source of
00:20:35
Speaker
potential bad press for these companies that they'd like to get ahead of with some of these decarbonization efforts too. If I remember correctly, I think Anthony, this will interest you. The reason why Talon Energy connected that data center to their nuclear power plant or built it there,
00:20:49
Speaker
was also so that they could provide reliable power to support Bitcoin mining and other things. Oh my God. I think so. If I'm not mistaken. Bitcoin's back. Back over 60K. Back over 60K. Is it back? Is it back? We have to get some Bitcoin enthusiasts back on the podcast to talk about that. I think we're going to leave it there at risk of descending into crypto madness here.
00:21:15
Speaker
and me making possibly more controversial statements than I did at the opening. I want to encourage everyone to like, follow, subscribe to this podcast. You can follow us on Apple Podcasts. You can share. Rate. You can rate. You can do all these good things. It does help us out. We really appreciate it when you do that.
CZero's Methane Pyrolysis and Hydrogen Production
00:21:46
Speaker
Welcome back. Right now, we have Zach Jones, the CEO of CZERO, a company that pyrolyzes methane to produce hydrogen. Zach, welcome on the show. Thanks very much. Great to be here. Yeah, so I guess I would like to start this segment by asking what inspired you to start
00:22:08
Speaker
C0, and as well as a slight peek into your innovation journey while explaining what C0 does. I think that would be great for our listeners. You bet. In the 2010s, I was working for a small private equity firm and got them to let me spend a little bit of my time looking into the hydrogen space. My thesis was, hey, the world's going to have to care about CO2 at some point.
00:22:38
Speaker
As soon as you start to care about CO2, hydrogen becomes very interesting. And so I spent 2015, 2016, 2017 looking at all the hydrogen economy technologies that were out there, fueling stations, electrolyzer, fuel cell vehicles, and could never really find anything that I thought had the right risk-reward profile. And then at the end of 2017, I wrote,
00:23:05
Speaker
or I read, excuse me, an article in Science by our CTO and my now co-founder, Dr. Eric McFarland, on his approach to cracking methane into hydrogen and solid carbon. And by that time in my journey, I had come to the conclusion that if there's ever an expanded role for hydrogen, the good part of that ecosystem is going to be making the molecules.
00:23:31
Speaker
And having a proprietary way to make molecules that are both low carbon and low cost would be really interesting. So I cold called Dr. McFarland flew down to Santa Barbara, which is where our company's located and met with them for, you know, have half a dozen times. And Eric has a strong track record of scaling up.
00:23:53
Speaker
methane-based technologies in the 2000s. He took some research from his lab through building a $50 million pilot with Shell and Marathon in the 2010s. At that time when I met him, he was just wrapping up building an ethyl acetate plant in Nebraska that was based on his technology.
00:24:10
Speaker
And so he had a great scale up track record, but there was really not a company there. There was just kind of his latest research. And so, you know, I said, Eric, I can't keep coming down here if there's nothing to invest in. And he said, well, you know more about this than any half engineer, half finance guy I've ever met. Why don't you leave and come start a company with me and we'll go scale this technology up. And so that was, that was the genesis of Eric and I connecting and, you know, kicking off C zero at the beginning of 2018.
00:24:38
Speaker
Right. And of course, looking at methane pyrolysis, which is, I guess, an alternative form of producing hydrogen because, you know, people look at blue hydrogen, green hydrogen, and start adding colors to hydrogen for a gas that is colorless. So that's quite interesting. Sorry for the science fun. But, you know, curious to hear your thoughts because methane pyrolysis is not commercial as of yet, right? But there are other, let's say,
00:25:04
Speaker
more mature ways of producing hydrogen. And maybe you addressed this when you said, you know, low cost, easier way of producing hydrogen. So is that just the sole motivation for methane pyrolysis or is there something more to it? Sure. So when you crack methane natural gas into hydrogen solid carbon, you have two products, hydrogen and solid carbon. And about the time that we started C0,
00:25:31
Speaker
There was another company that's probably the most mature form of methane pyrolysis by a long shot called Monolith Materials that was started really on the carbon side of saying, hey, we've got a great way of making carbon black. We can control the morphology very tightly. And we also have hydrogen and we'll figure out what to do with that, but we're focused on the carbon black. And when Eric and I started C0,
00:25:58
Speaker
we said, we want to be focused on the hydrogen first. And we'll figure out what to do with the carbon later. And if you look at natural gas, with natural gas at $4 a gigajoule, which is about a million BTU, which is a pretty conservative long-term price post fracking revolution, at that price, a kilogram of hydrogen for just the hydrogen atoms in the natural gas costs 80 cents a kilogram.
00:26:24
Speaker
So that's the prize that everybody's trying to get to. It's very low cost source of hydrogen. And thermodynamically, it takes one seventh the amount of energy to pull those hydrogen atoms off of carbon versus pulling those hydrogen atoms off of oxygen by splitting water. And so we were always focused on the hydrogen. And the other reason for that too is that we wanted to do this at huge scale. You know, the energy transition is going to require
00:26:53
Speaker
massive, massive chemical plants to go deploy a number of technologies. And if you build just one world-scale plant, we think of a world-scale plant as being 100,000 tons of hydrogen per year, you're going to make so much carbon that it doesn't matter if it's pristine carbon black or nanotubes or even diamonds, frankly. You're going to wind up putting some fraction of it back in the ground. And so that's kind of always informed our approach to this.
00:27:22
Speaker
Um, and the other thing that has been unique about our view is that we wanted to go perform this whole process without using anything other than the chemical potential of the gas itself. So saying, Hey, I've got a pipeline full of LNG or excuse me, a tanker full of LNG or a pipeline full of natural gas. How do I get the most hydrogen with the lowest direct CO2 emissions without using any other energy source? Um, and so.
00:27:50
Speaker
That's been really important to our development is not using significant quantities of electricity in this process. Why is that? I think it stems from maybe a contrarian worldview that Eric and I both have, which is that natural gas is going to remain around for a long time, and it's going to be relatively cheap. And electricity is going to remain relatively expensive.
00:28:20
Speaker
there's this sort of prevailing view out there that electricity is going to be high capacity factor, low cost and green. And our view is pick two of those. And so, you know, the ability to go site this process with also without the need to co-locate, you know, large quantities of renewable electricity, we think is a big value proposition. And certainly in some of our key markets,
00:28:50
Speaker
in Korea, in Japan, and other parts of Southeast Asia, renewable capacity factor is very low. And so any electricity that goes into this process is gonna have to come from the gas itself. So let's cut out the inefficiencies of doing that and develop a process that just uses that chemical potential directly to crack the methane. Yeah, it's an interesting perspective. I mean, I think it will be pretty geographically dependent. You know, if you're on
00:29:19
Speaker
shore of the North Sea and Holland or something like that, then you may have a much higher natural gas and better access to renewables. But certainly other places, at least in the near to medium term, could certainly be a different... Absolutely. If I've learned one thing through this journey, it's been that the solutions to energy transition technologies are highly geographically dependent. The inputs are very different costs, depending on where you are.
00:29:49
Speaker
And the outputs are probably different too, as far as what are they going to be the most attractive end use markets for the hydrogen as well.
Sequestering Solid Carbon: CZero's Unique Approach
00:29:59
Speaker
So what is it that you, there's a number, as you alluded to, there's in monolith and a number of other players that are active in methane paralysis approaches or just from a, I don't want to need to totally geek out on this, but from a technology standpoint, what is the difference in the CZERO approach from some of the others that are out there apart from the sort of strategic considerations like the, that we've discussed about the role of the carbon and the energy source? Sure.
00:30:29
Speaker
So effectively, what we do is we consume a fraction of the product hydrogen to go power this process. And I think that's what enables us to do this without co-locating renewable electricity. I mean, our latest process modeling for our first commercial system is just a few kilowatt hours of electrical energy consumption per kilogram of hydrogen.
00:30:57
Speaker
And that's really just for balance of plant loads. We're actually running through some cases now that have zero net electricity consumption. And so obviously when you're consuming some of your product hydrogen, that's going to decrease your yield. And the way that you're doing getting energy from that is by combining it with oxygen. So you've got water is a stream coming out of this process as well. But I think that's, that's our, kind of our, our unique market position.
00:31:25
Speaker
from a competitive landscape perspective. And when you look at approaches that anybody with a hydrocarbon processing background would look at and say, yep, they can build a single process train that's 80, 100,000 tons of hydrogen per year. And yep, we're pretty confident that they can actually do this without consuming huge quantities of electricity. I think we're the only folks out there, or at least the other one's talking publicly about an approach that checks those two boxes.
00:31:54
Speaker
Yeah. Um, and speaking of differentiators, I think this caught my eye because typically what I have seen is that you tend to view carbon as the commodity and you sell that carbon, you know, so you find some value and revenue in that carbon. But I did notice that you're more interested in kind of sequestering solid carbon, which is not what I see in the industry. Typically, you know, you tend to have CO2 and then you just sequester CO2, not solid carbon.
00:32:21
Speaker
So how do you see that playing out in terms of perhaps revenue generation in the short term, or is this an avenue that people should be looking at? So given the scale that we want to deploy the technology at, we've always thought the most important thing to do is demonstrate that the carbon is sequesterable. Because as I mentioned earlier, if you build just one big
00:32:48
Speaker
big plant, you're going to wind up having to sequester some fraction. So we have an unannounced partnership with one of the biggest utilities in the US that's actually paying to help us develop that protocol for sequestering the solid carbon. That's not our optimal state. We'd love to get some value from it. And actually, now that we have more samples of our carbon available, we used to have to send everything to the vendors who are making
00:33:18
Speaker
various pieces of equipment for our pilot plant, which is going to be fully constructed by the end of this month and will be commissioned in Q2. Now that we have more samples available, we're setting those out and we're seeing a lot of interest there. The carbon's actually pretty graphitic. We've been told by graphite manufacturers, it's more graphitic than some of the precursors that are used to make synthetic graphite today. So that's an exciting area.
00:33:43
Speaker
it doesn't scale to a world scale plant. And so we've sort of taken that, let's make sure we can put it in the ground first, and then we can sort of explore opportunities for valorization, using it as an additive to construction materials where you're displacing aggregate is also another application that could absorb the carbon coming off of a couple of world scale plants. It might get, you know, 30, $50 a ton.
00:34:08
Speaker
Do you envision actually selling carbon offsets based on the carbon you're sequestering? It's something that we've explored. And I think that the real equation for that is if you buy a RIN for renewable natural gas, where that carbon is effectively coming out of the atmosphere because it was sequestered into biomass by a photosynthetic process, can you sell a CDR
00:34:38
Speaker
certificate that pays for the incremental cost of that RIN. And so that's something that we're actively exploring, but seems plausible. It's really going to come down to securing that RNG input. Perhaps before, Mike, you have any questions?
Policy Implications and Tax Credits for Methane Pyrolysis
00:34:56
Speaker
I just want to ask about looking at how policies view hydrogen produced from ethane pyrolysis in terms of
00:35:05
Speaker
Is it considered green hydrogen firstly? What about tax credits, especially from the IRA, I think 45V or Q, one of them. There are so many letters to the tax credits in the IRA, but yeah, just curious to hear your thoughts on tax credit applicability for methane pyrolysis and how policies view hydrogen from this process.
00:35:26
Speaker
Sure. So as you and your listeners might be aware, Treasury published guidance for 45V just before the holidays. And the comment period for that just closed, I think there were 29,000 comments submitted, which just from a random sample that I happened to flip through, we're all over the board. But from a methane pyrolysis standpoint, I think
00:35:55
Speaker
The guidance that came out was pretty helpful. And some of the rules restricting the use of electricity for producing hydrogen, either by splitting water or for methane pyrolysis, were very much in our favor because we don't use electricity. And so the complications that come from additionality and hourly matching don't really apply to us.
00:36:24
Speaker
That being said, the upstream methane emissions that are in the 45V greet model, which is really what Treasury is going to use to go determine eligibility for different tiers of that tax credit, those upstream methane emissions are a background value, which means that they can't be shown to be different on a project-by-project basis.
00:36:48
Speaker
And so our comments to Treasury that we submitted last week were, you know, you should move upstream methane emissions from a background value to a foreground value, which would be good policy because that would give, you know, natural gassers, producers, distributors, consumers, a carrot for lowering those upstream methane emissions. And if you read through Treasury's comments,
00:37:13
Speaker
They kind of say that they'd like to do that. They just don't know how to measure it exactly. And so we've been in conversation with firms like Project Canary and other folks that look at the upstream methane emissions monitoring to go help develop the framework for that. So we're pretty optimistic that by the time we actually have a commercial scale system deployed, there'll be an opportunity to either locate that facility upstream of most of those emissions
00:37:42
Speaker
or the monitoring will be in place to be able to demonstrate to Treasury that you have responsibly sourced gas and therefore a lower value and you can get credit for that. When you talk about being upstream of a lot of those emissions, what are you envisioning there? Because these are not like small scale, as you're describing it, not small scale distributed methane processing facilities, large world scale type of installations.
00:38:12
Speaker
Sure. So if you look at where the upstream methane emission numbers in 45V Greek come from, they roughly break down into about a third production and gathering, a third kind of compressor stations and distribution, and then a third, I guess, a third transmission. And so in the comments that we submitted to Treasury, we said, you know, our medium-term goals we'd like
00:38:41
Speaker
We'd like to see the upstream methane emissions monitoring sort of ecosystem emerge so that can be monitored. But in the short term, you already have different values for upstream methane emissions within that agreed model itself. And so putting this closer to the wellhead, for example, should bypass two thirds of those emissions.
00:39:02
Speaker
And that would enable our approach to this to potentially be able to qualify for the second highest tier of 45B, which provides a dollar per kilogram of hydrogen tax credit. Now, of course, you would then have hydrogen
00:39:17
Speaker
where the gas is, not necessarily on site where you need it, but that's really no different than geologic hydrogen. And so as people think about building big facilities where the hydrogen is, we could think of ourselves the same way. And for a dollar a kilogram hydrogen of tax credit, you can solve a lot of challenges with that type of support on the OPEX side of things.
00:39:44
Speaker
to that point about the scale, I mean, how are you envisioning ultimately scaling up this this technology, right? I mean, you're you've raised a good amount of venture capital from some some very nice investors. But the amount of I don't know what your CAPEX estimates are, but the amount of money that's going to
00:40:02
Speaker
to construct one of these world scale plans, not to say dozens of them is going to be beyond venture capital funding. So how do you see that playing out? Is it ultimately, once the technology is demonstrated, it's more of a licensing or joint venture type of model with some of the big energy companies that I know would be glad to get into something like this if the technology is proven out. Or there are other options that you're thinking about for financing, driving that expansion.
00:40:31
Speaker
Yeah, if I may add just also looking at, you know, the current market drivers, I've also seen a lot of data that suggests that people are looking at debt financing and other kinds of opportunities for project financing.
Scaling Up CZero's Production and Natural Hydrogen Exploration
00:40:42
Speaker
So curious to hear your thoughts on how that's also going to shape up moving forward. Yeah, sure, sure. Let's unpack there. But I think the name of the game for all the emerging energy transition technologies is to get to bankability, to get to the point where you can go out and get debt on them.
00:41:00
Speaker
And I think there's a tremendous amount of capital that is waiting for new technologies and new ideas, but they need to get to that level of maturity. So our number one goal as a company is to get the maximum efficient scale of a single process train online by the end of this decade so that we can unlock access to all that capital and that debt financing. That being said,
00:41:29
Speaker
We've had to go out and turn, you know, hard raised, uh, diluted equity dollars into steel in the ground once and, uh, to build our pilot plant. And I never want to have to do that again.
00:41:41
Speaker
Um, uh, so, you know, we have lots of great investors and partners who have a much lower cost of capital than we do. Uh, and we want to use their balance sheets, um, to go, to go develop this. So we signed an agreement, um, with, uh, with an entity that we know very well, um, to build the first commercial system. We're actually working through the front end loading studies, uh, of that right now with them and our third party engineering services firm.
00:42:11
Speaker
Um, that'll be somewhere between five to 10 tons of hydrogen per day. Um, and, uh, we have an agreement with them that they're going to pay for it, um, in exchange for certain commercial rights. And then from there, uh, we're going right to, uh, the, the maximum efficient scale, uh, process train. So that's probably based on the current process modeling, um, you know, 80 to a hundred KTA or, you know,
00:42:41
Speaker
on the order of about, you know, 200 tons of hydrogen per day. And you really can't have any other scale up steps in there and hit the goal of trying to have something online and bankable at world scale by the end of the decade. Um, so, uh, you know, the first step is to get the first sort of the first commercial system online. The pilot plant is going to be capable of making over 400 kilograms of hydrogen a day.
00:43:09
Speaker
We're just flaring it from our perspective. That's not a meaningful economic quantity of hydrogen, but bringing it all together in a commercial system that we hope to hit FID with next year is kind of the immediate step. And then taking the positive results from that and continuing to work through the world scale feasibility studies too. And I guess I should mention so that we don't
00:43:35
Speaker
paint ourselves into a corner, so to speak, from scale up, we do the engineering studies for both the next commercial scale system and the world scale simultaneously. And so as we have these conversations with entities that are paying us to do feasibility studies on a world scale system, we're able to go walk through engineering data that's based on assumptions that will be proved out in the pilot and also in that first commercial system.
00:44:04
Speaker
You kind of got to move forward on a couple of different scales in parallel to hit that goal of unlocking debt financing. So maybe not related to methane pyrolysis and I guess to round things off. Just wanted to get your take on white hydrogen. There's been a lot of buzz going on about natural hydrogen deposits and the ability to extract hydrogen from the ground, similar to natural gas. So curious to hear what you think about this trend that's come up recently.
00:44:34
Speaker
Yeah, yeah, you bet. So I will say I'm not a geologist. I'm not even a chemical engineer, actually. I'm a biomedical engineer, so a little bit of chemical, mechanical, electrical. But we have had a couple of entities reach out to us from the geological hydrogen space to chat about what to do with the co-produced methane fractions that come up with the hydrogen and, in some cases, with the helium.
00:45:03
Speaker
So I actually view it, methane pyrolysis, depending on what the gas composition looks like as actually being pretty complimentary to geologic hydrogen. Now I understand there are some
00:45:17
Speaker
Some entities out there that say that it's pure hydrogen, 100% pure hydrogen, I guess I could envision that. I would have a question around what new tech needs to exist. Molecular hydrogen is a much more difficult molecule to handle than hydrocarbons.
00:45:40
Speaker
Um, are there new processing technologies that need to be invented? Um, would be a question. And then, you know, what do you do with it at the wellhead? As I mentioned too, now you've got hydrogen where it is not where you need it. I guess if it's a, if it's a big enough deposit, uh, then you could take that and turn that into ammonia or methanol or, um, some other type of product that's easier to move around than hydrogen. Um, but I think.
00:46:05
Speaker
We've seen interest from a couple of entities that say, hey, I've got some methane in here. And if I take that to flare, the CO2 that comes out of that is going to ruin the environmental attributes of my white hydrogen. And I don't want to be injecting CO2 while I've got this sort of geologic formation that I'm trying to understand, having CO2 go in while we're trying to pull hydrogen out. So we actually think it's pretty complementary, would be my view.
00:46:35
Speaker
Yeah, that's interesting. I mean, the whole white hydrogen space obviously is really nascent, but it's something we've seen a lot of interest in. And I think we called it out in the Lux predictions for 2024 report that we're expecting to see a lot more progress on that and a lot more activity on that this year for sure. And we'll see what the results are. Because as you said, there's definitely still some unsolved problems, but it is a really interesting space.
00:47:02
Speaker
Yeah, absolutely. Being able to convert without needing to co-locate renewable electricity, convert that methane fraction into the hydrogen and have solid carbon that you can do something with could be very complimentary of what we're doing.
Conclusion and Call to Action
00:47:19
Speaker
All right. Thanks a lot for joining us, Zach. This was very informative. Of course,
00:47:25
Speaker
To all our listeners, please make sure to like and subscribe on your favorite podcasting platform. And see you soon. Cheers.
00:47:39
Speaker
Innovation Matters is a production of Lux Research, the leading sustainable innovation research and advisory firm. You can follow this podcast on Apple Music, Spotify, or wherever you get your podcasts. If you want more, check out www.luxresearchinc.com slash blog for all of the latest news, opinions, and articles.