Jonathan Rhone and Natalie Khtikian of CO280 join Tom Heintzman, Vice Chair, Energy and Climate Finance to discuss how CO280 is accessing project finance capital and building long-term revenue and trusted partnerships for carbon removal projects in the pulp and paper industry.
Tom Heintzman
Welcome to The Sustainability Agenda, a podcast series focusing on the evolving complexities of the sustainability landscape. I'm your host, Tom Heintzman. Please join me as we explore today's most pressing issues with special guests that will give you some new perspectives and help you make sense of what really matters.
Pull Quote (Jonathan Rhone)
“There's lots of capital out there for these projects. You know, the way we're designing these projects is with long-term offtakes, the returns are baked in before FID. And so project equity investors and lenders really like that. So these are bankable projects. It's just how quickly some of the external factors are going to allow us to scale.”
Tom Heintzman
Welcome to our multi-part series on carbon capture, removal, and the carbon markets. Throughout this series, we examine key issues impacting the compliance and voluntary markets and how participants are navigating this landscape in response to evolving policies.
On today's episode, we'll explore how a leading carbon dioxide removal or CDR company is building long-term revenue and trusted partnerships to drive CDR projects in the pulp and paper industry. On this episode, we'll also be using a project finance perspective to organize parts of the discussion. So the discussion will cover not only CDR, but also how traditional project finance concepts are adapted to the relatively new world of carbon.
Please welcome my two special guests, Jonathan Rhone and Natalie Khtikian of CO280, developer of CDR projects. Jon is the co-founder and chief executive officer of CO280. He's also a serial clean tech entrepreneur, recognized for his experience in commercializing hard tech and developing large scale projects, and someone I've personally known in the industry for several decades. He chairs the BC Clean Tech CEO Alliance and has received multiple industry awards for innovation. Jon has also been a speaker at multiple of our CIBC carbon summits.
As co-founder and chief commercial officer of CO280, Natalie leads large scale CDR projects in partnership with pulp and paper companies. She's a commercialization and sales leader with experience spanning hardware, software, advertising, and hard tech.
Welcome Jon and Natalie, and thank you for joining us on the show.
Jonathan Rhone
Good to see you, John. Thanks for having us.
Natalie Khtikian
Yeah, thanks, Tom.
Tom Heintzman
Okay, John, let's maybe start with you. And it's great to have you back at CIBC, first of all. At the Carbon Summit, our clients had the opportunity to learn more about CO280. For the benefit of the listeners here today who weren't at the conference, can you give a brief overview of your company and the technology that you offer?
Jonathan Rhone
Yeah, happy to Tom. Thanks for having us. The carbon summit was fantastic, by the way. So really appreciate being involved in that. CO280 is a project developer. So we're technology agnostic, actually. So we partner with pulp and paper companies across North America to jointly develop, finance, own and operate large-scale carbon capture and sequestration projects.
And we capture the biogenic CO2 that's generated by the combustion of biomass at these pulp and paper mills. And that biogenic CO2 is captured, it's transported to geologic storage. It's sequestered permanently. And then we monetize and sell the resulting carbon dioxide removal credits through long-term offtake contracts to companies like Microsoft and JP Morgan and other large corporates that are using the CDR credits to achieve their net zero goals.
We've got a lot of projects. These are all large scale projects. They range in size from anywhere from 400,000 tons a year to over a million tons a year of CO2 captured and sequestered. And, you know, they have the effect of not only delivering to the carbon market permanent affordable CDR at scale, but they also have a fairly transformative impact on the economics of pulp and paper by delivering revenue diversity and increased profitability to the mill.
So we're kind of solving two problems with one solution. So that's what we're doing. We're moving quickly. Our first project will be at FID in 2026, and then we've got a whole network of these projects, primarily in the US Gulf Coast and in Alberta to start with. So that's what we're doing.
Tom Heintzman
Jon, you mentioned biogenic carbon, biogenic CO2. It's an important distinction, but many of our audience may not be familiar with it. Can you just quickly distinguish between biogenic CO2 and conventional CO2 and why dealing with the former as you are has advantages?
Natalie Khtikian
Yes, so biogenic carbon is carbon that comes typically from biomass. It's carbon that has been captured by plants, usually through photosynthesis, and then is typically burned to make energy or to make some sort of a product. And fossil-based carbon comes from burning fossil fuels, coal, oil, natural gas, anything like that.
And the difference between those two from a carbon accounting perspective is that fossil-based carbon has been stored under the ground permanently for a long time. So when you burn it and release it, you're adding to the total amount of carbon that's in the air. But when you burn biogenic carbon, that's carbon that plants have recently captured from the air. So you're not adding to the total pool of carbon that's in the air.
From a commercial perspective, what that means is that when you capture carbon that's biogenic carbon, you're actually pulling CO2 out of the air permanently and you're reducing the total amount that's actually already in the atmosphere. And because of that, you can generate a credit that has a lot of value. And to bring it back to a finance perspective, what that means is that our projects that capture biogenic CO2 have a revenue stream that projects that capture fossil CO2 don't. So we're able to create profitable CCS projects.
Jonathan Rhone
Tom, Nellie gets a way better explanation of that than me. The only thing I would add is that the pulp and paper industry is kind of unique from many other industries because 80 to 90 % of all of the CO2 that's emitted by pulp and paper mills is biogenic from the combustion biomass waste in the process of manufacturing pulp and paper.
And that's very unique from other industries like the power generation coal-fired power plants, cement plants, refineries that by and large generally emit fossil-based CO2. So pulp and paper is the world's largest point source of biogenic CO2, and that makes it an attractive target market for what we're doing.
Tom Heintzman
Fantastic. Natalie, let's dig a little deeper in there. CO280 recently completed a successful field pilot using liquid amine technology at a US Gulf Coast pulp and paper mill. Can you explain a little bit more what that means? Can you elaborate on the strategic importance of selecting the site? Maybe also on what an amine technology is.
And how does this location and partnership fit into CO280's broader vision for carbon removal in the pulp and paper industry?
Natalie Khtikian
Yeah, absolutely, Tom. So our vision when we started CO280 and today was to build a scalable and repeatable platform for deploying carbon dioxide removal affordably and with the highest quality standards. In order to do that, in order to scale a model, you need an application that can be repeated, right?
So you've got to be able to do the same thing over and over again. So like Jon said previously, pulp and paper is the biggest point source of biogenic CO2 in the world. And one of the other advantages that it has is that Kraft pulp mills are actually very similar from mill to mill. And in particular, they all have something called a recovery boiler. And the recovery boiler burns a biogenic fuel, a fuel that comes from basically from the trees that they use to make paper that is consistent every mill you go to across the world. And what that means is that the flue gas that comes out of that boiler is basically the same at every single mill.
So when you talk about a technology like carbon capture, amine carbon capture is a chemical process, right? You're using chemicals to take CO2 out of that flue gas and then you can store it underground forever. So when you have a chemical process, that chemistry of it meeting that flue gas has to work.
And so what our pilot did is it was the first ever pilot of a carbon capture technology on that recovery boiler flue gas. So along with our partners SLB Capturi, we were able to validate that that technology really works, that chemistry really works on the recovery boiler flue gas. It was at our first project site in the Gulf Coast, but that location really isn't important because the pilot actually validated that this can happen at any Pulp Mill in the world.
Tom Heintzman
So Jon, maybe turning to you, and this is where the project finance lens starts coming in. One of the key elements for project finance is a de-risked technology because the investors, they don't have recourse. It's a non-recourse transaction. So they don't have recourse to the ultimate shareholders. And they're really just looking to the cash flows from the project to pay back any financing. So de-risking the technology is crucial.
What specific steps does CO280 take to demonstrate the technology's reliability and mitigate risks to satisfy lenders and investors? And how can they gain confidence that this technology will work at scale?
Jonathan Rhone
It's great question, Tom. So just to pick up on where Natalie left off, what we did initially, I mean, there are dozens and dozens of post-combustion carbon capture technologies out there. You've got liquid amines, which Natalie described, the use of amine absorbance, chemical absorbance to absorb CO2that have been around for decades. You've got solid sorbents and cryogenic technology and membranes and so on and so forth. And they're all at different stages of commercialization. So what we did, as part of creating a standardized bankable solution that we can develop and then replicate across the whole industry, we need something that's fully commercially proven and bankable.
Liquid amine technologies have been around for decades. They were first used to capture sulfur dioxide in the refinery industry. And the amines have been adapted to capture CO2 from stock emissions. You know, we looked at all of the different suppliers of amine technology and developed a technical, commercial, financial criteria to select the best technologies. And there's a number of them that we certainly could work with. Some of the names you'll be familiar with, Mitsubishi Heavy Industries, Shell CanSolv, certainly FLIR, Honeywell. We ended up selecting SLB Capturi for our first few projects. And so this is a joint venture between Aker Carbon Capture in Oslo and [Schlumberger], which has got a huge footprint in the oil and gas industry.
And we selected them on the basis of their technology is fully commercial. It's scaled up. It's proven. And it's operating today in the cement industry, the biomass power industry, and then the waste energy industry in Europe. And what we're doing is we're adapting that technology into the pulp and paper industry. And Natalie described the process we went through to pilot the technology. So the pilot we did was not to prove that the technology works and needs to be scaled up. It was really proving the process parameters to validate that the amine technology works on that particular flue gas. So we were testing, capture rate efficiency, energy consumption, emissions. And the pilot was really an unqualified success. We proved all the KPIs and now are ready to scale up.
So we've got proven technology, bankable company with performance guarantees, and now a process pilot that proves the application. So those are the steps we went through at kind of 50,000 feet. There's a lot more to it, but that's the basic idea.
Tom Heintzman
Jon, you mentioned performance guarantees and I'd like to double click on that because in addition to technology risk, construction risk is often a significant hurdle and certainly a check mark or a checkpoint for bankability. How does CO280 approach managing and mitigating construction risk? And who are your key partners? What are the contractual or operational measures that are in place in order to ensure that the projects are delivered on time, on budget and work as expected.
Jonathan Rhone
Yeah, you're 100 % right. I mean, this is where we spend a lot of time, Tom, just on designing the execution model. In the case of working with SLB Capturi, what we're doing is we're basically buying a complete modular capture plant from SLB Capturi. And one of the things that we like about them is that they have a pre-engineered modular capture plant solution. So these are all the same size, the same configuration. And SLB Capturi will supply that entire turnkey capture plant on a fixed price basis to our mill partner site.
And then we have an engineering procurement construction firm that will be responsible for doing all of the engineering of how that capture plant integrates into the mill. And then they'll handle the installation and mechanical electrical construction.
And SLB Capturi, because they're supplying the entire capture plant, they'll take process risk from outlet of the flue gas at the mill through the capture of the CO2 and the conversion of that product gas into a pipeline-grade CO2 that we can put into a pipeline and have it transported to storage.
So that's how we designed the value chain of the project. And we've tested that with lenders and project finance folks as a bankable, financeable solution.
Tom Heintzman
Fantastic. And Natalie, maybe the most important question. In order to get this whole cycle of project financing to work, there has to be stable cash flow. And generally, we refer to that as an offtake. What structures or strategies do CO280 use to align offtake agreements with debt obligations? Who are your offtakes from to the extent that you can disclose them and how large? And how do you ensure predictable revenue streams throughout the project's life cycle?
Natalie Khtikian
It's definitely the most fun part, if not the most important. Our projects in the US make money in two ways. We have the 45Q tax credit and then we also can sell our CDR credits into the voluntary carbon market. And you're right, we do sell those credits in a long term off take. And when I say long term, I mean, typically about a 10 to 12 year term, starting from the first production.
So it's a very, very long-term commitment and they are structured similar to what you would see in a PPA. They're bankable, they're take or pay off takes. And we know that when you think about a project, really what you're doing is you're creating a stack of contracts that all have to work together in order to secure financing to build that project.
So we spend a bunch of time looking at those off takes, picking them apart. I think maybe some of our customers would say a little bit too much time doing that. But we spent a lot of time thinking about it really critically and going back to lenders, making sure we got feedback on those contracts before we signed them, because it is a new type of contract. So it's something that we really had to innovate around and make work for the project finance market.
Tom Heintzman
Natalie, you mentioned they are new contracts, but you also mentioned PPA and some of our listeners will know that, but stands for power purchase agreement. So, is it fair to say that to some degree, these structures are modeled on the offtake agreements for electricity generation facilities, but they're being revised and somewhat modified in order to satisfy the needs of the carbon market.
Natalie Khtikian
Yeah, exactly. So I wouldn't want to say publicly exactly what's in those agreements, but our customers are the big hyperscalers, as well as banks like JP Morgan. So Microsoft, JP Morgan, the Frontier buyers, which includes Stripe, Shopify, Google, JP Morgan and Salesforce and many, many other fantastic companies. They all have experience buying clean energy as well. So there's a lot of the same structure that's mapped from one to the other.
Tom Heintzman
Well, it's been wonderful talking with you two. I have one final question, which is a big one. It's about scaling. You've got a successful pilot now and you're ready for commercial scale deployment. How does CO280 plan to scale up these modular carbon capture units across North America's pulp and paper sector? What are the key factors, technological, regulatory, commercial, that will determine the pace and scale of your role out.
Jonathan Rhone
You're exactly right, Tom. We spent the last couple of years really refining our understanding of which technology, how to validate the performance of the technology. So, on the technology side of things, we feel very confident in the selection of technology, performance of technology, the execution model.
I think some of the things that will determine the pace at which we scale are number one, CO2 transportation, storage infrastructure, in particular permitting, is going to be a crucial aspect that needs to be scaled up. We need to put the CO2 somewhere. Ground zero for this happening in our market is really in East Texas, Arkansas, Louisiana, Alabama. There's quite a bit of activity, but we're hoping that the CO2 storage permits happen faster. In Canada, Alberta is really leading, we think leading the world in the speed and reliability of that whole permitting and transportation storage infrastructure development. So that's a really positive development for Canada. So that's one thing.
The other aspect is the speed at which the CDR market evolves. Right now, we're selling into the voluntary market, as Natalie was talking about. But we're seeing that the early signs of the integration between the compliance market and the voluntary market. So the speed and pace at which that happens will determine how much demand there is for CDR over the long term. So those are a couple of things that we're keeping our eye on.
Natalie Khtikian
Exactly what Jon said, like our job as a project developers is to bring together many different work streams, all of those different pieces that the market, the regulatory side permitting the technology and then engineering supply chains and create a project that can deliver on time and do that again and again. So we're constantly looking at all these different factors and creating timelines that take them all into account.
Jonathan Rhone
Yeah, the last thing I say, Tom, is that there's lots of capital out there for these projects. You know, the way we're designing these projects is with long-term offtakes, the returns are baked in before FID. And so project equity investors and lenders really like that. So these are bankable projects. It's just how quickly some of the external factors are going to allow us to scale. We've got all the ingredients. Let's get going.
Tom Heintzman
Well, you've got lots of fans rooting you on, I can tell you that. We need some great success stories in Canada and CO280 is certainly leading the pack right now. So thank you both for taking the time to join the show today. It's always a pleasure to catch up and thanks to our listeners for tuning in.
Jonathan Rhone
Thanks, Tom. Really appreciate it.
Natalie Khtikian
Thanks Tom.
Tom Heintzman
Please join us next time as we tackle some of sustainability's biggest questions, providing you different perspectives to help you move forward. I'm your host, Tom Heintzman, and this is The Sustainability Agenda.
Disclaimer: The materials disclosed on this podcast are for informational purposes only and subject to our Code of Conduct as well as CIRO rules. The information and data contained herein has been obtained or derived from sources believed to be reliable, without independent verification by CIBC Capital Markets and, to the extent that such information and data is based on sources outside CIBC Capital Markets, we do not represent or warrant that any such information or data is accurate, adequate or complete. Notwithstanding anything to the contrary herein, CIBC World Markets Inc. (and/or any affiliate thereof) shall not assume any responsibility or liability of any nature in connection with any of the contents of this communication. This communication is tailored for a particular audience and accordingly, this message is intended for such specific audience only. Any dissemination, re-distribution or other use of this message or the market commentary contained herein by any recipient is unauthorized. This communication should not be construed as a research report. The services, securities and investments discussed in this report may not be available to, nor suitable for, all investors. Nothing in this communication constitutes a recommendation, offer or solicitation to buy or sell any specific investments discussed herein. Speakers on this podcast do not have any actual, implied or apparent authority to act on behalf of any issuer mentioned in this podcast. The commentary and opinions expressed herein are solely those of the individual speaker(s), except where the author expressly states them to be the opinions of CIBC World Markets Inc. The speaker(s) may provide short-term trading views or ideas on issuers, securities, commodities, currencies or other financial instruments but investors should not expect continuing analysis, views or discussion relating to those instruments discussed herein. Any information provided herein is not intended to represent an adequate basis for investors to make an informed investment decision and is subject to change without notice. CIBC Capital Markets is a trademark brand name under which Canadian Imperial Bank of Commerce (“CIBC”), its subsidiaries and affiliates provide products and services to our customers around the world. For more information about these legal entities, as well as the products and services offered by CIBC Capital Markets, please visit www.cibccm.com.