Carbon Challenge

Climeworks has opened the world’s largest carbon-removal plant in Iceland. Tell us about it.

Egger: We have opened our newest plant, called Orca, and this plant is basically removing 4,000 tons of carbon dioxide out of the atmosphere every year. This carbon dioxide then is stored safely and permanently underground in Iceland. There, it starts to react with the local rock formation. The CO2 is basically turned into stone, and, due to the geological formation we have in Iceland, this happens very, very fast. This happens in just two years. This is a natural process that also happens elsewhere, but the particular thing in Iceland is that it really happens so fast. So far it is the largest direct air capture and storage plant worldwide. This is a landmark in this industry so that we can show that we can scale up this technology.

Can carbon removal be an effective way to address climate change?

Egger: The first strategy always needs to be to reduce emissions as much as you can, but there are some emissions which are unavoidable. Long term, we talk about 10% to 20% of today’s emissions which you cannot reduce and those you need to remove from the atmosphere. If we want to get to net zero, we need to remove these remaining CO2 emissions; otherwise, it is not going to work.

Repmann: We are basically following science when it comes to tackling the climate crisis. Science is very clear: we need separate targets for reductions and removals. Neither works without the other at this point in time. We have been emitting too much cumulatively by the year 2021. We cannot live without taking some of that back out of the atmosphere again.

Why is Swiss Re making this commitment?

Repmann: Swiss Re is a knowledge company, and as a knowledge company we listen very carefully to what the international science tells us. The international climate scientists are unequivocal that, when it comes to achieving the political target of two degrees and preferably well below 1.5 degrees of global warming, what we need to do is reduce, reduce, reduce and then remove the rest. We are basically exploring that topic very carefully. We explore it in our operations where we have set the net-zero target by 2030. We are phasing out the old way of compensating for emissions by purchasing carbon offsets, or so-called carbon avoidance certificates, and ramping up the purchase of high-quality carbon-removal certificates instead. This happens after doing our best to reduce emissions in the first place.

Why is support from Swiss Re important to this project and future efforts?

Repmann: What we are doing here is committing, over 10 years, to purchase carbon-removal certificates from Climeworks. With that, we want to set a market signal that allows a provider or developer of projects to basically take the contract that stretches over 10 years and go to the bank or other lenders and ask for finance. Obviously, developers don’t do new plants with their own equity. We add to the bankability of the next scale-up step of Climeworks.

Egger: From Climeworks’ perspective, there are two things which are really important. One thing is we need to create a market. Direct air capture technical solutions today are still quite expensive, and we need to create a demand to be able to build more facilities to drive down costs. Demand is definitely one important driver for bringing down costs. When we can show that companies have interest in purchasing these services, it’s really important in attracting investors.

The second thing is the brand. When a strong brand like Swiss Re commits to the technology, it says something, not just in the industry itself. But also, it sends strong signals to regulators, to policymakers so they also understand that they need to build up frameworks, which is important to scale such technologies. This is really the value behind such a deal.

Will Swiss Re be making further investments in these kinds of climate solutions?

Repmann: We have the strategy of basically phasing out good, high-quality, carbon-avoidance projects over the next 10 years and phasing in high-quality carbon-removal projects over the same period. This year, it’s going to be 10% removals and 90% conventional offsets, and by 2025 it’s a 50/50 blend. By 2030, which is our net-zero target year, we want to be 0% conventional offsets and 100% carbon removal, which is a prerequisite to call yourself net zero. We have basically now one deal struck. That’s only one deal. It covers only that much of our eventual or expected compensation needs. We will have to do further deals.

How does air capture compare to the alternatives?

Egger: First, we need to understand the job that needs to be done. CO2 stays active in the atmosphere for a very long time—we are talking about thousands, tens of thousands, even hundreds of thousands of years. We need to have solutions which are removing CO2 permanently. If you have solutions like a nature-based solution where the CO2 eventually comes back to the atmosphere, you do not have a permanent solution. You would basically need to redo the storage to have a climate impact. You need to have solutions which are removing the CO2 permanently.

Secondly, as Mischa said, we need to reduce emissions a lot. The remaining unavoidable emissions are still on the significant side. We are talking about something between five or 10 or even more billions of tons of carbon dioxide which need to be removed every year by 2050. This is quite a volume, so we also need to have technologies which are scalable enough to address such a big volume.

On a third point, we need to have solutions which are not creating negative side effects. It doesn’t make sense to solve one problem while creating another one which might be even bigger. The advantages of these technical solutions are that the side effects are really minimal, land use is really minimal, water use is very minimal, and by doing that, you are not creating other problems. This is definitely the big advantage of technologies like direct air capture.

Can the direct air capture technology scale fast enough to address climate change?

Egger: When you look at physical industries, as direct air capture is, then you’re limited in your growth rate. You cannot simply triple an industry every year. What we see in the past in the wind industry, for example, over a couple of decades, a growth rate of 30%, 35%, 40% is possible. For direct air capture, we need something similar. The growth rate is definitely challenging, but mankind has shown in the past that it is possible. From that perspective, yes the technology is scalable, but it’s also important to understand that we need to start now. If we wait for another 10 years until we start to start to scale, then it will be too late.

Why Iceland?

Egger: For installing such a machine, you need to have a couple of different things. You need to be able to store the CO2 somewhere safe and permanently. Second, you need to have renewable energy to run your machine. Without renewable energy, it becomes difficult. Third, you also need to have local partners like we have with Carbfix with which you can do such a project together. These three things are there in Iceland. We have excellent partners. We have renewable energy with geothermal power, and the safe storage is a given there.

What’s next?

Egger: It’s all about scaling. Four thousand tons a year is nice, but it cannot be the end of the journey. We are working on larger plants already. By the end of this decade, we’re reaching megaton levels in terms of volume, meaning storage potential of millions of tons with direct air capture. So building bigger plants, building more plants, is definitely needed, and those are driving down costs. We’re still on a too-high-cost level. By scaling, we can bring the cost to a level where it makes sense to deploy it at a large scale.

Repmann: We are a part of the buyer side. We are motivated by getting our company to net zero in line with the Paris Agreement. For that we need that market. We need the Climeworks of the world, knowing we will have still positive emissions. While our operational net-zero target is set for 2030, our insurance and investment business has 2050 as its target, in line with the world’s net-zero target. Since we are in fact insuring the whole world and investing in the whole world, we have a very intrinsic motivation to be market creators here. Only if we have the market will we have the necessary supply and the necessary capacity for the world and our full business value chain to get to net zero over the next three decades.