Defossilizing Industry Scaling-up CCU 2025

Driving deployment in an immature market 5.2 Many CCU technologies are at a relatively nascent stage of development, and technology developers, particularly start-ups, face challenges in simultaneously driving performance improvements while maturing their business models. Mechanisms are needed to help decouple technology development from business growth. Governments can establish programmes which de-risk early technology development, as demonstrated by programmes of the European Innovation Council (EIC) and Japan’s Green Innovation Fund (GIF). While these models differ in practice, they both underwrite technology development costs and focus cross-sectoral expertise on incubating potential commercial applications. As they advance up the innovation curve, the onus is on technology developers to ensure they plan carefully to diversify funding sources, while avoiding early equity traps and unsustainable market entry points. However, other market participants can take steps to mitigate financing gaps. There is a need to expand patient funding vehicles to better reflect deep tech development timescales and capital requirements, following the example of Tencent and the EIC. Overcoming the capital challenge requires expanding specific risk-sharing mechanisms that involve public sector actors, such as first-loss mechanisms and loan guarantees. However, private sector investors should also consider alternative ways of reflecting capital in project valuations, beyond depreciation, to reflect its necessity. Other systems for finding cost reductions, such as book-and-claim initiatives, should be supported by motivated corporates. Ultimately, projects cannot attract financing unless there is demonstrable revenue generation potential. Offtake agreements are therefore critical, even if conditional or short-term. Start-ups can build these into early-stage development partnerships with motivated incumbent industrials, potentially leveraging public research and development mechanisms where possible. Procurement mandates from public purchasers, usually the largest purchasers of goods and services, will also send stable demand signals. There is also a role for private players with longer-term market creation ambitions to take a patient offtake approach which aggregates demand. These agreements can support bridging funding for technology developers and create a demand signal for investors. Private sector investors should consider alternative ways of reflecting capital in project valuations, beyond depreciation, to reflect its necessity. Defossilizing Industry: Considerations for Scaling-up Carbon Capture and Utilization Pathways 34