July 6, 2023
What do SaaS and Carbon Removal have in common?
They both can have one big, solvable problem on a balance sheet: Churn.
Whether you’re looking at an IPO-bound Software-as-a-Service company or our limited options for carbon dioxide removal, the more you lose - churn - productive assets (customers vs. trees), the harder it is to hit your goals ($1B in revenue vs. 1.5 C global temperature rise).
In SaaS, how big of a problem can churn be for a portfolio of customers? That depends on how hard it is in terms of time and money to acquire new customers to replace your lost recurring revenue.
It’s the same principle for carbon removal. That’s why permanence is so important in a portfolio of carbon dioxide removal solutions. When you invest in emissions removals - whether engineered solutions or nature-based solutions - you want to keep those removals from churning back into the atmosphere in 5 years!
| Churn Problem | In SaaS | In Carbon Removal |
|---|---|---|
| Replacement time | Time (sales cycle) to win a new customer | Time (years) to recover emissions and foregone sequestration |
| Replacement cost | Cost ($) to acquire a new customer (CAC) | Cost ($) to recapture emissions and foregone sequestration |
| Lost productivity | Revenue: Average annual contract value (ACV) | Additionality: Carbon Pool + Annual Removal Value |
I keep coming back to this churn problem in the carbon economy. Our largest carbon removal solution (forests 🌳) is bleeding out on the operating table. There are many brilliant minds investing in ways to source blood transfusions, but not enough has been done to stitch the wounds together and stop the bleeding. Let’s take a look at our current churn rates just in the Northeast US will cost in terms of lost productivity by 2050:
You can view the math behind the figures here, if that’s your cup of tea: https://www.notion.so/upstreamcarbon/The-math-behind-the-figures-55d2af268c3c40fea94152f79b0e1502
If mother earth were a SaaS company, the executive team, board, and stockholders would pound the drum to stop churn in our northeast forests (and globally, too). Both the replacement time and cost are huge! Using very rough back-of-the-napkin math, it would take at least 30 years (ridiculous replacement time) after reforesting twice the equivalent developed area somewhere else (impossible replacement cost) to recover lost carbon pools and make up for foregone emissions.
What about engineered carbon removal… Can that replace the lost productivity from forests? The replacement time might be lower in theory - for example, it might take a few years (rather than decades) to set up a DAC facility or scale biochar operations to an area. Meanwhile, the replacement cost is high. Let’s look at some examples of recent funding, building on estimates of carbon churn from lost forests from this Clark University Study on avoided deforestation in the northeast:
These checks look big in the headlines, but in the face of our churn problem, they are just a starting point. The high replacement cost of carbon churn from lost forests needs to be addressed.
Preventing churn has a replacement time of zero - the effect is immediate - and a much lower cost than the replacement cost. Preventing carbon churn is all about targeting threats to existing carbon removals like deforestation (Upstream Carbon), wildfires (Kodama, Vibrant Planet), and waste from wood harvests (Pacific Biochar, Tau Carbon).
Double-click on the churn from deforestation. Lowering our rate of carbon churn from deforestation isn’t cheap: Land is expensive! In the northeast, I expect protecting forests from deforestation may cost anywhere from $60 to $20 per metric ton depending on sites, scale, and market forces like property values and project cobenefits. The $20 to $60 per metric ton rates put our offset projects in the ballpark of other high-quality afforestation programs like Mast Reforestation and at a similar rate as forest biochar and bioenergy programs outlined by Blue Forest.
This seems like the right place to put Goldman’s Carbonomics report on sequestration costs by solution…