Q&A: Shopify’s sustainability chief on what companies should know about carbon removal contracts

E-commerce company Shopify is betting carbon removal technologies — such as direct air capture or mineralization or ocean alkalinity enhancements — will help the company achieve carbon-neutral status over the long term.

So far, it has committed close to $55 million through its Sustainability Fund, set up four years ago, to support renewable energy procurement, green building investment and carbon sequestration. Those initial bets will remove 84,400 metric tons of CO2, said Shopify head of sustainability Stacy Kauk in a mid-December update. 

I interviewed Kauk to dive deeper into what the company has learned so far. You can read the key takeaways here. What follows are excerpts from our chat on what makes carbon removal offtake deals different from clean power agreements, and why it’s worth paying more now to lock in supply for the future. The interview was edited for clarity and length.

Heather Clancy: In 2024, how will the Shopify team support faster carbon removal project development?

Stacy Kauk: That’s what gets me excited because faster carbon removal project development is really one of the problems, or one of the friction points, we’ve observed in 2023. Things are getting difficult because they’re getting real, right? We have projects that have to get permits, we have wells that have to be drilled, we have facilities being built in Iceland … The climate gives you a certain number of construction days, and the rest [of the time] it’s snow and rain and sleet, and things are going to be slower than you’ve planned. So there’s all of these factors, because we’re doing things for real now, things are slowing down.

Things are getting difficult because they’re getting real, right?

As a buyer, you might think, “Oh, there’s not much we can do. We’re just waiting for our credits, and then we’ll make some payments.” But one thing that [Shopify brings] to the table is we like to work with our fund companies and have a real partnership where we help them … communicate the value and give them advice on how to sell more credits to other buyers, so that they can get some more revenue. We have a unique offering, called Planet, which enables our customers to offer carbon-neutral shipping. They do that by buying from the same suppliers we’ve already vetted in our fund, which means that there’s a little bit more demand happening.

Clancy: Why are contracts for carbon removal “offtakes” different from offtake contracts for renewable energy?

Kauk: When it comes to a renewable energy contract, you’re usually agreeing on a strike price, right? … When they sell the electricity into the grid, if the price that they’re able to get is higher, the [corporate] offtaker makes the money. If the price is lower, the offtaker pays … so the project is still economically viable [because the energy vendor is shielded from the price decline]. In the renewables market, the key structure is price certainty, so there’s no risk from a financial perspective for that project.

When we get to a carbon removal offtake, we’re not trying to prove we are providing a price guarantee [to the developer]. [Today, the price] is not based on a market, so we’ll always be paying [to provide future revenue certain for the developer, which is required for investors]. That’s a critical difference, but you can see how this will fit as the structure in the longer term. … If the voluntary [carbon] market gets absorbed into a fully regulated global carbon market, we would then be providing price parity. That’s the big difference today.

Clancy: I have been hearing more about insurance for carbon credits aimed at covering credits for carbon avoidance, rather than removal. What impact would insurance have for carbon removal credits? Is it important? Is it too early?

Kauk: I find it to be a bit early. Insurance, as you mentioned, is really about protecting against things that happen for avoidance [projects] where the baseline is off, [or] there’s a reversal event. Reversal events [do happen] in carbon removal, however it’s way less likely than a forest fire. So the need for insurance is not transferable between the two scenarios. 

There is a huge brand and soft capital benefit to buying a carbon removal credit, rather than an avoidance or a REDD+ credit.

However, there is something that needs to be done around uncertainty in carbon removal. There is a lot of uncertainty in terms of how much is actually being removed and permanently stored. We just don’t know enough yet. I prefer to see it handled through … sensitivity analysis on a project to make sure we understand the extremes if the worst case happens … [We need to know] how many credits we should be giving out. If it’s actually better than expected, how many credits could we be giving out? … Insurance is supposed to make you whole and, in the voluntary carbon market, replacement credits would be the way to do it. But is that something we need to pay a premium for versus just going out and sourcing some additional credits? I think that remains to be seen.

Clancy: What advice would you give to another sustainability professional about how to invest in carbon removal?

Kauk: Obviously, continue to focus on your emissions reductions. If you have a net-zero commitment through [the Science Based Targets initiative], you will at some point need to buy carbon removal. There’s going to be a lot of other companies doing the same thing in similar timeframes. So it’s really important to learn now and get in early so you already have a stake in the game and you’ve locked up your supply. So it’s futureproofing your climate plan to get involved now.

There’s always pushback that [carbon removal is] crazy expensive. Like, why would we buy a credit that’s $2,000 per ton, when we can spend $15 and make the same claim? While that is true, there is a huge brand and soft capital benefit to buying a carbon removal credit, rather than an avoidance or a REDD+ [reducing emissions from deforestation and degradation in developing countries] credit. There’s a risk around that. Every day, we’re reading about another project that was over-credited or the baseline was wrong or something’s happened. 

One thing about carbon removal is … it’s always going to be additional, nobody was going to remove carbon for any other reason than you paying them. So it really directs that reputational and brand component [of carbon credit claims]. There’s not a price that you can pay for that.