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These tech companies are accelerating permanent carbon removal to save the planet

In 2020, Shopify’s Sustainability Fund purchased 400 tons of stored carbon from Heirloom, a company in the process of testing and fine-tuning technology to speed up a natural process called carbon mineralization. During that process, carbon dioxide in the atmosphere binds to minerals and permanently turns to stone; Heirloom’s goal is to make it happen within days instead of years.

“Since our purchase, they’ve dramatically improved the rate that they’re able to demonstrate carbon capture using limestone, and that enabled them to unlock their latest Series A funding round, where they managed to pull together $53 million,” explained Stacy Kauk, Shopify’s head of sustainability.

Now Heirloom is poised to scale up its innovative carbon capture solution further, since the recent progress means it can qualify to sell its carbon credits to Frontier, an advanced market commitment (AMC) that is putting close to $1 billion into accelerating the development and growth of technology-based solutions to draw down, or remove, carbon at an unprecedented scale. 

AMCs are funding mechanisms that have been used to incentivize vaccine development in cases where a lucrative market for the lifesaving product did not already—and might not ever—exist. In the case of carbon capture, a similar market gap exists, and the Frontier AMC essentially promises that there will be buyers waiting once companies advance their technology and scale up.

It has the potential to develop a market for carbon removal, a practice that climate scientists say will be necessary to fight climate change.

Frontier was launched by a group of mostly tech companies this spring: Alongside Shopify, there is Stripe, Alphabet, Meta and McKinsey. Each company has been active on climate issues and Frontier creates a way to bring one aspect of their initiatives together.

“With Frontier, we want to send a loud demand signal to entrepreneurs, researchers, and investors that there is a market for permanent carbon removal: build and we will buy,” said Stripe’s Head of Climate Nan Ransohoff, who is at the forefront of the initiative, in an April press release.

Like Shopify, Stripe was already investing in carbon removal via Stripe Climate, but the technologies are incredibly expensive.  By pooling their resources together and continuing to bring in new players, the companies hope to more meaningfully move the needle on climate change while offsetting their own emissions. 

The need for carbon removal

Top climate scientists agree that a rapid global shift away from fossil fuels to renewable energy is the most critical step to prevent catastrophic climate outcomes. Yet, because of the amount of greenhouse gases that have already been released into the atmosphere, that shift alone won’t be enough without also removing existing carbon dioxide from the atmosphere. In the latest assessment from the Intergovernmental Panel on Climate Change (IPCC), experts called carbon dioxide removal “an essential element of scenarios that limit warming to 1.5° C or likely below 2° C by 2100.”

“Carbon removal is not a replacement for deep decarbonization,” said Peter Minor, director of science and innovation at Carbon 180, a nonprofit advocacy group for carbon removal technology. “But there isn’t a world where we can have the life that we enjoy living without also actually developing this removal technology, and at massive scale.”

Nature-based sequestration projects such as forest preservation are one way to remove carbon from the atmosphere, but they are imperfect. Critics have noted that some companies use these projects as a way to offset carbon emissions rather than mitigate their carbon footprint. Offsets also often have a limited impact: On a recent episode of Last Week Tonight, John Oliver identified forests that had been counted as offsets even though they were never under threat. In California, wildfires are destroying thousands of acres of forests previously counted as carbon credit reserves, releasing all of that carbon into the air.

Kauk said those very issues drove Shopify to set out on its current path to fund more reliable, permanent carbon removal and storage. There are criticisms, mainly that efforts like Frontier will distract and take funding away from the more urgent need to cut fossil fuel use and the shift to renewables. Also, carbon capture technologies use a lot of energy, so some worry that they will never be viable.

Frontier evaluates its projects based on eight criteria. Carbon must be stored for at least 1,000 years, and the technology can’t create more emissions than it draws down. The projects also have to demonstrate a path to being able to store carbon for less than $100 per ton, the threshold the founders have determined will allow a technology to be cheap enough to scale.

So far, Frontier’s portfolio of projects includes AspiraDAC and RepAir, two companies working on modular direct air capture (DAC) systems powered by renewable energy, and other companies working on carbon mineralization, including Travertine and Calcite-Origen. 

No existing market

Cost and scale are where the rubber meets the yet-to-be-paved road. While the solar industry had to lower the cost of its systems before it could compete with oil and gas, there was always a market for electricity, Minor said. With carbon removal, which is essentially a public good, no such market exists. 

“We don’t think about how picking up our recycling every week makes money, we do it because it is good for our society. Carbon removal lives in a very similar world,” he said. “How do you then create the right incentives for companies to be able to effectively raise money, invest in developing new technologies that we’ll need for carbon removal to work, and then convince project financiers and buyers to actually pay for it?”

That’s where Frontier’s design as an AMC comes in. The model was applied in the early 2000s to spur the development and distribution of an affordable pneumococcal conjugate vaccine for low-income countries. Because the countries could not pay much for the vaccines, there was no incentive for companies to make them.

Then, five countries and the Gates Foundation committed $1.5 billion to an AMC, essentially promising companies that if they developed a product that met the specific criteria, they would buy it. Analyses estimate the AMC saved 700,000 lives.

“An AMC is particularly good when you really want to drive people to high production with a low marginal cost, and that’s absolutely true of vaccines and of this carbon-capture technology,” said Rachel Glennerster, a University of Chicago economist who worked on developing the AMC approach for vaccines and who has advised Frontier. “The AMC is saying, ‘We’ll guarantee that you will have a large market, and therefore it’s worth you making the investment to produce at a very large scale.’”

In comparison to what we’re seeing even two or three years ago, this is a rocket-ship acceleration in the amount of existing market capital flowing into the space.

—Peter Minor, director of science and innovation, Carbon 180

AMCs also encourage speed, Glennerster noted, and the climate crisis demands urgency. And, since companies don’t fully pay until the technology works well enough to capture carbon, there’s less investment risk. Frontier’s model does require some prepurchasing to help the projects, many of which are being launched by startups, get the early capital they need to develop.

Another key distinction is that Frontier is a private venture, whereas the vaccine effort was driven by foundations and governments.  Kraus said that the initial $925 million commitment is a “very strong demand signal” to carbon removal companies that there is and will be a market for their product, and that it is meant to spur more investors and governments to participate in building the market.

That has been happening to some extent already. In May, the U.S. Department of Energy announced $3.5 billion to set up direct air capture hubs around the country. In July, the U.K. announced an investment, structured similar to an AMC, of about $63 million dollars for innovative carbon removal projects. 

Minor said he thinks Frontier is already having an impact in the space, in terms of its own investment and signaling to others. “In comparison to what we’re seeing even two or three years ago, this is a rocket-ship acceleration in the amount of existing market capital flowing into the space,” he said.

The amount of carbon these projects can capture at their current scale is so small that Frontier wouldn’t even be able to spend its $925 million on it. But Kraus is confident that development is going to happen quickly. She expects that, as the 2030 deadline gets closer and more carbon is stored and therefore available for purchase, the venture will bring on additional companies and increase its commitment. 

“The more we can do to stack demand through Frontier, the better it’s going to be for the ecosystem,” she said. “We need to bring in those other buyers so that we can accelerate.”

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Wall Street hit with $2 billion in fines over employees using WhatsApp and other unauthorized messaging apps

U.S. regulators reached settlements with a dozen banks in a sprawling probe into how global financial firms failed to monitor employees’ communications on unauthorized messaging apps, bringing total penalties in the matter to more than $2 billion. 

The Securities and Exchange Commission announced $1.1 billion in fines and the Commodity Futures Trading Commission disclosed $710 million in penalties in separate statements Tuesday. Those levies — against firms including Bank of America Corp., Citigroup Inc. and Goldman Sachs Group Inc. — combined with JPMorgan Chase & Co.’s $200 million in fines from December, bring the total to $2.01 billion, making them the biggest penalties ever against US banks for record-keeping lapses. 

“Finance, ultimately, depends on trust. By failing to honor their record-keeping and books-and-records obligations, the market participants we have charged today have failed to maintain that trust,” SEC Chair Gary Gensler said in the agency’s statement. “As technology changes, it’s even more important that registrants appropriately conduct their communications about business matters within only official channels, and they must maintain and preserve those communications.”

Tuesday’s announcements cap months of discussions between regulators and the banks. Morgan Stanley said in July it was nearing a settlement that would see it pay a $200 million fine, with other major banks also disclosed setting aside similar figures as part of their second-quarter results without specifying the reason.

JPMorgan had been the only bank until now to reach a settlement with the regulators, and was the first to report the fines, in December. Even managing directors and other senior supervisors at the largest US bank had skirted regulatory scrutiny by using services such as WhatsApp or personal email addresses for work-related communication, regulators said at the time.

Finance firms are required to scrupulously monitor communications involving their business to head off improper conduct. That system, already challenged by the proliferation of mobile-messaging apps, was strained further as firms sent workers home shortly after the start of the Covid-19 outbreak.

In the SEC probe, eight firms agreed to penalties of $125 million each: Barclays Plc, Bank of America, Citigroup, Credit Suisse Group AG, Deutsche Bank AG, Goldman Sachs, Morgan Stanley and UBS Group AG. Jefferies Financial Group Inc. and Nomura Holdings Inc. agreed to pay $50 million apiece, and Cantor Fitzgerald LP agreed to pay $10 million.

Bank of America had the biggest CFTC penalty, at $100 million, followed by Barclays, Citigroup, Credit Suisse, Deutsche Bank, Goldman Sachs, Morgan Stanley and UBS at $75 million each. Nomura was fined $50 million, Jefferies $30 million and Cantor Fitzgerald $6 million.

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Ray Dalio says the U.K.’s policies ‘suggest incompetence’ and warns other governments not to make the same mistakes

Ray Dalio added his name to a growing list of critics of the U.K.’s new spending plan, unveiled last week by Prime Minister Liz Truss and Chancellor of the Exchequer Kwasi Kwarteng.

The billionaire investor—who founded what is now the world’s largest hedge fund, Bridgewater Associates, in 1975—argued the plan’s aggressive tax cuts will raise the U.K. debts to an unsustainable level and cripple the pound.

“Investors and policymakers: Heed the lesson of the UK’s fiscal blunder,” Dalio wrote in a Tuesday tweet. “The panic selling you are now seeing that is leading to the plunge of UK bonds, currency, and financial assets is due to the recognition that the big supply of debt that will have to be sold by the government is much too much for the demand.”

On Monday, in response to Truss’ new spending plan, the U.K.’s bond market experienced the largest one-day sell-off in its history, pushing the total losses in the country’s stock and bond markets since Truss’ appointment as prime minister on Sept. 5 to over $500 billion. Meanwhile, the pound sank to a record low of $1.05 against the U.S. dollar on Monday morning, and although it has since risen to $1.07, the currency remains near a 40-year low vs. the dollar. 

After the new Truss spending plan was announced, the U.K. Debt Management Office said that it will raise its debt issuance by 72.4 billion pounds for the current fiscal year to 234.1 billion pounds.

The new spending plan will also push the U.K.’s debt to GDP ratio to around 101%, the highest level of debt the U.K. has held since 1962, according to Deutsche Bank.

Deutsche Bank, UK Office of Debt Management

In Ray Dalio’s view, this rapid increase in debt, coupled with the lack of demand for the pound on the global stage, is a recipe for disaster.

“That makes people want to get out of the debt and currency. I can’t understand how those who were behind this move didn’t understand that. It suggests incompetence,” Dalio said. “Mechanistically, the U.K. government is operating like the government of an emerging country, it is producing too much debt in a currency that there is not a big world demand for.”

The investor went on to argue that this should be a teaching moment for governments around the world to not increase their debts to unsustainable levels.

“I hope, but doubt, that other policymakers who are doing similar things…will recognize that they are risking a similar outcome—and that investors will see this too,” he said.

Analysts are also worried that the U.K.’s new spending plan, which was designed to spur economic growth and help alleviate the effects of high energy prices in the short term, could end up exacerbating inflation in the U.K. overall. And consumer prices already jumped 9.9% from a year ago in August.

“The government is trying to balance support for consumers and businesses with measures that might trigger further inflation, whilst also trying to reinvigorate a stagflationary economy,” Giles Coghlan, chief market analyst at global Forex broker HYCM, told Fortune. “Such a large fiscal package could contribute to elevated prices in the medium to long term that could inflict further damage to an economy and currency that are already on their knees.” 

The potential inflationary impact of the new spending plan has increased calls for the Bank of England (BoE) to dramatically hike interest rates, with some economists even calling for the U.K.’s base interest rate to move from 2.25% to as high as 6% next year

That’s bad news for the U.K.’s homeowners. Monthly mortgage rates will increase immediately for 2 million people on tracker or variable interest rate plans if the BoE follows through with its next rate hike. And another 1.8 million homeowners with fixed-rate deals will also be forced to pay significantly higher rates next year, according to U.K. Finance.

With the U.K. facing more interest rate hikes ahead, rising government debts, a sinking pound, and a European energy crisis, Deutsche Bank’s chief economist, David Folkerts-Landau, said he now believes the country will experience a severe recession that lasts three to four quarters.

“We’re thinking in terms of a recession that will be deep and long,” he told Bloomberg on Tuesday. “It’s the price we have to pay for financial stability and for getting on the right track.”

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Russian billionaire Petr Aven used estate management companies as a personal ‘piggy bank’ British authorities say

Petr Aven does not have a bank account himself, authorities say.  

Instead, he has been using his wife’s account, and that of other estate management firms, as his personal “piggy bank” to support his lifestyle, lawyers for the National Crime Agency (NCA), a British law enforcement agency, told Bloomberg Tuesday.

The Russian oligarch is under investigation for allegedly routing nearly £3.7 million from an Austrian trust into the U.K. hours before Europe imposed sanctions on him following Russia’s invasion of Ukraine in late February. British authorities are now accusing Aven of using the funds of his companies for personal expenses, with no personal bank account of his own.

The Kleptocracy Unit, a new team within the NCA created to monitor sanctioned Russian oligarchs, says it was alerted to the last-minute fund transfer by Monzo Bank and HSBC Holdings. Authorities ultimately froze £1.5 million of the funds linked to the billionaire, Bloomberg reported. 

Aven has said that the transfer was meant to pay for things like security at his Surrey mansion and London property, Bloomberg reported. He is worth $4.98 billion, per the Bloomberg Billionaire Index

In a lower court hearing, a judge relaxed some of the restrictions on Aven’s estate accounts, allowing him to pay for “basic needs.” Lawyers representing Aven’s estate companies suggested that the NCA was looking for criminality in the money transfer by tying it to sanction evasion. Lawyers for Aven’s companies are now challenging the decision to keep his accounts frozen in London’s High Court, Bloomberg reported. 

Adrian Waterman, a lawyer for the companies that manage Aven’s household, told Bloomberg Tuesday that the NCA painted a “muddled factual picture.”

Waterman did not immediately return Fortune’s request for comment. 

Aven, along with his business partner, Mikhail Fridman, made a considerable amount of his wealth from oil-related investments, especially after selling stakes in TNK-BP to the state-owned Rosneft in 2013. The duo also built a banking and financial services empire in Russia. They served on the boards of Alfa-Bank, Russia’s largest private bank and Luxembourg-based investment firm LetterOne, stepping down from their directorial roles days after they were sanctioned.

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