Climeworks: The NPV of Permanent Carbon Removal

The case describes the challenge the CFO of Climeworks faces to finance the next Direct Air Capture (DAC) plant (two are already working, Orca and Mammoth). The case requires students to value the project given the information in the case, identifying relevant cash flows, compute the discount rate and determine the Net Present Value (NPV). The instructor is provided with an xls solution that details the computations that students are expected to make.

The case is intended for teaching basic Net Present Value analysis with a focus on identifying the relevant cash flows of the project. It can be taught at the level of executive education or MBA, MIM as a basic NPV introduction case.
Learning Objectives:
(1) Apply Net Present Value, Internal Rate of Return, and Payback Period tools to a new carbon removal plant that Climeworks plans.
(2) Identify the relevant cash flows of the project. Identify sunk costs as well as non-marginal cash flows such pure overhead cost allocations to a project
(3) Use the NPV framework to do sensitivity analysis (at what CO2 price does the project have an expected zero NPV?)
The case is asking the students to value a new technology, Direct Air Capture (DAC), when one plant is built with a target CO2 removal volume. The current state of the technology is such that Climeworks has to sell the tonne at about 10 times the price of a carbon credit traded in the market. Thus, the technology is very young but there are clients who are willing to support such initiatives given that the expectation is that R&D will make DAC more efficient over the years. The case thus provides two settings for the students to perform an NPV analysis. One where the ‘next plant’ is being developed. And one set in 2040 when Climeworks is expected to create plants that have a one hundred times higher capacity! The case allows for a financial valuation discussion as well as a discussion about new technologies and how they evolve over time (similar to the development of computers, solar panels, and battery capacity).