Startup Series: Watershed

Jul 13

Dr. Steve Davis is the head of Climate Science at Watershed.

Watershed is a leading provider of carbon accounting software. They help large companies such as Walmart, Airbnb, Sweet Green, BlackRock, and many others measure, report, and reduce their emissions. They announced a $70 million series B financing on a $1 billion valuation co-led by Sequoia and Kleiner Perkins in February 2022. And Steve joined Watershed shortly after that in July 2022.

Steve spent the last decade as a professor in the Department of Earth System Science at the University of California Irvine. At Watershed, he works to help close the gap between science and business, ensuring that the pathways that Watershed offers to its customers are scientifically viable. He's also a contributor to the Energy Systems chapter of the most recent IPCC report and the lead author of the National Climate Assessment mitigation chapter.

In this episode, Steve and Cody dive into his background, why he jumped into a startup from academia, what Watershed is and does, an overview of carbon accounting, the decisions Steve sees companies make around decarbonization priorities and the advice he has for startups hiring their first climate scientist and vice versa.

Get connected:
Cody Simms Twitter / LinkedIn
Dr. Steve Davis Twitter / LinkedIn
MCJ Podcast / Collective

*You can also reach us via email at info@mcjcollective.com, where we encourage you to share your feedback on episodes and suggestions for future topics or guests.

Episode recorded on June 26, 2023 (published on July 13, 2023)

In this episode, we cover:

[2:18] Steve's climate journey from law to science and climate
[3:57] What makes the Rocky Mountains particularly unique (Steve's Ph.D. focus)
[5:28] Steve's decision to transition to work on climate
[7:13] His primary research focus at the University of California Irvine: international trade and its effects on emissions
[10:22] Steve's transition to the private sector at Watershed
[13:19] Challenging areas for decarbonization
[15:10] The National Climate Assessment and Steve's work on it
[17:28] An overview of Watershed and its mission
[19:40] Scope 1, 2 and 3 emissions
[21:47] Reporting standards and requirements for company disclosures
[24:32] Watershed's acquisition of Vital Metrics
[26:02] The data challenge of Scope 3 emissions
[27:50] Creating roadmaps for how companies can reduce emissions over time
[29:17] The lowest-hanging fruit of direct decarbonization
[31:56] Advice for companies considering emissions reductions and some examples including Sweet Green, Imperfect Foods, etc.
[36:26] How data usage factors into a company's footprint
[40:49] Opportunities for scientists to get involved in climate tech and solutions

Cody Simms (00:00):
Today's guest on My Climate Journey's startup series is Dr. Steve Davis, head of Climate Science at Watershed. Watershed is a leading provider of carbon accounting software. They help large companies such as Walmart, Airbnb, Sweet Green, BlackRock, and many more to measure, report, and reduce their emissions. They announced a $70 million series B financing on a $1 billion valuation co-led by Sequoia and Kleiner Perkins in February, 2022. Steve joined Watershed shortly thereafter in July, 2022.
(00:38):
He spent the last decade as a professor in the Department of Earth System Science at the University of California Irvine. At Watershed, he works to help close the gap between science and business, ensuring that the pathways that Watershed offers to its customers are scientifically viable. He's also a contributor to the Energy Systems chapter of the most recent IPCC report and the lead author of the mitigation chapter of the National Climate Assessment.
(01:06):
Steve and I dive into his background, why he jumped into a startup from academia, what Watershed is and does, what carbon accounting is, the decisions he's seeing companies make around decarbonization priorities, and the advice he has for startups who are hiring their first climate scientist and vice versa. But before we start...
(01:29):
I'm Cody Simms.
Yin Lu (01:30):
I'm Yin Liu.
Jason Jacobs (01:31):
And I'm Jason Jacobs. And welcome to My Climate Journey.
Yin Lu (01:38):
This show is a growing body of knowledge focused on climate change and potential solutions.
Cody Simms (01:43):
In this podcast, we traverse disciplines, industries, and opinions to better understand and make sense of the formidable problem of climate change and all the ways people like you and I can help.
(01:56):
And with that. Steve, welcome to the show.
Steve Davis (01:59):
Thanks very much. It's a pleasure to be here.
Cody Simms (02:02):
You, Steve, have crossed a couple of different chapters in your life, in your career that I saw as I was getting ready for this conversation: starting as a lawyer and then going from a lawyer to a climate scientist and now to a startup guy. So, walk us through this path.
Steve Davis (02:18):
Yeah. It's been a winding one indeed, and I think fitting for My Climate Journey, I suppose. Yeah. I started out determined to go into the law and maybe even politics when I was a youngster back in high school. Got my undergraduate degrees in poli sci and philosophy and went on to law school at the University of Virginia and eventually wound my way to Silicon Valley and was working at a big firm doing startup financing agreements, mergers and acquisitions, stuff like that. That was fun. But it was sort of a .com bust era, and at the time, my wife was in grad school and she looked like she was having a lot more fun.
(02:59):
Before we had kids and really got locked into that lifestyle, I decided to make a jump. I got to talk with some of her contacts at Stanford and managed to land a grad student position in a lab. I was an outdoorsy guy, so I was thinking that maybe the way into science for me was something a little bit less difficult and demanding than like physics would've been. So, it started with geology and my PhD was on the rise of the Rocky Mountains. I drove all around the West picking up rocks and measuring to see what elevation they were at when they formed 50-70 million years ago. You can kind of chart the rise of the Rockies. Learned a lot about climate in that process, though, and that kind of got me thinking. As much as I was interested in what was happening all those many millions of years ago, it wasn't terribly relevant to what we were going to be up against with climate change.
Cody Simms (03:57):
Before we jump into climate change, I spend a good chunk of my summers in Colorado, even though I live in California during the rest of the year. So, I'm just curious. What makes the Rocky Mountains particularly unique relative to other North American mountain ranges? I am sure I'm asking the right guy this question now.
Steve Davis (04:13):
Well, I mean, in a way, all mountain ranges are formed from similar tectonic processes, but the Rockies happened to have formed at a period of time when the subduction, so one plate was going under another on the West Coast of what's now the US. But that angle of that subduction sort of flattened out. And so, the underlying plate penetrated further into the continent, and that's what sort of started running up against the bedrock in the middle of the continent and forced up the Rockies that we know.
Cody Simms (04:46):
Was this before or after the Midwest of the US was essentially a giant inland sea?
Steve Davis (04:51):
It was just after that. That was in the Cretaceous period, sort of in the dinosaur era, but we're talking about a time that was after the comet hit the planet and killed the dinosaurs off. So, 70 million years ago is when this erogeny began and the Rockies started to rise.
Cody Simms (05:08):
Thank you. That's amazing history that I haven't ever taken the time-
Steve Davis (05:12):
[inaudible 00:05:13].
Cody Simms (05:12):
... to go learn. So, I appreciate that you invested years of your life learning it. And so then from that, you said, oh, you discovered some elements of climate change, obviously, as you're looking at rock patterns and whatnot. So, what kind of pushed you to lean further into that side of the geology space?
Steve Davis (05:28):
Yeah. It was just out of an instinct that although this science was fascinating to me, I wanted to be somewhat more relevant and useful to the decisions that are getting made in our society. I thought translating this scientific knowledge about climate into an understanding of how humans are affecting climate and what we can do about that was a natural next step. So, that's where my research went, and I spent a decade here at UCI working on just that, trying to quantify both the way that humans are affecting the climate through our emissions, mostly, and what can we do about it.
Cody Simms (06:06):
UCI being UC Irvine in Orange County in Southern California. So, you went from studying the Rocky Mountains to moving to the beach. What was that trajectory like for you? How did you land the current professorship at UCI?
Steve Davis (06:18):
Yeah. After I finished my PhD at Stanford, my wife, as I mentioned, was an academic as well, and I worked remotely for a organization called the Carnegie Institution of Washington. But she did postdocs at various places. One was in Cape Cod and one was in Seattle. So, we were bouncing around and getting the lay of the country a little, and we both decided-
Cody Simms (06:40):
Not bad places at all.
Steve Davis (06:42):
Not bad places at all. We enjoyed ourselves. But we also really enjoyed being in California, so we started looking for tenured track professor jobs in California, and Irvine is a wonderful place if anyone of your listeners have visited, it's a gorgeous beach community, and of course you can get to the Sierras and get up into those mountains pretty quickly, too. So it's a nice spot. And not to mention, it's a great university with a lot of good research.
Cody Simms (07:08):
And so, for the most part, for the last decade at UCI, what has been your primary research focus?
Steve Davis (07:13):
Yeah. I think when I started here, I was doing a lot of work on the effects of international trade on our emissions. This was like the era when China was really ramping up their emissions and everyone was recognizing that, but no one had done the math to figure out, well, how much of China's emissions are actually related to stuff that we're buying in the US or Europe or Japan is buying. So, that was a big part of my early years.
Cody Simms (07:38):
The whole, hey, emissions may look like they've peaked and are coming down in the US, but really did we just move them somewhere else, basically?
Steve Davis (07:46):
Exactly. Yeah. That was a big narrative around the Kyoto Protocol era, especially in Europe. It looked like their emissions had leveled off, but when you factored in this sort of imported goods, it was actually still going up. That was some work that I did early on.
(08:02):
I also did a bunch of work on what I called committed emissions. The idea here is that if you build a power plant, you're intending to operate that for decades, 30 or 40 years often, such that if we know the age of power plants around the world, we know there's some inertia there that's going to be emitting CO2 going forward. So, I did a bunch of work to tally up what devices exist on our planet that emit CO2, and how long should we expect those things to operate so that we can get this kind of forward-looking signal of how quickly could we turn the ship.
Cody Simms (08:36):
When we set reduction targets for a decade out from now, we have essentially a baseline of how much is already locked in permanently or semi-permanently, at least through that timescale, I suppose.
Steve Davis (08:47):
Exactly. Yeah. That's precisely right. We talk about carbon lock-in. It's not meant, when we use words like lock-in or committed, to say that it's absolutely impossible to close those plants early. In fact, it's very possible, but it does signal that there is some cost, some real inertia to overcome.
Cody Simms (09:07):
Yeah. I don't know if you remember off the top of your head, like what percentage of carbon lock-in do we have right now through 2030, roughly?
Steve Davis (09:12):
Well, we published a paper in 2019. It featured pretty prominently in the latest IPCC report that showed that if all of the existing infrastructure operates its expected lifetime, we're already past 1.5 degrees of warming, which is the most ambitious global target. That is to say, we absolutely need to retire things prematurely if we're going to meet that goal.
Cody Simms (09:35):
Which is some of the work, I suppose, that big companies now need to do, to really ask hard questions around how do they do direct decarbonization of their own lines of business? Because that often means having to make some of those internal hard trade-off decisions financially.
Steve Davis (09:54):
That's right. If enough companies get involved in that kind of work, it rolls up to pressure to retire those facilities early.
Cody Simms (10:02):
And so, how did you then make the leap from doing this in an academic setting to saying, "I'm going to go jump back into," full circle from you having started your career on the law side, but still starting your career in the .com startup crazy era of the late '90s, you made the decision to jump back into startup land again?
Steve Davis (10:22):
Yeah. It was a bit full circle. I think as an academic, obviously, I'd written a lot of papers and most of those were of some sort of policy-relevant work, but you're never sure anyone's really reading those papers or acting on them. So, that distance gets to you after a while. It was attractive when Watershed came looking for a role of head of climate science to get involved and be in the room with people who are making these decisions and help influence those to go the way that's going to be the best for the climate.
Cody Simms (10:53):
And are you still full-time professor at UCI while you are at Watershed?
Steve Davis (10:59):
I've been on academic leave, which is this kind of weird wrinkle in academia where you can basically retain your position but be unpaid. And that's what I've been doing. I have a few students and postdocs that I still meet with regularly just to not leave them in the lurch. But yeah, I've been full-time at Watershed.
Cody Simms (11:17):
The university sort of says, "Hey, the work that he's doing in the private sector ultimately will come back to benefit our university in some way because he's on such the cutting-edge track of this commercialization work."
Steve Davis (11:30):
Yeah. At least that's what I convinced them.
Cody Simms (11:33):
Well, that's great. In the meantime, before we get into what you're doing at Watershed, you're still very much actively publishing into other bodies of work when it comes to climates. Looks like you're now a co-author on the upcoming IPCC report on the Energy Systems Chapter. Is that correct?
Steve Davis (11:52):
Yeah. It actually came out, so-
Cody Simms (11:54):
It's out. Okay. The one that just came out.
Steve Davis (11:56):
[inaudible 00:11:55] that you were hearing about in the news, I'm sure. Yeah. I was on a couple of chapters of that. In particular, the Energy Systems one was one I focused a lot on.
Cody Simms (12:06):
How does one get invited to contribute to that? And what is it like being inside the authorship of these reports that all of us in the climate community kind of pour all over when they come out?
Steve Davis (12:17):
Yeah. It's probably not as glamorous as you might like to believe. But the process goes that, first, the very top hierarchy of the IPCC gets nominated and selected, and that's the leaders, the co-chairs, they call them, of the different working groups. Then that then trickles down to leads for each chapter being appointed. Those leads then help to select the group of contributing authors, which is what I was for each chapter based on what the content of that chapter is and who's done work in that area that has sufficient expertise. So, it's a lot of sort of email chain, of asking if people would like to participate. It was an honor. It's also a lot of work. It's a multi-year process that entails a lot of meetings, a lot of discussions of nitpicking over which words to use and what papers to cite and so forth.
Cody Simms (13:12):
What were the portions of the Energy Systems chapter that you contributed to directly? For folks who want to go dig it up and read about it.
Steve Davis (13:19):
Well, I led a paper in 2018 called Net Zero Emissions Energy Systems, where we reviewed what we knew at the time about how to decarbonize the energy system and what were the real sticking points, the hard things or difficult to abate, sometimes you hear people say. Those were the parts of the IPCC chapter that I was tasked with looking at. So, what do we do, for example, for things like aviation where you need energy-dense liquid fuels, like the fossil-fuel jet fuel that we use now, but you want to do that without adding carbon to the air. So, alternative fuels, some of these difficult sectors. Some of the figures from that paper I mentioned made their way into the report.
Cody Simms (14:05):
What are your recommendations there?
Steve Davis (14:06):
Well, there's only a handful of options when it comes to liquid fuels. You could imagine doing some of that with biofuels, which is something we've been doing for a long time with ethanol, biodiesel. You can make aviation fuels in the same way, and those are in theory, at least, carbon-neutral, if you've not used any fossil energy to manufacture them, and you've been sustainable about your land use.
(14:30):
But the other one that's increasingly getting talked about, and maybe you've covered it in prior episodes, is the idea that we could synthesize the liquid hydrocarbon fuel with carbon that we've taken from the atmosphere and hydrogen that we've made with electrolysis by splitting water. This takes a lot of energy; it's really expensive, but then when you burn that, you're just restoring carbon to the air that was already there and not adding new.
Cody Simms (14:55):
That's what companies like Air Company and 12 are both doing. Correct?
Steve Davis (15:00):
Exactly. Right.
Cody Simms (15:02):
And then from there, you also have been an author on a chapter of the most recent National Climate Assessment, I believe.
Steve Davis (15:10):
Yeah. This is something that your listeners may or may not be as familiar with, but the US government is... Congress actually mandates that the US GCRP, the Global Change Research Program, produces these national climate assessments periodically. They're sort of like a US-focused version of the IPCC, so meant to be more informative about what exactly the US is doing and what different parts of the US are facing. My chapter in that is the mitigation chapter. So, essentially, how are we going to reduce emissions? It's interesting to me that in the IPCC, that's a whole working group. In the National Climate Assessment, there's just one chapter on it, and so it's a lot to cover in 10,000 words or something, exactly what we're up against. But I think it's been a fun challenge and similar process to the one I described for the IPCC, except for in this case, I was the lead that was doing the picking of the other authors.
Cody Simms (16:07):
And where could readers find that if they want to go learn more?
Steve Davis (16:11):
Yeah. So, it's underway now. There's six, I believe, different drafts that have to be written and reviewed by various parties, and we just had the third order draft that was available for public review, and I think it's still up on the US GCRP's website if people want to see that. Right now, there's another draft that's being reviewed by the agencies, the public agencies like the USDA and the Department of Energy, and they all get their licks in and critique what we've written and we iterate.
Cody Simms (16:42):
What was the acronym of the government group that you said essentially sponsors this?
Steve Davis (16:45):
It's the Global Change Research Program, GCRP. Yeah.
Cody Simms (16:50):
Okay. So, you've contributed; you work in academia; you're contributing work at the international governmental level and at the national governmental level, and now you are also engaged directly with this growth-stage startup that is out there helping big corporates to figure out what in the world they should be doing with respect to decarbonization, which is Watershed.
(17:15):
When I think of Watershed, I think of carbon accounting. I'm sure Watershed does a whole lot more that we're going to talk about. So, maybe explain to all of us what Watershed is and what about the opportunity got you excited to jump back in headfirst.
Steve Davis (17:29):
Yeah. Well, I think you're not wrong that carbon accounting is at the core of what Watershed is about. Essentially, as you said, we're helping major companies to evaluate their carbon footprint, so how all of the ways they're producing greenhouse gases that affect our climate. Then the second piece, of course, is to help them to publicly report that carbon footprint. But the one that I'm most excited about is to help them understand ways that they reduce those emissions and what to do about it. Really, my interest in Watershed stems completely from the fact that as a scientist, I started seeing the writing on the wall, that there's a lot of more research that can be done, but really we're at a point where we have a lot of these solutions. We need to accelerate their deployment. And that seems to be more about talking to the companies and pointing them in the right direction and less about researching fundamental breakthroughs.
Cody Simms (18:24):
Great. Well, let's spend time on each of those categories. Let's start with a big company first comes to Watershed. What are they originally thinking they want to accomplish?
Steve Davis (18:36):
Well, I think it really varies. We should say this at the outset. Watershed works with a lot of different companies, I think close to 300 now. Some of them, they barely know what a carbon footprint is when they're coming in the door. It's something maybe they've heard from the C-suite, "Hey, we need to do some carbon accounting," but they really haven't done any of this in the past and they need a lot of handholding and understanding of what we're even trying to do. There's other of our customers that are incredibly sophisticated, have been doing this for 20 years and are really at the cutting edge, and so they're pushing us to go even further.
(19:12):
Given that huge range, I think the common thread is that we want to understand soup to nuts how their activities are affecting greenhouse gas emissions. That's pretty straightforward when they have a utility bill for electricity or gas that they consume directly or they know they have a fleet of vehicles and they know how much fuel they put in it. It's a lot trickier when you start talking about the things that are what's called scope three, so upstream or downstream of the company.
Cody Simms (19:40):
For any listeners who are still coming into the space, let's do the quick scope one, scope two, scope three primer for people, if you don't mind.
Steve Davis (19:48):
Sure. Yeah. The stuff that I mentioned where you're consuming a fuel directly, let's say you have a furnace in your office building or you have a fleet of company-owned vehicles that are burning fuel and putting CO2 into the air. That's scope one, direct emissions. Scope two is emissions related to electricity or heat that you purchase as a company. In practice, this is almost always electricity. So, when you get that power bill, someone somewhere probably burns some fossil fuels to make that electricity, and allocating that to your business is scope two. And scope three is pretty much every other way that you're having an effect on the climate that's either you bought furniture for your office building; someone made that furniture and the making of the furniture probably had some emissions. So, that would be an upstream scope three. Or, maybe there's a product that you're selling that you had to buy materials for, all of the emissions related to manufacturing those materials and so forth.
Cody Simms (20:48):
For most companies, their scope three is someone else's scope one.
Steve Davis (20:51):
Yes. That's a good point to make, Cody, is that built into the way that we talk about these scopes is a lot of redundancy. If everyone in the world did these kind of carbon footprints, we'd come up with a number summed up that was larger than global emissions, and that's just the way that it works right now. It's more about thinking about your accountability for having had a role in those emissions than having a coherent total.
Cody Simms (21:17):
In terms of that accountability, there have been... I was looking at your website and one of the things you say is, "We'll help you prepare audit-ready reports for all these different standards," of which there were literally like like 27 different acronyms on the website, from SFDR to TCFD, to CDP, to SASB to GRI.
Steve Davis (21:38):
So many.
Cody Simms (21:39):
Yes. What are all these things and who is asking companies to report to them and why do companies need to do it today?
Steve Davis (21:47):
It's a great question. Historically, this has been by and large, voluntary. It's companies that want to do the math, figure out how they're having an impact, and maybe make some steps to reduce those emissions. In many cases, those companies, and I guess we'll get into this, report their carbon footprints for their stakeholders, for their customers, for their employees to see. They do that in some of these acronyms like CDP, the Carbon Disclosure Project; or the SBTI, the Science-Based Targets Initiative. That's one set of acronyms, and it's about this voluntary reporting.
(22:25):
Increasingly though, companies are worried about or at least acting upon requirements to do this kind of disclosure. That's already the law of the land for publicly-traded companies in the UK, to report their carbon footprint and something called the TCFD, one of those acronyms, the Task Force for Climate-Related Financial Disclosures. It's also going to be the law of the land very soon here in the EU. And the SEC in the US, the Securities and Exchange Commission, is considering rules that I think will be the law of the land very soon as well. So, it's becoming mandatory, is the point here. All the publics are going to need to report their emissions including the scope three, I think. So, that's a lot of what our customers are trying to do.
Yin Lu (23:12):
Hey, everyone. I'm Yin, a partner at MCJ Collective, here to take a quick minute to tell you about our MCJ membership community, which was born out of a collective thirst for peer-to-peer learning and doing that goes beyond just listening to the podcast.
(23:24):
We started in 2019 and have grown to thousands of members globally. Each week, we're inspired by people who join with different backgrounds and points of view. What we all share is a deep curiosity to learn and a bias to action around ways to accelerate solutions to climate change. Some awesome initiatives have come out of the community. A number of founding teams have met, several nonprofits have been established, and a bunch of hiring has been done. Many early-stage investments have been made as well as ongoing events and programming, like monthly Women in Climate meetups, idea jam sessions for early-stage founders, climate book club, art workshops, and more. Whether you've been in the climate space for a while or just embarking on your journey, having a community to support you is important. If you want to learn more, head over to mcjcollective.com and click on the members tab at the top. Thanks, and enjoy the rest of the show.
Cody Simms (24:13):
You mentioned this scope three is the most challenging piece because you can't just pull up a energy bill for it. You've got to go out and actually understand what's happening across all of the goods and materials you use to ultimately assemble your product, as I understand it. You all made an acquisition quite recently of a company called, is it Vital Metrics? Is that helping you with the data sets you need to help companies understand their scope three? Is that what that's all about?
Steve Davis (24:42):
It is very much about that. One of the ways that we do this is by having very sophisticated models of the global economy, or at least an economy. A lot of times, companies in the space are using a model that's been built by the US Environmental Protection Agency called the EEIO, US EEIO model. That stands for Environmentally Extended Input Output model. But it's basically how all the different sectors of our economy are trading off. So, how much clothing gets used by the forestry sector and stuff like that. By having all of these interactions explicitly modeled, we can say for a dollar of expenditure in some sector how much went on in another sector and thereby get to an estimate of emissions.
(25:29):
The acquisition of Vital Metrics that you mentioned was really exciting because the US EEIO model is just a US model, but we're in a very global economy at this point and we're dealing with multinational companies. So, the SEDA model is global; it has 198 countries in it. So, we're actually able to now say when you purchase something in the US, on average, how much of that is leading to emissions in other countries. It's something we touched on earlier, but this is bringing it to the business of carbon accounting
Cody Simms (26:02):
How much does the data that each of your customers presumably bring into the platform about their supply chains and whatnot, stay local to them as a customer? And how much can they opt to make the whole system better where their supply chain data can feed footprint data to other companies who might have similar supply chains?
Steve Davis (26:23):
Yeah. You've touched on something really important, which is that fundamentally this scope three thing is a data problem. We can do some really fancy modeling, like I mentioned, but if we want to really resolve what's happening in your scope three, we need actual data about that. And that can be hard because sometimes it's proprietary or in some cases you don't really even know, if it's so far up your supply chain, who to even talk to.
(26:47):
So, we do have in mind this model where eventually our customers can share data with each other. Right now, of course, that has to be opted into. It's all sort of proprietary to each customer. But we've built some tools to help our customers survey their suppliers, and in some cases we've actually had where a customer is surveying another customer of Watershed and we happen to have the data on hand so we can facilitate that kind of data transfer if the customers opt in.
Cody Simms (27:18):
Okay. So, you have this data for an individual corporate. They're doing the work to pull in their full supply chain. They've done the work to assess their scope one and their scope two, and I think that brings you to sort of the next big area that Watershed can help them do, which I don't even know if many of them come to you originally thinking that this is what you're going to help them do, but you can help them then build roadmaps for how they might want to reduce emissions over time. Is that a core part of the software platform today?
Steve Davis (27:50):
I think it's increasingly important. To be honest, this is one of the learnings that I've had since joining Watershed. I really thought, coming in, this was going to be mostly about convincing people at these companies that they should take seriously the climate problem. But what I've learned is actually they're fully bought into that. They know that they want to do something on this, and so they really want us to answer the question of what? How do we have the biggest impact for the least cost in reducing emissions? So, that's the part I'm honestly the most excited about, is digging in and using the data that they gave us to measure their emissions, to say something insightful about where they should allocate their resources to reduce.
Cody Simms (28:34):
And how much of that is direct reduction of their product, their business, and how much of that is stuff outside of their company, where they're trying to contribute to emissions reductions in the world?
Steve Davis (28:46):
Yeah. Well, obviously that answer depends a lot on what kind of business it is. In some cases, as you intimated, the scope three piece is 90%+ percent of the customer's footprint. So, there's only so much they can do by directly changing what's going on in their facilities. It has to be a lot, engaging with suppliers, thinking about which suppliers to source from, changing what you're sourcing and thinking about your own products in a way that captures potential changes.
Cody Simms (29:17):
Have you all discovered what tends to be the lowest-hanging fruit of direct decarbonization? Is it energy mix? Is it internal policies around people ops related things, travel, food consumption, et cetera, commute to work? Now, I'm just making up stuff, so I'll be quiet and let you answer the question, but curious what you're discovering looks like tends to be low-hanging fruit.
Steve Davis (29:39):
It probably wouldn't surprise you that the same stuff that our companies are having most of their opportunities is the stuff that we talk about as a society having the biggest opportunity. So, clean power, getting towards more renewables and less fossil fuels is definitely low-hanging fruit for almost every customer. Then, thinking about things like buildings and how you're heating those buildings; your transportation, whether that's your employee commute that you mentioned or logistics, more often. How do we reduce the amount of liquid fossil fuels there and start to electrify some of that? That gets you a lot of it, just those three. If we look at the US breakdown of emissions, that's going to get you 70 or 80% of the way there.
Cody Simms (30:26):
Given all this that we've talked about, what role do you focus on the most in working with these companies that you all are partnered with and in general on the Watershed platform?
Steve Davis (30:37):
Yeah. I think we really are trying to get them to a place where they can understand how to allocate the budget that they have available to change their carbon footprint. To the extent that's upstream, then we have to kind of hold their hand and figure out how to engage with other suppliers, which ones make the most sense to engage with and what to ask for. We know, for example, in some industries that it's going to be a lot of heat-related emissions, and so how do we get that to be electrified and use clean electricity instead of fossil? So, figuring out where those reductions are going to be the biggest and most cost-effective is a big part of the job. Is that answering your question, Cody?
Cody Simms (31:20):
Yeah, for sure. Then, I know you guys also do some work with the Marketplace on carbon removals. What does that look like?
Steve Davis (31:27):
Yeah. The Marketplace has this suite of products, including clean power and some of these other reduction options, but it does include some nature-based carbon removal, some of the things I'm sure your listeners are familiar with in the traditional offset markets like forestation projects or improved forest management. We vet these projects, and that's a big part of my role is to make sure that we're holding a very high bar in what we include in that Marketplace. This is a very fraught area, lately. A lot of companies have blundered into bad projects and gotten criticized, rightfully, in the media. So, we want to make sure that we're not going to be leading our customers into those same pitfalls.
(32:11):
We also have a really interesting relationship with the Frontier Project. I don't know if you've heard of that one, Cody. But-
Cody Simms (32:17):
Yeah, of course. But unpack it for everyone else.
Steve Davis (32:20):
Yeah, sure. This is more about the technological carbon removal is what it usually goes by. So, not depending on trees or seaweed or things like that, necessarily, to do the removal, but rather having industrial operations or things like enhanced weathering of rocks that can help to take the carbon out of the air and store them in a more permanent way that's not going to burn up in a forest fire, let's say.
Cody Simms (32:46):
When you're working with a company, how do you advise them on when or what percentage of their initiative should be direct decarbonization and when to look to some of these sort of solutions that are outside of their own sort of scope of business influence, I guess, is maybe the right way to think about it.
Steve Davis (33:06):
Yeah. I actually would say that the business influence is not the right way to distinguish. I think we should really be pushing customers of ours and just companies in general to pursue those reductions wherever they are, regardless of who is operating control of that source of emissions.
(33:26):
The other two ways that I would recommend looking at this, though, one is sort of a top-down view of, like, let's look at scenarios where we solve the climate problem effectively by reaching net-zero emissions globally. How much of that solution is coming from carbon removal versus reductions in emissions? Different scenarios and models come to slightly different answers, but it's more like 90% of it is reductions and maybe 10% is removals. So that, actually, the 90/10 breakdown is how the Science-Based Targets Initiative sets the goal for if you want to reach a net-zero target, you need to do it 90% of the way with reductions and you could have maybe 10% of these permanent removals.
(34:10):
The other way is a more bottom-up idea, and I think this is where we'd look at cost. In my view, you shouldn't be paying Clime Works in Switzerland to remove carbon from the atmosphere, $600-700 a ton, until you've gone ahead and done the cheap stuff. You need to go ahead and figure out how to get clean power, electrify your vehicles, put in a heat pump. All of those are vastly cheaper than paying for really expensive permanent carbon removal. So, insofar as you can find out where those emissions are coming from in your supply chain, those should be the priorities.
Cody Simms (34:45):
Do you have examples of organizations that you can share that are doing interesting work in any of these areas, that you think are good examples for listeners to get their head around? "Hey, this company came to us with a problem; we helped them understand their footprints, and based on that, here are some of the direct decarbonization actions they took and here are some ways that they even supplemented that," potentially.
Steve Davis (35:08):
Yeah. I have a couple that we could talk about. One of our earliest customers is the restaurant chain Sweet Green. It's a point of pride that we put a lot of effort into understanding the emissions related to their supply chain, which is non-trivial because unlike a tech company, they're actually growing food in their supply chain. So, the emissions related to that can be difficult to decarbonize and difficult to measure. We really did a lot of work, not only to understand those emissions, though, but to help them think about how they could change their menu to help reduce the emissions related to things.
(35:44):
We got down in the weeds and, for example, looked at the emissions related to cheese in some of their salads. It turns out that harder cheeses have a higher carbon footprint than wet, soft cheeses do. It's because the water that is gone from the hard cheese implies that there's actually more milk per weight of cheese. So effectively, by getting them to have more salads with soft cheeses, they were able to reduce their carbon footprint. That's just a kind of wonky example to show how we're getting in and really trying to help the companies we're working with diagnose and come up with creative solutions in their own operations.
(36:25):
Another one, maybe a little less kind of wonky and creative is just thinking about electrifying vehicle fleets. We work with Imperfect Foods, which is a company that delivers fruits and vegetables. They have a fleet of vehicles that they've been doing these deliveries and they're considering how to electrify that fleet. So, we've done some work with them to actually help model how that electrification process would look in different markets, what sort of routes their vehicles are on, how frequently they would need to charge, what are the advantages of different charging stations, the carbon intensity of grids, how much emissions would be avoided in those different areas. So, getting deep on those kinds of things, I think, is really important, and we want to do more of that. So, we have customers that are doing that in a very sophisticated way, like Sweet Green and Imperfect, but we just want to build our software where that's easy to do for all of our customers.
Cody Simms (37:20):
Well, speaking of software, you all are in Silicon Valley. Your company has strong roots in software, between your founders' backgrounds. We haven't talked about that, but where the founders of the business came from. And your main investors are heavy, heavy software investors. How much does data center usage factor into companies' carbon footprints today and their emissions profiles today? With this world of generative AI that's happening and all of that, it feels like our use of data and how it generates emissions is only going to increase over time as a society. If you look at where our emissions have the potential to grow rapidly, I'm curious how much that factors into planning that you help these companies do.
Steve Davis (38:05):
Yeah. You put your finger on something really important. A lot of our customers are in the tech space and doing a lot of computing, and cloud computing in particular. So, data centers are a major source for some of those companies.
(38:17):
The good news about that is that although it is growing and I'm sure AI is going to lead to an even sharper rise in some of the demands for these data centers, it is something that we very well know how to decarbonize because it's electricity. Right now, one of the, as we said, lowest-hanging fruit is figuring out how to use more renewable electricity. So, we know we can afford this. That's something that doesn't worry me so much since it's not something extremely difficult and a chemical process that we'll have to reinvent.
Cody Simms (38:49):
And the big ones that keep you up at night are?
Steve Davis (38:52):
I think the most difficult things, as we said, are where we really need some energy-dense liquid fuel, like for aviation or some of the long distance transportation processes that create CO2 regardless of what energy you're using, like making steel or making cement. Then, there are other issues with the power sector that you may be familiar with. So, we can do a lot with renewables, but because they're variable, at some point, we have to figure out how to store quantities of energy for long periods of time or have some sort of dispatchable technology that can back up our renewables when the wind doesn't blow and the sun isn't shining.
Cody Simms (39:33):
Where do you see this all headed? It seems like every company today has an accounting firm to help them manage their finances. I presume the vision of Watershed is that every company is going to need to do this type of carbon accounting in the future. How do you think companies should prioritize starting?
Steve Davis (39:56):
Well, I think that, as we said, there's been early adopters that have done this voluntarily, but it's pretty quick here. A lot of the big companies, all of the public companies are going to need to do this, so they're not going to have a lot of choice about when and how to start.
Cody Simms (40:11):
This is because of all the regulation changes that you said already are happening and will continue to happen.
Steve Davis (40:17):
Exactly. Yeah. I should have been clear. The SEC rules that are coming down the pipe are going to mean that all the public companies are going to need to do this. I think firms like Watershed are going to be in great demand because we make this process much simpler than trying to reinvent it from scratch yourself if you haven't done it before. But as I've emphasized throughout, I think measuring your carbon footprint is really just table stakes here. I think companies are going to increasingly recognize that dealing with climate change is not just a cost, it's more and more an opportunity. So, there's actually cost savings to be had by some of these changes. And I think that customers and employees and everyone really wants to be working and associated with companies that are taking action and doing the right thing on the climate. So, there's a real return on investment that's going to come from pursuing this in an ambitious way and not just being a measurer and sitting by the sidelines.
Cody Simms (41:15):
Well, it feels like important that that is the case for this to really happen. Otherwise, people are going to do the minimum to comply with regulations and be done with it, right?
Steve Davis (41:25):
Right. Yeah. I think as a climate scientist, this may be weird to say, but I'm actually more optimistic these days than I have been in a long time. Certainly, when I started at UC Irvine 10 years ago, it was a much bleaker outlook for how we were actually going to reduce our emissions. There's actually plenty of ways you can reduce emissions and save money now. And so, that's a really great thing that I think is often overlooked when we see a lot of the impacts of climate change mounting.
Cody Simms (41:54):
Steve, what should I have asked you that we didn't touch on?
Steve Davis (41:56):
I think one thing that we didn't really talk much about and has been top of my mind is, as an academic, how is the research getting translated into the corporate sphere, and is that happening to the degree that it needs to? I think the answer to that is that my being involved in this is sort of a first foray from my community into this corporate space. There's a lot of interest among the graduate students at UCI and people that are traditionally going into academia in participating in this space. Climate tech is growing so fast that I think that's really great, and it's an interesting idea to have the scientists and not just the business folks involved in these kinds of conversations. So, hopefully that'll continue.
Cody Simms (42:41):
Well, and I guess, to that point, for anyone building a climate tech business, any advice on what to look for when wanting to bring in your first climate scientist into the team?
Steve Davis (42:53):
Yeah. This is something I've talked about with colleagues here. We are in an Earth system science department. I don't know if I said that earlier. But training people to think about how the Earth and its systems work. There's also plenty of folks that do computer science or engineering of some of the systems, the solutions that we've been talking about. I think there's a real opportunity to start fusing more of those different sub-fields together into someone who's really thinking hard about climate tech as a space. So, you want someone who can code, who knows something about the engineering solutions, but also gets how the ocean works or how the forest works. Right now, I think those are often different people. If I was getting into this business, I would be really pounding the pavement and looking for the folks who've cross-pollinated in these different fields and can actually help me in various ways, more than one.
Cody Simms (43:44):
And then, I guess the opposite question is, for any climate scientists out there who are thinking maybe they want to leap into a commercial or for-profit place for their work, what advice do you have for them?
Steve Davis (43:56):
Well, it's definitely a learning curve. I can tell you I've been at Watershed for a year, and the pace is very different than it is at a university. It was exciting and daunting to jump in and be as overwhelmed with Slack and email and all of the ways that communication happens in a modern startup. So, you have to be prepared for that. But otherwise, it's an incredibly gratifying thing to not just be writing academic papers, but having conversations with incredibly smart and driven people who are making a difference in the world.
Cody Simms (44:28):
Well, Steve, we appreciate you joining today. I enjoyed learning from you, and thanks for sharing your knowledge with all of our listeners.
Steve Davis (44:35):
My pleasure. Thanks so much for having me, Cody. It was a fun chat.
Jason Jacobs (44:38):
Thanks again for joining us on the My Climate Journey podcast.
Cody Simms (44:42):
At MCJ Collective, we're all about powering collective innovation for climate solutions by breaking down silos and unleashing problem-solving capacity.
Jason Jacobs (44:51):
If you'd like to learn more about MCJ Collective, visit us at mcjcollective.com. If you have a guest suggestion, let us know that via Twitter @MCJpod
Yin Lu (45:05):
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Cody Simms (45:14):
Thanks, and see you next episode.