The $45 Spread

The first time Bob and I tried to sell our software, I was sitting on a living room floor doing the math in my head one more time, hoping it closed. We had put everything into that system. The guy across from me was a friend of a friend, and I was fairly sure he bought it out of pity. What I remember most is the conversation I had with myself afterward. Not about the deal. About the numbers. Did we have a business, or did we have a good idea that was going to quietly take us under?

That question has never really stopped asking itself. Every founder I have sat across from in the last forty years has wrestled with some version of it. The ones I have watched build something that lasted had one thing in common. They could tell you, without flinching, what it cost them to make the thing and what someone would pay for it. The ones who could not, did not make it through the next downturn.

That is the thing I kept hearing when I listened to Alex Economides on the show.

Alex walked Kevin and Philip through the economics of direct oxy-fire carbon capture, and the moment the math came out it was like watching a wellsite geologist hand you a log. His technology, he told them, costs about $40 to capture a ton of CO2. The 45Q tax credit pays $85 a ton, tax-free. That leaves him with about $45 a ton of tax-free money in exchange for the work. His words: that is a good deal.

$40 to capture. $85 from 45Q. $45 left on the table, tax-free.

That is a business.

Now compare that to what Alex described on the open carbon futures market, where credits have been trading around $2 a ton. His line on that was one of the best things I have heard on a podcast in a while. Nobody in carbon capture, he said, is going to get up in the morning and make coffee to have a conversation about earning two dollars a ton. If you are not getting your credits for free, you would rather stay in bed. Actually, he said, you would probably just get a different job.

That is not a business. That is a press release with a logo on it.

The Spread Is Doing a Lot of Work

Here is what I have seen in forty years of watching companies in this industry. The spread is not just your margin. It is every good thing that is going to happen to your company over the next ten years. It is your ability to hire the engineer you actually need instead of the one you can afford. It is the cushion that lets you survive the month a customer pays late. It is the capital you put back into the next version of the product so you are not obsolete when the market moves.

Alex had a competitor comparison that made this real. Direct air capture technology might run you around $150 a ton. That means DAC is upside-down on the 45Q credit by about $65 every single ton they capture. Alex's technology is right-side up by $45. Same policy environment. Same customer. Wildly different business.

See, the other guy is trying to build a company on a negative spread and hoping for a bigger subsidy. You built a company on a real spread and you do not need anyone to change the rules to win. That is the difference between a business and a campaign.

Where the Math Actually Lives

When Bob and I were running Total Stream in the early years, the hardest lesson we had to learn was that the spreadsheet is not the business. The spreadsheet is a map of the business. If you drew the map wrong, you are going to end up in a ditch no matter how nicely you painted the car. That is why I told our engineers for years that you can be creative with the data you use to find better solutions, but you cannot be creative with the structure underneath the data. The structure has to be true.

Alex's discipline is the same discipline in a different uniform. He told Kevin he has spent his career doing math for a living. He says it like it is self-deprecating, but it is not. The people I trust most in this industry, whether they came up on a rig or on a Bloomberg terminal, all do the same thing. They do not fall in love with the story. They let the numbers tell them whether the story is true.

And that is a harder discipline than it sounds. When you have poured years of your life into a project, the last person who wants to be told the spread does not work is you. I have watched operators fall in love with the story of what they were building, pencil-whip an assumption on the back end to make the pro forma close, and keep going until reality caught up with them. Nobody planned for it to end that way. They just did not let the numbers tell them the truth early enough to change course.

Know What It Costs You to Make a Ton

If you cannot tell me your per-unit capture cost without pulling up a file, you do not have a project yet. You have an idea. There is nothing wrong with ideas. Just do not confuse them with operations. Alex had his number on the tip of his tongue. He said forty dollars the way an operator says weight on bit. That is what it sounds like when a founder actually knows his business.

The spread is not money you spend. It is money you deploy. A $45 spread is what builds the next version of the product, pays the next engineer, and keeps the lights on the next time oil goes sideways. Operators who treat margin like a paycheck end up with no company in the next downcycle. Operators who treat margin like a war chest end up acquiring the ones who did not.

The Cherry Is Not the Cake

Now, the 45Q credit is real, and it is generous, and it is the thing that makes the United States a better place to run a carbon project than Europe right now. Alex was clear about that. Uncle Sam is paying $85 a ton, tax-free, and you can sell the captured CO2 on top of that. That is a huge cherry. He used that exact word.

But the cake underneath has to stand on its own. A policy can change. Your operation has to survive the next administration, not just this one. Alex pointed out that the 45Q credit was raised under one administration and kept under the next, so at the moment the policy picture is stable. That is the moment when it is tempting to build your whole business on the assumption that the cherry is always going to be there. That is also the moment when prudent operators start stress-testing what their economics look like without it.

If your operation is profitable without the cherry, the cherry makes you formidable. If your operation is only profitable with the cherry, you are one election cycle away from a problem.

Why So Much of the Carbon Space Is Upside Down

Alex made one observation in that conversation that I have not been able to shake. He said some of the carbon credits out there have been issued for things that probably did not deserve them. Credits from planting a tree cost essentially nothing to generate. Credits from capturing a ton of CO2 off a running engine cost real money. When those two things trade on the same market at the same price, the market is broken. The guy doing real capture work cannot compete with the guy whose capture cost was basically zero.

He holds two US patents on how to fix that problem. I will let him tell that story himself on the episode. But the point for operators is this. You do not want to build a business that depends on a broken market correcting itself. You want to build a business that makes sense on straight economics, inside a policy environment that actually works, capturing real carbon off real engines. That is what Alex is building at Occam's. That is what survives the next cycle of policy noise.

Final Thought

There is a specific kind of peace that comes at the end of a long day when you know the numbers are true. It is the same peace a drilling engineer feels when the weight on bit matches what the well is asking for. Nothing is going to surprise you, because you already did the hard looking.

A lot of the carbon conversation right now is surprise waiting to happen. Companies are building on subsidy assumptions, credit price assumptions, and public sentiment assumptions, and the spreadsheet is carrying all of them on its back. When one of those assumptions gives way, the whole thing comes down.

Build something that holds up when the cherry is gone. That is what Alex is doing at Occam's. That is what Bob and I tried to do at Total Stream. That is what the founders I still respect the most, across every cycle I have seen, all have in common. The press release will come and go. The spread is what actually carries the business forward.

Alex Economides is a fractional CFO at Occam's Technology and an energy transition advisor to New Tech Global. He holds two US patents on carbon market design. On Wisdom at the Wellhead, Kevin Fischer and Philip Richard sit down with him to walk through the real economics of carbon capture, the $45 spread, and why the United States is currently the best place in the world to run a capture project.