Business evaluation: Slo Carbon

A little while ago, I made a website for Slo Carbon. I picked the name because it was available. I didn’t love it, but it was there. So I picked it.

The problem this hypothetical company tries to solve is also described in a different business evaluation for Clime. The “green premium” for carbon-free appliances is too damn high. It needs to come down, so I thought maybe there’s a way to do that with carbon credits (carbon misspelled is cabrón, which is kinda funny).

Cabron credits (I did that on purpose) are kinda funny, too. They represent the idea that carbon intentionally not emitted is worth something. That something ranges from $3 to nearly $3,000 per ton. If there was a way to subsidize using less gas with the environmental benefits of using less gas, then… boom. That could be big.

That’s what Slo Carbon is about and worth diving into.

The Problem

Like I’ve said before, residential gas consumption is too damn high. It needs to come down. Here are the books that validate the last two sentences.

These books show that 25% of our greenhouse gases come from residential energy usage. The math is pretty simple, and the result is easy to remember. Twenty-five percent of the stuff causing or at least contributing to the climate upheaval we’ve all been feeling is due to residential energy consumption. That’s a big enough lever to focus on.

Homes need to decarbonize. The company I’m working on now, Shovels, came to fruition out of that premise. As I wrote, the decarbonization need got me looking into building permits and contractors, and the messiness of that data led me to the business behind Shovels. 

Slo Carbon asks a different question: Can we use the stream of future CO2 not emitted to create a security that can be sold to subsidize the purchase of an electric appliance? In perhaps a more confusing way to ask the same question, Can we use carbon offsets to offset the cost of decarbonization?

We need homes to decarbonize. The problem is clear. The solution is less so.

The Solution

Slo Carbon would use carbon offsets to offset the cost of appliance purchases. A consumer shouldn’t need to front the cash. The ideal flow would look like this:

  • A homeowner decides to decarbonize. It could be a standalone project or part of a remodel. This typically means replacing the gas HVAC furnace with a heat pump system, the gas water heater with a heat pump water heater, and maybe the gas range with an induction range. 
  • The homeowner hires a consultant or general contractor (GC), or both. They get estimates for parts and labor.
  • The consultant or GC fills out some official paperwork with Slo Carbon to quantify the reduction in CO2. This should include copies of recent energy bills. 
  • Slo Carbon securitizes the CO2 into an offset to sell in the carbon markets. Slo Carbon estimates what price it will fetch and pays a slightly lower amount to the homeowner. Ideally, this amount offsets the “green premium” or the higher cost of the carbon-free appliance. The homeowner purchases the equipment, and the GC gets to work installing it.
  • To complete the contract, the GC submits the final install specifications and pictures or other proof to Slo Carbon. Perhaps they also send energy bills for the next six months. Slo Carbon stores this data for anyone who wants to audit the CO2 security.

In this scenario, everybody wins! The homeowner gets a better system. The atmosphere gets less CO2 (yes, even if your electricity is coal or gas-powered–I’ll explain). And the homeowner didn’t need to pay any extra thanks to the Slo Carbon offset. 

The Complications

Oh, there are so many complications here. I wish this were easier. I might have taken a swing at it. 

The grid

Okay, climate skeptics. True, we switch to electric appliances, and that draws more electricity which might be generated by gas or coal, especially at night. I can’t deny that! However, I learned from Saul Griffith’s book that electric appliances are more efficient. They use less energy. It comes down to physics. Electric appliances use about one-third less energy to operate when you measure the input energy, whether it’s gas or electricity, and compare it apples to apples. That saving translates upstream to the power generator, whether a solar grid or a natural gas plant. Simply put, electric appliances use less total energy, so it’s always a good idea to switch away from gas appliances. 

The grid will get cleaner over time. There’s too much political momentum for it. We’ll go nuclear before we build another coal plant. The cost of renewable energy keeps dropping. Even if the electricity coming into your home is gas or coal-powered now, it will be less so in five and ten years. Our grid will inevitably have no fossil fuel inputs in thirty or forty years. 

The cash

The harder problem for me to reconcile is the cash. The cash flow problem here is intense. Let me explain.

About a year ago, I was a homeowner amid a remodel trying to make a green appliance purchase. There’s a whirlwind of activity and if I wasn’t motivated to do it, we wouldn’t have made the switch. I had to do the research, convince my GC to make it work, and hope my wife agreed to spend the extra money. Fortunately, we had the funds (barely), but the stars here needed to align.

Slo Carbon is meant to streamline this decision process for homeowners. Slo Carbon would tell them what to buy and give them the cash to subsidize the extra cost (since the electric appliance is several hundred to several thousand dollars more expensive). The problem is this: Where does that cash come from? Slo Carbon needs to front a lot of money at scale, and each “loan” is of some indeterminant length. 

Going back to the Solution flow above, let’s hone in on the last two bullets. The homeowner is under pressure to make fast appliance decisions. The GC doesn’t want any delays. We need this transaction to be fluid! So, the GC concludes what size heat pump water heater and HVAC to get and Slo Carbon, presumably, determines the total green premium by comparing the heat pump products against the gas alternatives. 

Here’s where Slo Carbon cuts a check to the homeowner. Straight-up cash. It’s either delivered just before the purchase or as an immediate premium reimbursement (probably works better) so we can use receipts as proof of purchase. Regardless, cash moves from Slo to the homeowner. In exchange, we get a signed document that provides Slo the exclusive legal right, or title, to the stream of carbon offsets from these appliance purchases. Through some software that we’d have to develop, that title gets securitized and offered up on one of the many carbon offset exchanges. Then, we wait for someone to buy it and hope the price holds.

Herein lies the other risk. When we paid the homeowner, we relied on an expectation of future carbon market pricing. We took the size of their system, calculated how much carbon would not be emitted over the 20 year life of the appliances, and put a price on that carbon. That price is a guess. If it’s a bad guess, and the price of carbon drops, we could lose money on the transaction when the security is sold.

Let’s put some numbers down to illustrate this and make it clearer. Using my own gas usage data pre- and post-electrification remodel:

  • Sep-Mar 2021: 523 therms
  • Sep-Mar 2022: 157 therms
  • Savings: 366 therms

Each therm is 12 pounds of CO2, so I’m saving 4,392 pounds or about 2.2 tons of CO2 per year. That sounds like a lot! The problem is that the normal carbon market values each ton between $3 and $100. That’s likely the long-term stable price. There are some initiatives where companies are willing to pay far more, but I wouldn’t count on long-term rates over $1,000. The price spread is due to many factors, among them the reputation of the seller, the carbon exchange it’s listed on, and government or private certification of the offset. 

We spent at least $20,000 extra to decarbonize our house. We’re a bit of an extreme case, though. Our HVAC heat pump system is fancy. If the typical green premium is half that, and the savings are roughly equivalent, then it still requires 50 years to pay back. Like I said, the most we could offer is 20 years, the appliance’s lifespan. Two tons per year at $100 per ton would give $4,000. That’s not nothing, but it may not cover the total green premium.

And then there’s still Slo Carbon’s cut. We’d need to eat into homeowner payment; Slo Carbon needs to make money! 

Messy, see?  And that’s assuming this is a legitimate offset in the first place. 

The offset 

I looked. These offsets don’t exist, perhaps for good reasons. I’ll list a few of the reasons here:

  • The California Air Resources Board doesn’t even have a category for residential offsets. We couldn’t sell these in the official carbon market in California. 
  • There’s no concept of bundling future carbon offsets. Offsets look backward, not forward. It’s compensation for carbon already sequestered, a forest not cut down, stuff like that. The idea of promising to use less carbon in the future is alluring but not practical. 
  • The hardest nut to crack is “additionality.” This concept refers to the notion that we shouldn’t subsidize behavior that would happen anyway. Take us, for example. We opted into electrification. Should we be able to bundle our offsets and sell them one year later? Experts say no. For this to be a valid offset, it should create behavior that saves carbon that would not have otherwise happened. In other words, don’t pay people to do things they would have done without subsidy. But it’s hard to prove or predict intent. 

The net of it is this: The validity of the offset is a major obstacle. 


I wanted this company idea to pencil out. I met a lot of great people while I explored this idea and every nook and cranny of the offset market. Many of these folks are now friends and rooting for my success with Shovels. I’m glad I spent so much time looking into Slo Carbon. 

Unfortunately, the idea is just not tenable. It’s fraught with legal and financial risk. I couldn’t see how this company makes money, grows, and becomes a big deal worth spending a large chunk of my 40s on. So I bagged it. 

Then I heard about WattCarbon. To my delight, I learned the CEO lives in Lafayette. We met for beers. McGee is awesome and I love his business. He may have solved the challenges I wrote about here! I will write an evaluation on WattCarbon next. 

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