Hello, welcome back to the Sustainable Finance Summit. I'm Carolyn Campbell. I head up our fixed income and ESG research here at Morgan Stanley. I'm joined today by John Bissell and Rich Riley, co-CEOs of Origin Materials. Very quickly, before we begin, please note that this webcast is for Morgan Stanley's clients and appropriate Morgan Stanley employees only. This webcast is not for members of the press. If you are a member of the press, please disconnect and reach out separately. For important disclosures, please see the Morgan Stanley Research Disclosure website at www.morganstanley.com/researchdisclosures. I'm sure it's very entertaining. Let's get into it. Let's start just with a overview of the company. John and Rich, can you guys give us the elevator pitch? What is Origin trying to accomplish? What products are you producing? Sure. Thanks. Thanks, Carolyn. Thanks for having us today. We spent over 10 years developing a highly proprietary technology platform that enables us to convert really any form of cellulose into a wide range of carbon-negative materials. Our base case is to use the waste coming off of sawmills, so, wood residues, but we can use agricultural waste and all kinds of things. From that we produce three primary intermediates. It's sort of like a wood waste refinery. The target molecule is chloromethylfurfural, CMF, and that is a very flexible molecule that can go on to become, paraxylene, for example, and PET plastic, which is one of our flagship products. Second intermediate is called hydrothermal carbon. It's a solid. We call it HTC, which can go into carbon black, which is one of the principal ingredients in our tires and really anything that's black. The third intermediate is oils and extractives, which can go into biofuels. We make those three things. We went public to raise the money necessarily to get to commercial scale. We've been at pilot scale for years. Our first plant, Origin One, which is pictured in our backgrounds, is mechanically complete and will turn on next month. Then our much larger and first world scale plant, Origin Two, is scheduled to come online in the 2025 timeframe in Geismar, Louisiana. I guess the other pitch is that we've When we started this process, we had about $1 billion in demand entirely from the packaging space. Pepsi, Nestle, and Danone were early investors and board members of the company and critical in proving out the technology. Since then, we've grown that to well over $9 billion and extended way beyond packaging into textiles and automotive and lots of other end market applications. Awesome. Sounds like we have a lot to dive in here. For those on the line, I forgot to say, if you have questions, please submit your questions. We are gonna take time for Q&A at the end. If you're like me and haven't taken a chemistry class since university, some of these terms, maybe you need clarification, and we can also help you there. Let's go back. You've got the exciting completion of Origin One. As you said, that's starting operations next month. Origin Two also entering into its development phase and four more plants that are scheduled to come online by the end of the decade. What are the plants doing, and how do they differ from one another? Yeah. It's a good question. We really think about this as a supply and capacity build story. Even if you're just talking about our first couple of products, right? PET, carbon black, we need dozens of these plants. You know, dozens is an underestimate of the number of these plants in order to start really supplying the demand for green or decarbonized materials in those areas. For us, this is about, you know, how can we bring online capacity to supply these materials as quickly as possible? Now that said, you know, of course, that's sort of the big picture. Just build, right? We've got the demand. On an individual plant basis, we're obviously making sort of optimization decisions around each one of these. That's everything from, you know, how do we get to the highest value products that make the most sense off of each of these plants? And that depends on things like, you know, which customers are interested in these materials for new materials? What are customers, you know, willing to pay at a given point? That's interesting to us, and there's opportunity for us to optimize there. Another is, you know, on technology. As we think we have a long arc of continuous improvement for this technology. Any place where we can bring in a little bit more efficiency, we can bring in new ways to do things, we'd like to do that. That's really all just something that's operating on top of this broader technology platform. These plants, we think of them, we model them as being substantially similar, right? Of course, we're gonna be making some improvements and changes on a plant-by-plant basis. That's just the nature of the chemical industry. You're always doing that. You touched a little bit on the demand. There's lots of demand. That's great to hear. Can you talk a bit about the offtake agreement and capacity reservations that you've got and some of the partnerships that you've signed in the past 12 months? Sure. Well, as I mentioned, we've extended well beyond packaging, which is sort of our base set of important partnerships, and have signed with, you know, several textile companies, luxury goods companies like LVMH, and lots of other chemical companies have also become customers of ours. They're great for us because we're very far upstream, and so these companies have the capabilities to take our intermediates and go on to produce very high-value applications for all kinds of end market uses. You know, they're under a lot of pressure from their customers to bring low-carbon solutions, sustainable solutions to them. It's a very natural partnership. We continue to grow and basically prove to John said that, you know, we're, we think we're supply constrained for a long time in terms of demand and how massive these markets are. Another partnership I'll just highlight that we announced recently is Indorama. Indorama is the world's largest maker of PET plastic, but not everybody's heard of them in the U.S. markets. A very natural partnership for us, if you think about what leaves our plants is the para-xylene component of PET, and then partnering with someone like Indorama to convert that further into PET, makes a lot of sense. They have a lot of the customer relationships and stuff like that. I think you'll see us continuing to do strategic partnering like that, where we stay as far upstream as we can and then partner with sort of, you know, best in class partners to deliver to the end markets. This has been a big theme obviously for us in ESG, especially as reporting has gone underway for Scope 3 emissions. Everybody's very paying a lot of attention to collecting data and looking at their supply chain emissions. Having that carbon neutrality embedded in the product is a huge component of that for those that are involved in the space. What type of pricing power has that afforded you with this growing demand for carbon negative and sustainable materials over the last couple of years? We started out assuming that we would, you know, maybe be able to charge green premiums, but not really baking that into our assumptions or our game plan. I should say from day one, 10+ years ago, we set out to be cost competitive with oil and so to not be reliant on green premiums, which is pretty unique in our space. That being said, we are able to command green premiums. People now even have to argue that if it's lower carbon, there's value in that. You know, three years ago you did, certainly with some customers. We've struck what we think is a reasonable green premium. You know, most companies have found that their economics can work with the appropriate premium. That being said, we really wanna be a very poor partner to our customers, and so we're not trying to build one plant and find the really niche segments where we can command the highest premium. You know, we wanna build many dozens of plants and be an enormous provider to these companies. We don't wanna be seen as sort of trying to take pricing advantage inappropriately. That's where we try to live in the happy medium there. How does the pricing compare now to petroleum-based products and how does the cost curve look over time? What are the timelines you see for being for having those pricings with petroleum-based products equivalent or cheaper and or? We see ourselves as cost competitive now. Okay. I think over time, we as I said, you know, we see there being sort of a long curve for continued technology improvement in the same way there was for petrochemicals, right? You know, one of the interesting things is that legacy fossil production systems have more than a century of technology improvement and sophistication associated with them. They didn't start out as efficient as they are now. We expect to have a similar sort of long time horizon, continued improvement of the technology. We even now, we see ourselves as cost competitive. I think good now gonna continue to get better. That's even without things like the, you know, carbon pricing, right? Obviously, we're seeing much more explicit carbon pricing assumptions in the market now, and that has a really quite material impact on what is the real equivalent cost, right, between these. Now that said, as Rich was mentioning, we also, we're seeing, you know, significant price premiums as a result of the decarbonization element and renewable content component. I mean, those are often we talk about those things as aggregated, but they're actually two different components going into the process. Then we see supply chain benefits too, right? The fact that we don't have the same sort of geopolitical risk associated with our value chain, as you see with fossil-based materials. For some customers, that matters also. I think we're seeing this sort of equivalent cost, again, good now gonna keep getting better and both for technology reasons and for, let's call it sort of, macro reasons as well. You've alluded a bit here to the breadth of products that you develop and are offering. Can you talk a little bit about what the total addressable market looks like, both in the near term and in the longer term? Yeah. It's, I mean, so probably worth backing out a little bit and talking about chemicals, in general, because I think, you know, often people think of chemicals as a particular ingredient, right? We have a little bit of an odd definition as a society of what is a chemical. The reality is all physical goods are made of, made up of chemicals. In fact, the chemical industry is the materials supply industry. Everything that we use from, you know, semiconductors to cars, fuel, all of it is, in general, maybe fuels I would carve out and call oil and gas specifically, but everything else is chemicals and materials. What's also, you know, it's useful to just keep that in mind, right? The TAM when you're talking about chemicals is massive. It's probably, I think the only market that is, broadly speaking, larger than the chemicals materials markets is the energy markets. If you take that as your context, the next really interesting thing is there are actually a relatively few number of building blocks that go into making up all of those different materials. You know, Ethylene is a major one. Propylene, broadly, we call those Olefins. There are sort of the Aromatics class, there's not that many more different meaningful volume building block species for chemicals beyond those, just those. When we bring in a new building block, which is really what we're doing, this intermediate CMF and HTC also, there's sort of a new core building block for the industry. We look at it and we're looking across the entire material space basically, and saying, "Well, where, if given a new building block, can you add value or can you decarbonize?" Which are two a little bit different questions. The answer is a lot of places. There are a ton of spots where you can do that because there weren't that many building blocks to begin with, giving people another one, you know, that's a, that's a huge value add. We see, you know, hundreds of billions of dollars per year of TAM, that's pretty sort of like line of sight addressable, with existing technology. You can even sort of squint a little bit and say, "Okay, but we don't know all of the places where you can add in a new building block and get value add." You know, you can look at historical examples of this and, you know, where did they show up? The answer is, almost every single one of the markets, materials markets ends up using each of these building blocks to some extent. So I think it's reasonable to say that, basically everything except maybe the polyolefins part of the market and the inorganics part of the materials markets are a place where we can play and there's real TAM there for us. When are we gonna get to it? Depends on the product, right? There's just... We've got so much running room on TAM, the TAM side that will probably never be a concern for us. I think we will be in the capacity building side for at least my natural lifetime, probably. Your natural lifetime. Okay. Well, I don't know if we have a panel on non-natural lifetimes later at some point, but, you know, we'll keep you posted if we do. That's one of the interesting things though about these technology cycles on the capital-heavy side of the industry, right? Energy is the same way, is your arcs of capital deployment are very long. They're like historical timelines rather than really short-term ones. You know, like some of the first wave, let's call it, of chemical technology companies were some of the greatest value creators in the history of humankind. You know, DuPont, right, is an example. Standard Oil is another one. I think they're just interesting companies from that perspective. They operate on slightly different timelines. I think decarbonization is a long timeline, long arc that's gonna have a huge impact on lots of different industries. It's not something that in five years we're gonna talk about, go, "Okay, well, what's the new mega trend?" Right? It's still gonna be decarbonization. Mm-hmm. We're still gonna be deploying enormous amounts of capital towards it. You can see that with solar and wind already, renewables, right? We're deploying enormous amounts of capital into solar, wind and other renewables. We're not even close to being done. We're gonna keep doing that for decades, you know? I mean, I certainly agree. Otherwise, that's. Yeah, that'd be a problem. You talked about the fact there are supply constraints, you're cost competitive, you've got this squint at the TAM that's so broad. I think that begs a very natural question around the competitors, when you layer in the fact that this is carbon neutral or carbon negative. Why don't you talk to us a little bit about the feedstock that you're using, the amount of feedstock available, and then what the competitive landscape looks like, for you from both petroleum-based, but also from the competitive landscape for companies that are trying to also go carbon negative. Yeah. I, there are a lot of ways to answer this question. I'll try to give you a few. One is, we basically never run into competitors in our actual product markets. As we're going in, we're talking to customers about decarbonized PET, there is nobody else that we run into where they're saying, you know, "Well, we could use this other decarbonized PET option." The perhaps, slight exception to that would be like the ethylene glycol producers, the green ethylene glycol producers, of which there are several, but they're actually a complement, so they're not competitive. We're providing different components of the PET supply chain. The part we provide is about 80% of the carbon that goes into PET. Ethylene glycol is about 20%. Even in the case where it sort of looks like there might be a competitor, they fit in beautifully with what we're doing. We really don't run into people that are competing with us, in any sort of practical way. We often say that the incumbents are the greatest competitors for us, but the reality is they're sort of natural partners in a lot of ways too, because they're looking to increase capacity for a lot of this stuff, and they wanna do it in a decarbonized way. I think this is, our competitors, our ability to build capacity as fast as we possibly can, right? Time is a competitor more so than any particular company. I think, when you're looking at a little bit broader scope, like decarbonized materials, I think there are several interesting technologies that are out there. I won't get into the details of any given one. Again, none of them are really in our market. You know, you could say, well, if you're just generally looking at making decarbonized stuff, then maybe at some point that's gonna be competition in some sense. I think for the most part, we don't really have to pay very much attention to that right now. There's so much build that has to happen that having multiple players out there is maybe a, maybe something to worry about 20 years from now, right? I don't think it's something that we need to worry about now. That's still within our natural lifetime. Yeah. Except precisely. Yeah. That one's probably inside our natural lifetime, I think. I think the last question you asked was around feedstock. When it comes to biomass, there's a lot of it. The thing that's important to keep in mind with biomass is they're not all, not all biomass is created equal. There's biomass that goes to things like dimensional lumber or structural materials. That's a pretty different characteristic type of biomass than perhaps something that goes into production of paper, right? And pulp. In our particular case, we really don't care about the type of biomass very much, right? With dimensional lumber, you're gonna need to have a tree which is at least the dimensions of the piece of lumber that you're trying to produce. We don't really have that same kind of constraint. Generally speaking, there's an enormous amount of biomass that we can use to produce materials, and it's roughly of the same scale as the full-scale markets that we're trying to address, right? If you look at the chemicals markets, the carbon yield from feedstock to those chemicals and materials that you get from our process, they're about the same. Again, we don't really expect to run out of feedstock anytime soon. There are lots of interesting opportunities with feedstock. For us, you know, we're expecting sawmill residuals and pulp mill residuals are sort of the starting spot for us in North America. There are interesting feedstocks in Asia. You know, rice hulls are a very interesting feedstock in Asia. There's all sorts of stuff. It depends on where you wanna go. Bagasse, right, in Brazil or South America. You could sort of tick off a lot of those different things. I think that there's probably gonna be a natural evolution of what are the right feedstocks to use at different points in time. Sometimes we use the analogy of, you know, sweet and light crude versus heavy sour crude or something along those lines for biomass. I think that's reasonable, right? There's sort of different zones of types of biomass that are the least expensive, most efficient to use at various points in time. I think we're gonna dive a little bit into the carbon negative side of this thing. We've talked, I think, a bit more about the kind of landscape. Let's talk about how is this product actually carbon negative? Like, what is happening that is allowing you to build carbon negative products? Yeah. So basically what's happening is a plant sucks in carbon. It uses that carbon to build up its fundamental structure, right? The plant is made from carbon from the sky. That, that plant then gets cut down and used to make. Let's use the dimensional lumber example again. It's gonna make two-by-fours or four-by-fours to go build stuff. Well, when you cut that four-by-four into. It, it was a cylinder, and now you're making it a rectangular prism. You take that out and you're gonna make. You gotta do something with that extra stuff, right? They're not the same size. That extra stuff is what we can use. Now, what would happen to that other. Another example would be the residual tops and limbs or something like that from that same tree. What's gonna happen to that stuff on the other side? It depends on location and how it was harvested. But in many cases, and the clearest one is with tops and limbs, that's actually probably just gonna be left on the forest floor. It's gonna decompose. When it decomposes, it's either gonna turn into CO2 or methane. Kind of an interesting relationship is that most things don't decompose into more soil, which is a little bit counterintuitive. We sort of think that we put mulch on our garden, and that's gonna turn into dirt. It mostly doesn't. Some does, but most of the carbon actually gets returned to the atmosphere. Depending on the conditions, it's either returned to CO2 or methane. We sort of intercept that process. We use that residual material. We sequester that carbon into the materials that we're making, our products, that's how we end up carbon negative. One of the misapprehensions sometimes is the idea that somehow we're not emitting carbon at all when we convert the materials. You know, we use energy. We're gonna emit as much carbon as is associated with the energy in that particular region. It just turns out that by using the feedstocks that we do, we're so carbon negative to begin with, we could still use some energy in the processing and end up in a good spot. That's sort of the big picture. One way I like to think about it sometimes is people talk about direct air capture pretty regularly as a way to sequester carbon. The thought experiment I use is, what if you could have direct air capture machines that are totally self-maintaining, they reproduce on their own, and they actually have useful byproducts? That would be pretty cool and, of course, that's what a tree is, right? Or a plant. We sort of think of it as, how do you most efficiently use synthetic or sort of biologically produced direct air capture organisms instead of having to worry about mechanical systems. That's maybe a good way to intercept somebody's mental models around or frameworks around CO2 sequestration as it applies to our process. Just to clarify here, when you're saying it's carbon negative, that actually includes the energy that's going into manufacturing the product as well? That's how much is being taken out. That's right. it includes. Yeah. does it include other parts of the supply chain? It includes everything up to our shipping dock, basically. One of the tricks with, you know, sometimes people argue about whether you should include the application in your particular carbon footprint, but the reality is that for us, you know, if our PET is going to fabric production, right? Or it's going to injection molding to make, you know, automotive parts or something like that, those are two very different applications with different application emissions life cycles. From a sort of modularity and practical perspective, it's very difficult for us to try to incorporate the application side. That's true, actually, as soon as you get out of energy, that's true kind of across the board for most life cycle analyses. You have to really focus. The ingredients coming into your process, which you tend to be able to control, and your process, it's pretty difficult to try to incorporate in your life cycle what happens downstream. It's easy to do it upstream, hard to do it downstream. Mm-hmm. Yeah. Hard to do it. Yeah, definitely. I think a lot of people on the line are probably facing similar challenges with Scope 3. I guess there's decarbonization, and then there's also the circular economy. When we were talking before about, like, who the competitors are, I think a natural question is how does this compare to recycled plastics when we're thinking about waste as this one of the pillars of E in ESG versus the carbon side of it. How are you guys thinking both on the how the products compare from a CO2 perspective to recycled plastic, and then also within the context of the circular economy more broadly, what are the characteristics of your product? Is it recyclable? How are consumers thinking about that from a waste perspective? Yeah. One of the reasons why we think polyesters, PET and others are such an interesting initial target is because they're some of the most recycled products in the world. I think the value is to create a materials ecosystem that is the right ecosystem for us to be operating on. I think the characteristics of a good ecosystem are, the synthesis of the product, of the material is carbon negative or low carbon. That material is substantially recycled, and then the material doesn't contribute to negative impacts on human health, right, and environmental health. Those are sort of like the three big check marks. I think PET does those pretty well. It does it about as well as any material that we have available. From our perspective, it's really important to get the recycling components in because that's a really key check mark here, right? We're just a different spot. What we're doing is we're providing the low carbon and carbon negative materials into the system. The reason why, you know, sometimes we hear about people sort of make the argument that, "Well, why don't we only use recycled plastics?" The reason why you can't use only recycled plastics is because we consume more plastics than we throw away. There are a lot of what we would call durable applications for plastics, like carpet or apparel is ideally a durable application. Your automotive upholstery and all the parts that go in there, those are all durable applications. We tend not to think about them because they're durable and people associate plastic, fortunately or unfortunately, with more single-use kinds of applications. There are, if you took all of the PET that is thrown away every single year and you have perfect 100% recycling, and you could make it into perfectly virgin material on the other side, lots of those are big ifs, big conditionalities, then you still wouldn't have even remotely close to the amount of material that is required and consumed every year. You're still gonna have to make a lot of new material. That's where we come into play. Now, the reality is, that people aren't even close to consuming 100% of the material that gets thrown away. Recycling for, I'd say, the foreseeable future is going to be an important, but not the major supply of material, and probably never will be the major supply of material. Just the sort of math doesn't work out properly. More specifically, there are a bunch of sort of tactical issues around it, like, you know, if you're looking at mechanically recycled PET, which is the majority of recycled PET by far, the quality is just not quite the same as new material that we can make. That makes a difference for a lot of customers. For them to be able to get the quality of product that they want, they need to be able to use new stuff. They can't use mechanically recycled materials. We tend to have a lower carbon footprint. In fact, not tend to. I don't know of any recycled PET that has a lower carbon footprint than the stuff that we can make. There's a trade-off in terms of the carbon impact and circularity. Again, I think that's not so much a concern because all of it's gonna get consumed, both what we can make and the recycled material, but it does make for a trade-off for customers. Geographic flexibility and scale can make a difference. I think the last piece is, you know, we talk a lot about PET, but as we discussed earlier, it's by no means the only product that we can make. One of the products that we're really excited about is other kinds of polyesters. We call them FDCA or furandicarboxylic acid-based polyesters. PEF is the sort of nominal one. You know, PEF is a higher performing material where you can get into applications that PET doesn't work well for. We see it as a way to add new applications into the broader environmental scope of, or footprint of PET. If PET is sort of the best we've got, how do we make more stuff out of PET is a pretty relevant question. We think that PEF is a way for us to do that. Awesome. Just sort of flying to the audience, we've got about five minutes left. If you're tired of listening to me ask questions, I will ask your questions for you. Otherwise, I will keep going. At the very beginning, Rich, you mentioned carbon black. I know you guys had some really interesting performance announcements, with carbon black very recently. Can you talk a little bit about that product and how that compares to traditionally made carbon black? Yeah, sure. We make it in a completely different way. A radically different kind of process. Different starting material, et cetera. What's really interesting is that it performs very, very similarly to existing carbon black grades. Carbon black is basically, if you have a polymer or a paint or a coating and it's black, it's almost always black because there's carbon black in it. It's sort of the platonic opposite of titanium dioxide in that sense, which is the thing that you use to make things white. Carbon black, its most notable application is in tires. That's the highest volume. In tires, it can be as much as 30% of the mass of a tire. We think of tires as rubber. They're actually a rubber carbon black composite. It provides a lot of real technical performance benefits there. Meeting the spec for carbon black in a tire is a huge deal. It's something that's very, very challenging for most materials to do that aren't made in the traditional way with carbon black. Okay, let's talk about the production methods. Carbon black is basically condensed soot. If you sort of sweep your finger along the top of a candle and you get a bunch of black, greasy stuff on your finger, that's effectively, that's carbon black. That's like proto carbon black. One of the challenges with carbon black is it is quite a dirty combustion process to make it, which has made the regulations applied by the EPA somewhat challenging for existing carbon black producers in North America. The second thing is that because of the way that it's made, it has polyaromatic hydrocarbons in it, which are known carcinogens. That makes it, while it's a critical product in terms of performance, it has some drawbacks. There's never really been an option to use something else. People just sort of live with it. I think what's interesting about our process is, yes, it has all the carbon benefits we've talked about before, but because it's made in such a different way, it doesn't have the polyaromatic hydrocarbons, and it doesn't have the emissions profile that you see associated with the production of classical fossil carbon black. We're really excited about it because there's a high bar for performance. We're excited that we can meet that bar. It's just that we think it's sort of another example of how powerful our technology platform is. Awesome. I know that this has been very focused on the E of ESG, but this is a ESG sustainability conference. Are there health differences between your carbon black and traditional carbon black as well? I know that there's some considerations there with how it's been historically made. Well, that's the polyaromatic hydrocarbon piece. We don't have any polyaromatic hydrocarbons in our material. Therefore, this sort of known carcinogen is not present in everyday materials in the same way that it is right now with traditional carbon black. You know, just to focus on that a little bit more. You know, The studies have shown that about half of the urban dust is actually eroded tires. When you're walking around a city and there's sort of dust all over the place, that dust, you can particularly see it in certain areas that don't get disturbed very often, like... In any case, that dust has its bits of tire, and it is filled with carbon black, just polyaromatic hydrocarbons in it, which is again, not a great substance to be consuming all the time. I think there's a there there, and there's a real human health impact by replacing and substituting that material. You know, takes time, big scale. Yeah. Really it's a horrible thought thinking about breathing in urban dust, tire particles. Any closing thoughts from you guys that maybe will, you know, change the tone away from inhaling old tires? No, I'd leave people with that, actually. That's kind of a nice part of the- Oh, excellent. Great. Awesome. All right. We are actually at time then. If you guys have any other questions that you didn't get in, please feel free to reach out. There's a number of other great panels today, and then obviously the in-person days begin tomorrow. Thank you, Rich and John, so much. This was a lot of fun, lots of food for thought and beautiful images in my head about tire particles. Thank you guys both so much for your time and have a lovely day. Thanks, Carla. Thanks.