Roads Paved with "Green" Intentions
PLUS: Floating space rocket launch pads
Good afternoon Earthlings 👽️🖖
Asphalt. It’s a weird topic to bring up at a bar. It’s an even weirder topic to write half a newsletter about. Lucky for you, you’re subscribed to Earthlings, and we here at Earthlings support the founders and businesses building a more resilient America—including those in the asphalt industry. Today we’ll peel back the layers of that shiny, eco-friendly facade the big industries love to flaunt like a teenager with a new driver's license.
If you don't like money, reading today’s newsletter will feel like watching asphalt dry.
But if you like money: take a seat, relax, have another sip of your drink, and lend me 10 minutes of your day to talk about this boring, multi-billion dollar market that’s shaking up America—and the pocketbooks of Uncle Sam.
But first up, we’ll chat about some fun developments in the space business with the DoD investing in floating launch pads 🚀.
Let’s get right into it…
DoD invests in a startup making floating launch pads for space rockets
Every day that passes, we move closer to living in the sci-fi reality only imagined in books and movies. This week, The Spaceport Company, a startup developing floating launch pads for space rockets, was announced to be one of 17 companies selected to receive government funding under the National Security Innovation Capital (NSIC) program.
Earlier this year, the NSIC program also provided funding to the satellite-servicing startup Starfish Space, receiving $3 million in NSIC funds and the Earth observation startup Nuview which received $2.75 million. The DoD’S interest in The Spaceport Company can be summed up by the idea of “dual-use technology.” It refers to technology that can be used in both civilian and military applications. Think nuclear fission, GPS, and surveillance satellites. GPS can be used by the military for mission reconnaissance and identifying off-the-grid targets as well as for commercial innovations like Uber. Along with the DoD’s other ventures, they wanted to get their beaks wet with these deals to stay close to the innovations that will likely have military use in the coming years. Think of the decision of historically investing in the $1.5 billion-per-launch Space Shuttle with plans for Moon and Mars bases, versus the decision of launching lower-cost satellites into orbit for communications and surveillance, which serve both military and commercial purposes. There’s much more incentive for the latter.
While this company is developing launch pads for the space industry pushing the boundaries of innovation, the business model is quite straightforward: leasing.
We saw early signs of this market opportunity when in 2014, SpaceX signed a 20-year lease with NASA to operate a launch pad at the Kennedy Space Center in Florida. The agreement gave SpaceX rights over the maintenance and operation of Launch Complex 39A. Then you have Relativity Space, a launch vehicle manufacturer pursuing automated aerospace manufacturing that integrates intelligent robotics, algorithms, machine learning, and 3D printing of rocket parts that can be reused. Relativity also secured a launch site at Cape Canaveral Launch Complex-16 in 2019 from the U.S. Air Force, a 20-year exclusive-use Commercial Space Launch Act (CSLA) agreement.
Departing Earth from the right place is a also very big decision. There are locations on Earth that makes the trip much more fuel efficient, and there’s a need to comply with a raft of safety regulations. The investment to create and manage a launch pad is a also significant barrier to entry for young aerospace companies. Flash forward to 2023, and the increasing demand for rocket launches, particularly from smaller satellite constellations, and the limited number of launch pads available have created a bottleneck in launch vehicle and launch pad supply—driving up prices.
The Spaceport Company is positioning itself to literally capture the rents of the space industry, betting on a sticky leasing business. It’s fascinating to watch upstart companies fill needs in the space business that once never existed…
All that Glitters is Not Green
Think about this: there are about 2.8 million miles of roads in the United States, and 94% of them are made of asphalt. That’s about 112 trips around the surface of the Earth. The total addressable market (“TAM” for the business nerds) for asphalt paving and the downstream businesses that supply the industry is not insignificant.
The biggest player in this space is an Irish company, CRH, which made $10.2 billion paving roads in the United States and Canada in 2022, given the paving giant is heavily concentrated with more than 60% of its $32.7 billion top-line revenue in 2022 coming from the U.S. and Canada.
Here’s the thing: dollar signs are glistening in the eyes of asphalt executives even more upon the announcement of the $1.2 trillion Infrastructure Investment and Jobs Act that’s set to boost federal funding for U.S. highways between 40% and 50%. American infrastructure investment is needed, but I question the incentives here. The funding comes with some “green” strings attached: money will flow to projects that prove they are “better for the environment” (emphasis mine) — like those that prioritize carbon emission reduction and recycling. These companies are happily gesticulating their righteous commitment to becoming more eco-friendly using “innovations” like recycled asphalt pavement, which is just pavement that has been scraped off a road, ground up and used again.
WTF is asphalt, actually?
Asphalt occurs naturally in a few places in the world, but most of the asphalt used today for paving comes from petroleum crude oil. Asphalt is the heaviest part of the crude—what's left after all the volatile, light fractions are distilled off for products like gasoline, heating oil, and jet fuel. Petroleum refiners will typically sell asphalt to asphalt product manufacturers who produce retail products such as asphalt paving mixtures and siding products.
Greener Roads or Greener Pockets?
It’s clear that mainstream news articles cheering on incumbent giants like CRH for leading the charge in the effort to make the asphalt industry greener are blinded by the fact that CRH is simply sniffing out the dollars at stake. A federal funds package prioritizing green infrastructure initiatives instead of optimizing for capital efficiency only worsens America’s current problem with building infrastructure too slowly and for too much.
Let’s be crystal clear about the problem here in this specific case: asphalt is already 100% reusable and recycled at a higher rate than any other material in America, including soda cans and newspapers. Compared to other pavements, the production of asphalt pavement requires less energy and generates less material waste than all other paving materials, and its production emits fewer greenhouse gases than concrete pavement. The oil-based binder used to make asphalt pavements is also a byproduct of fossil fuels that were never burned and used as energy, so the inherent CO2 is never released into the atmosphere.
Bottom line: CRH is just putting on a show for the funds at stake. When companies like CRH claim that recycled asphalt pavement is the eco-friendly future, they blatantly ignore that modern-day asphalt is already a relatively “green” industry. All the hand-waving about CRH’s commitment to the climate seems to pale in importance when you consider the broader construction industry represents a whopping ~40% of global emissions. Asphalt is not the problem, but companies like CRH will make it a problem in an effort to secure more funding, and American infrastructure actually being built takes the back seat.
The general sentiment from CRH’s customers here is quite pragmatic in that, “If it ain’t broke, don’t fix it.” Many of CRH’s customers—mostly state-level transportation agencies that own the lion’s share of the country’s highways—have been reluctant to buy asphalt pavement that includes more than about 20% to 25% recycled material. The reason: When recycled pavement is introduced, it has a tendency to degrade faster, simply because it is older, resulting in more rebuild projects entirely.
As expected when billion-dollar incentives are draped in front of private industry, the National Asphalt Pavement Association, a trade association for asphalt, is now also fully backing the idea to raise the level of recycled asphalt in any given road to about 50% of the mix in order to meet federal sustainability targets. There doesn’t seem to be any green innovation at the heart of CRH’s commitment that’ll be able to drive them to 50% recyclability without also increasing the cost of faster degradation. If we can agree that the ideals for American infrastructure should be capital efficiency, infrastructure longevity, and speed to completion, then the incentives here are simply misaligned with achieving that.
There are a few ideas that are cut from a similar cloth—all resulting in less capital efficiency, less productivity, and even less sustainability.
The incumbent defence primes in America get paid on what's called a “Cost-Plus” basis where they’re paid for the total cost of completing a contract plus a 6 to 10% percentage of profit on top. Primes are incentivized to move slowly since they actually make more money when they come up with more expensive systems, and even more money when it breaks because they get to sell more parts.
“Green bonds”: While green bonds have the potential to provide low-cost, long-term sources of debt capital, they may not always be effective in promoting environmentally friendly investments. One of the main criticisms of green bonds is that companies do not actually have to meet targets, and there is no universally recognized standard for determining the environmental friendliness of a bond. This leads to “greenwashing,” where debt instruments are marketed to investors as "green" even if their positive environmental impact is unclear at best.
So then why on Earth are we investing time and media coverage focusing on making this part of the construction sector any greener? Are we driving in circles with asphalt sustainability? Shouldn’t we be focusing on larger climate issues—or better yet, can we start by removing emission-negligible bureaucratic sustainability targets so America can get back to building?
I say we stop wasting time and money having underpaid, overly righteous liberal arts grads draft 200-page reports on an asphalt company’s born-again climate mission.
Infrastructure is a necessity for nations, and America is suffering from an infrastructure problem: we’ve gotten progressively slower and less capital efficient at building things in America. I’m not arguing that “green” requirements are entirely unnecessary or the core problem, but how is it possible that the government is wasting time and thought determining “green” targets for an industry that represents a minuscule percent of America’s emissions? It’s decisions like these that bog down the progress of building key infrastructure in America as efficiently as possible.
Packy McCormick wrote a beautiful essay on how America can become better at building things, and he also outlines many of the core issues in American infrastructure right now:
Today, we find ourselves in a weird situation in which the federal government has dedicated nearly $2 trillion to building stuff across the Infrastructure Investment and Jobs Act (IIJA) and the Inflation Reduction Act (IRA), but environmental reviews, community meetings, and layers and layers of cruft built up in federal, state, and local permitting and approval processes threaten the ability of those dollars to make meaningful improvements in reasonable timeframes. John Podesta, a senior advisor to the Biden White House on clean energy, put it bluntly: “We got so good at stopping projects that we forgot how to build things in America.”
This is where innovators like Carbon Crusher can step in—a Y Combinator-backed startup headquartered in Norway trying to revolutionize the paving and asphalt industry. While this is just a small effort in the grand scheme of construction industry emissions, this company deserves credit for innovating on a long-held belief that oil-based binders are absolutely needed for paving roads.
The process starts with recycling. Instead of trucking in new materials when a damaged stretch of asphalt needs repair, the company uses a machine that grinds up the top layer of the existing road. The equipment can also be used with concrete, another high-carbon material, as long as the concrete isn’t reinforced with steel.
The startup then uses lignin—a material in plants that’s a major byproduct of the paper industry—to glue the crushed material together. Since Lignin is really only produced as a byproduct of the paper-making process, it’s an ideal candidate for use as a binder (in a recycling sense). The company cites a stat that the 40 million-plus miles of roads on the planet today emit around 400 million tons of CO2 a year in construction and maintenance. It sounds scary, but that’s less than 1% of global emissions.
The company’s proprietary equipment crushes asphalt and rocks finely, so it’s possible to work without needing new materials; others also use equipment to “mill” existing roads but typically need to haul in more aggregate. Because trucks don’t have to bring in more material or haul out pieces of the former road, the process is faster.
Yet to be proven in practice, the startup claims that lignin can help roads last longer than asphalt itself.
We need more companies like Carbon Crusher pushing the envelope on innovative infrastructure and less misaligned programs for large incumbents that incentivize them to make infrastructure bureaucratic. We need to build.
🤖 AI Art of the Day
That’s it for today, Earthlings.
As always, thank you so much for reading - we’ll see you next time! 🧑🚀