After building a billion-dollar software company, I moved to hardware. Now I’m working on carbon removal + steel at Charm Industrial and electric long-haul trucking with Revoy. Building in the real world is super fun, but I didn’t expect that more than half the cost of building a hardware company would come from regulatory hurdles. Despite huge pressure for climate reforms and a bipartisan geopolitical desire to bring industry back to the United States, I have been surprised to learn that the biggest obstacle by far is over-regulation from vast depths of bureaucracy.
Hardtech companies of all types are being forced to spend limited capital while waiting for regulatory clarity and/or permits. This creates a perpetual cycle of cost increases that ultimately trickle down to consumers, it reduces investment in the American manufacturing and industrial base, it delays getting innovative new hardware into the hands of consumers and businesses, and at the end of the day, it leaves us all worse off, trapped in a quality of life tied to technology developed decades ago.
Regulatory delays and hurdles from my two hardtech efforts alone have added millions of pounds of pollutants like PM2.5, NOₓ and CO₂ to our air by continuing business as usual, instead of deploying clean technologies. While CO₂ is a long-term climate issue, PM2.5 and NOₓ are the immediate major drivers of asthma and additional morbidity. Both operations have high bipartisan appeal – and we’ve never been denied a permit – because we’re basically cleaning up the things that matter to everyone: dirty air, wildfires, orphan oil wells. Revoy is also helping to reduce the cost of long distance freight transportation. But none of this has made it any easier to have the freedom to work. The default answer to creative new technologies is “no” because there is no clear path to permission, and it takes years to figure out that path – so much time that startups can’t wait.
Regulation clearly has an important role in protecting people and the environment, but the sheer volume, over-specificity, and sometimes vagueness of those same regulations are now actively working against those goals! We are unknowingly blocking things that would improve our environment. We have become a society that blocks all things, and we need to become a society that creates great things every day. The remainder of this article is very specific about the astronomical costs regulations are imposing on us as a society, and the massive positive impact that could be brought about by cutting regulation that is working against new, cost-saving, creative technology that can make people and the environment healthy again.
To make it concrete: Charm and Revoy are both capital-efficient hardtech companies, but Charm will spend hundreds of crores of rupees to reach the minimum level, and Revoy will spend tens of crores of rupees. In both cases, more than half of each company’s total cost of formation has gone into unfavorable regulatory burdens. I am hell-bent on overcoming these obstacles, but the unspoken reality is that our regulatory status quo is the deathbed of thousands of hardtech companies that could drastically improve our lives. We must free them.
$300M in social cost and $125M in burden to attractions
Charm produces and distributes verified carbon removal to companies like Google, Microsoft and JPMorgan. Charm’s breakthrough was to realize that you could take CO₂ captured in farm and forestry plant remains, turn it into a carbon-rich, BBQ sauce-like liquid (it literally has the flavor of smoke in BBQ sauce), and inject it into old oil wells to permanently remove carbon from the atmosphere. This has all kinds of co-benefits such as reducing the heavy burden of wildfire fuel, cleaning up and closing dirty orphan oil wells, and improving PM2.5 and NOₓ air quality by avoiding burning biomass.
And yet… an uproar arose: What kind of injection well is this? Should it be allowed as a Class I disposal, Class II oil field disposal, or Class V experimental? It took four years on the permission path to answer this question. It took four years to decide which route to use, not even having the actual permit! It took so long because regulators structurally face no upside legal risk, only downside, in taking a formal position on something new. Even as we conducted a tremendous amount of laboratory and field work with bio-oil to understand its safety and behavior at surface and subsurface conditions. A regulator faces low costs in proceeding incredibly cautiously, but huge costs if they approve something that pushes activists.
Finally, we are grateful that – finally – a state regulator took the reins and reviewed, managed and issued the first Class V bio-oil sequestration permit, following what was still an incredibly complex and detailed 14-month review process.
Now imagine that, instead of the 5.5 years from first contact to permit issued, it had actually taken only the 6 months needed to get everyone in the regulatory establishment to agree on the path to Class V, so we would have had 5 additional years to operate the well. This is equivalent to sinking at least 30,000 tonnes of carbon from our actual supply chain per year at a rate of $600 per tonne. Looking at just this one aspect, this delay came with a $90 million price tag for Charm. We have also spent countless millions on regulatory matters at all levels of government, not to mention the missed boom in sales, and other direct hard costs spent instead on R&D and bio-oil processing for inefficient and expensive injection into salt caverns.
But the public health burden resulting from this regulatory slackness is truly insane. This one regulatory delay means we all have to suffer a reduction in air quality from burning an additional 30,000 tons per year. The resulting particulate emissions alone are estimated to increase health care costs by a staggering $40 million per year. That’s $200M in additional health care burden over those five years, borne mostly by Medicare and Medicaid. There are additional costs of NOₓ emissions and even more that take it to $300M.
Overall, the total cost to society from this single regulatory delay will be approximately $400M: Charm’s unnecessary cost of $120-150M, and the bulk of this – $300M or more – will be borne by the public in health care costs. I’m not sharing these numbers to complain or make excuses; The attraction is still on its way to making a big impact and we’re among the lucky ones to avoid these delays. What worries me most is the carbon removals and pollutant reductions over 5 years, and the compounding effect this has on all of our health and health care costs. Over-regulation is now working against the very things it aims to protect.
Regulators do the best they can with the systems they have, but the combined effects of: (1) extremely detailed and complex regulation, (2) chaotic budgets and staff shortages that impede an efficient process, and (3) endless lawsuits against regulators have created a climate of fear since the Naderism of the 1970s. This must change if we want to solve the climate crisis, create abundance, reduce costs and create wealth for all. We need to remove the scope and simplify the rules. We need to pay regulators well, and we need to trust our regulators to act quickly and decisively by placing reasonable limits on endless activist legal challenges.
>$25 million in unnecessary burden for Revoy
Revoy’s breakthrough was realizing that you could reduce long-haul freight costs and electrify long-haul semi trucks by leaving the diesel tractor in its place and dropping an electric powertrain in the back of the semi. Today, we’ve increased the Semi’s mileage by 7 mpg to 120 mpg, reducing fuel consumption by 94%. This reduces emissions that negatively impact both air quality and climate.
And yet… one hangup: What exactly is this electric doohickey? Is it a truck? A glimpse? anything else? The rules specified that it was a “converter dolly”. But it took years to get full alignment on that simple fact in the alphabet soup of government agencies spanning both federal and state—NHTSA, FMCSA, FHWA, state transit authorities, air quality management districts, state DMVs, highway patrols and others.
A “powered converter dolly” isn’t a new thing either! Here’s a vehicle from the sixties that ran on diesel to help trucks get through mountain passes:
There were some bright spots. The Federal Motor Carrier Safety Administration (FMCSA) and the National Highway Transportation Safety Administration (NHTSA) quickly agreed to informal definition clarity, and then eventually a highway patrol captain who was eager to get innovative electric vehicles on the road pushed it forward with the state DMV to register the first four Revoys. But bringing the rest of the agencies and the rest of the states on board was not fast. This caused deployment delays, hundreds of thousands of dollars in wasted legal and lobbying time (not to mention all the associated time on the government side, which we all taxpayers have to bear), and perhaps most importantly… even with a formal memo from the federal DOT, it still hasn’t been 100% resolved in some states.
For example, a state agency has asked Revoy to conduct certified engine testing to prove that Revoy does not increase emissions from semi trucks. And Revoy is required to perform this certification on every truck engine family. It costs $100,000 per certification and has over 270 engine families for 9 engines used by our initial partners. That’s $27,000,000 for this one regulatory item. And keep in mind that this is to prove that a device – whose sole reason for existence is to cut pollution by more than 90%, and which has done so over nearly 100,000 miles of testing and operation – is not increasing truck emissions. It’s a complete waste of money for everyone.
And that $27 million dollar cost doesn’t include the cost to society. This over-regulation will delay the deployment of EV trucks by years, increasing the risk of NOₓ and PM 2.5 air pollution for many less affluent sections of society living near freeways. Delayed deployment will also increase CO₂ emissions which is a threat to the climate and environment. Revoy’s founder (Ian Rust) and I disagree on exactly what needs to change about the regulatory environment, but we agree that it is completely broken and hurting both people and the planet.
In every conversation I have with regulators, I am reminded that they are good people doing God’s work in a fundamentally broken system. A regulatory system that structurally emphasizes legalistic, over-the-top caution is bound to generate massive negative returns to society.
If we had a regulatory system that could move faster to experiment with creative new technologies, we would live in a world where our environment became cleaner faster, where amazing new hardware was constantly improving our lives by making things better and cheaper, and where the bulk of hardtech innovation happened not in China, but in the United States.
As we collectively work to create more manufacturing capacity at home and build the next wave of technologies to power the economy, we need to grapple with the real obstacles that are holding us back. I hope other hardtech founders will share more of their stories publicly (the stories I’ve heard privately may shock you). Kudos to Blake Shawl for doing this.
We need to come to Jesus about regulatory boundaries, deadlines, and scope. Yes, we need basic and strong protections for obvious harms, but we need to involve every hardworking American in re-inventing and building hardware, not just a few companies with massive funding. We need to combine multiple approaches to get there: accelerated reviews for new technology, freedom to operate by default, a permit-by-rights process, removing as many regulatory steps as possible, and more. CA YIMBY’s successful effort to pass a flurry of housing acceleration laws over the past two years could serve as a model. America making things back is the foundation of a prosperous, powerful, and clean America.