Last week, ensconced behind the ornate wood trim molding of the New York Stock Exchange’s 7th floor, luminaries in the realm of climate finance convened for the ICE Climate and Capital Conference, which was in partnership by FINTECH.TV, Accenture and Gitterman Asset Management.

The “AIR” We Should Breathe

This year’s agenda was woven around three pillars aptly acronymed “AIR”: Adaptation, Innovation, and Regulation. 

These are the cornerstones that will define the response to the multifaceted challenges ahead: the tangible threats of climate change, impending biodiversity losses, mounting human migrations, and the maelstrom of ever-shifting regulatory edicts.

Jeff Gitterman of Gitterman Asset Management set the stage, unveiling a series of insightful panels and dialogues with leading figures. 

The objective was singular and urgent: furnishing attendees with strategies not only to mitigate risk but also to spur innovations. Innovations geared toward reducing emissions and buttressing the world’s most vulnerable against the advancing climate menace.

From the array of expert speakers, three stood out, each illuminating a facet of the way forward.

Lisa Larroque Alexander of SEMPRA weighed in on the financing aspect.

As one of the most prodigious issuers of sustainable debt, SEMPRA feels the pulse of capital costs. Alexander anticipates methane mitigation to be a cornerstone discussion at the upcoming COP28 conference.

She evocatively quoted Churchill, “We’ve run out of money, now it’s time to think.” This crystallizes the drive to strategize when resources dwindle. 

She also expressed keen interest and foreshadowing in how carbon credits might be used post the Inflation Reduction Act (IRA) – a critical juncture that will mold our financial strategies. 

• With the International Energy Agency forecasting a staggering $10 trillion for essential grid enhancements in the forthcoming years, the roadmap is unmistakable: innovate or stagnate.

Hanh Nguyen of OCI Global articulated her vision for a recalibrated carbon economy. She envisions the Carbon Model Adjustment Mechanism emerging as a pivotal catalyst, much like the EU’s carbon tax. 

Her firm belief in the hydrogen economy’s potential resonated. 

• According to OCI, green methanol will surge until 2030, post which e-ammonia, with its pristine zero-emission credentials, will likely reign supreme by 2050.

Lastly, Lesley Biddle, a senior advisor at the U.S. Department of Energy, gave a primer on the tools at the U.S. DoE’s disposal to drive decarbonization.

The Infrastructure Bill, with its potent mix of debt and equity, alongside the Inflation Reduction Act’s provisions of credits and grants, earmarks an impressive $90 billion for deployment by summer 2024. Biddle hinted at a brisker rollout of “Hydrogen Hubs” and underscored the need to augment storage for hydrogen and capture.

The Triad For Fighting Climate Change

As the curtain fell on this year’s ICE Climate and Capital Conference, the takeaway was unequivocal. The triad of Adaptation, Innovation, and Regulation will not only guide but also drive our responses toward encroaching climate adversities. And there is A LOT of money available to companies and entrepreneurs willing to take on and solve these challenges.

It’s not just about grappling with known demons but also about anticipating the unknown, sculpting strategies in real-time, and ensuring a world where vulnerabilities are minimized and resilience is the watchword.

To watch the conference, click here: https://www.ice.com/events/virtual/climate-and-capital-conference-2023

An analysis by the carbon removal market platform CDR.fyi shows that only 0.5% or 32 companies with Science-based targets have bought durable carbon removal. A separate report by the BCG showed that demand for carbon removal credits must reach 40 to 200 million tonnes of CO2 a year in 2030, or $10 to $40 billion, to meet climate goals.  

CDR.fyi is the largest open data platform dedicated to tracking high-permanence carbon dioxide removal (CDR). Their goal is to provide accurate data on CDR to help guide investment decisions and scale up the industry. 

The Need to Scale Up

Carbon removal is an emerging industry but is an important component of the fight against climate change.

Businesses need some amount of carbon removals to achieve their net zero goals. Yet, only a number of large companies are onboard the CDR sector and charging to help it scale. Out of almost 6,000 companies with Science-based targets, only 32 of them have bought CDR credits. 

Last year, only over 45,000 tonnes of permanent carbon removal credits were delivered, according to the CDR platform. So, to bring it to the level required by 2030, at 40 million tonnes, that figure has to increase by around 1000x.

• RELATED: CDR Purchases Jump 437% in H1 2023

The growth seems to be lofty to achieve but it’s possible because several companies have existing plans to develop and build facilities that can remove carbon in megatonne level.

Today’s CDR purchases of future tonnes are much higher than deliveries. And these are mostly offtake deals where carbon credit delivery will be for several years. To achieve the 2030 target, CDR credits have to be ordered by 2026 at the latest. 

Forecasting the long-term requirement for carbon removals is not easy but the lowest estimates suggest it would be in billions of tonnes by 2050.

In a separate analysis by BCG, the CDR market will continue to be dominated by voluntary demand from large corporations. 

They estimated that demand for durable CDR is projected at 40 – 200 Mt CO2/yr worth $10 billion to $40 billion in 2030, increasing significantly to 80 – 870 Mt CO2/yr or $20 billion to $135 billion in 2040. But that’s the low scenario projection. 

The high scenario, as seen in the chart below, calls for a demand of 200 – 870 MtCO2/yr in 2030 to 2040. That is equivalent to $40 billion – $135 billion market value.

It is, therefore, apparent that there’s a high need to scale up the CDR industry to meet those projections. The BCG analysis also indicates that while voluntary demand will take up the CDR market, compliance demand will also grow. It will reach around 15% in 2040. 

The Pivotal Role of CDR Buyers 

To achieve the 40 million tonnes of carbon removal capacity by 2030, investment in CDR should be over $100 billion. 

However, according to CDR.fyi data, only around 4.8 Mt of CO2 have been purchased to date. But if the growth in CDR purchases this year (10x) and beyond is maintained, it would be possible to reach the 40 Mt capacity.  

That means the number of large corporate buyers has to increase significantly. From today’s 6 buyers ordering an average of 100k tonnes, it must grow to 4,000 CDR purchasers. 

In this case, buyers of carbon removal credits play a critical role in helping ramp up market growth as well as spur innovation necessary to build a diversified CDR supply chain. 

As per BCG report, there will be more diverse buyers as the price of carbon credit drops. Currently, early buyers with corporate net zero pledges such as Microsoft and J.P. Morgan primarily drives CDR demand.

• RELATED: Microsoft’s $200M CDR Deal With Heirloom

But by 2030-2040, the CDR market can expect to see a broader range of industry buyers if average prices decrease. 

The same BCG study revealed that the key driver for most CDR buyers is the quality of the credits. From the current 26% share of durable CDR in carbon credit portfolio mix, it will grow to 35% in 2030 and 48% in 2040. 

Moreover, about 70% of them said that they will increase CDR purchases if there’s guidance from scientific or standard setters.

Recognized bodies such as the Science-based Target Initiative (SBTi) and VCMI can impact purchasing behavior by providing guidance on how carbon removals be included in corporate Net Zero targets. The standards can help facilitate faster project lead times and carbon credit issuance. 

There’s also a need for clear incentives to attract more buyers of carbon removal credits. In particular, 80% of the surveyed CDR buyers said that their spending will increase with government incentives. 

The carbon removal industry is vital for climate goals, but only 0.5% of companies with science-based targets invest in it. Scaling the industry needs more corporate support, government incentives, and guidance from leading organizations.

A Canadian pension fund Ontario Teachers’ Pension Plan (OTPP) has agreed to acquire KKR’s stake in a leading Australian carbon markets platform GreenCollar.

KKR acquired the 49% stake in GreenCollar three years ago for $100M. Greencollar is now worth close to $800 million so KKR pocketed a nice return on their investment with this sale to OTPP.  This investment marks Ontario Teachers’ deepening commitment to GreenCollar, building upon their initial investment in March 2022. 

The pension fund will now hold a significant majority stake in the company, though the financial terms weren’t disclosed. GreenCollar CEO and Co-founder James Schultz will remain as the business leader and a substantial shareholder.

Delivering Positive Environmental Impacts

The OTPP continues to look for positive environmental impacts of their investments. As one of the world’s biggest pension funds, it boasts net assets of C$249.8 billion as at June 30, 2023.

Since their 2050 net zero announcement in 2021, Ontario Teachers’ saw a significant drop in their carbon emissions by shifting to active exposure. Since then, the Canadian pension fund has been investing billions to reach net zero. 

OTPP’s climate strategy reflects its commitment to lowering the environmental impact of its portfolio. Its strategies also capitalize on investment opportunities that support the transition to a net zero future. And acquiring KKR’s carbon project developer is one of those decarbonizing strategies. 

KKR initially invested in GreenCollar in 2020 as part of its Global Impact strategy, focusing on companies contributing to the United Nations Sustainable Development Goals (SDGs). 

GreenCollar, a certified B corporation, aligns with SDG 13 (Climate Action) and supports other sustainable goals like SDG 15 (Life on Land) and SDG 14 (Life Below Water) through its environmental initiatives.

A notable feature of this deal is that GreenCollar will become the first Global Impact Fund investment to implement a comprehensive employee ownership plan. Under the plan, all GreenCollar workers will join to bolster company strength, financial inclusion, and engagement. 

They also had about 10% of the private equity, meaning they will be dividing around $75 million in cash.

GreenCollar is a profit-for-purpose organization. It’s the leading environmental markets project developer and investor across the Australian climate, water quality, biodiversity, and plastics markets. 

The Australian carbon credit project developer and investor has expanded internationally. The expansion includes forest protection projects in SouthEast Asia, plastic recovery projects in Africa and the Pacific, and cook stove projects in Southern Africa. 

Being the largest project developer in the Australian carbon market, GreenCollar handles 220+ projects covering more than 10 million hectares and generating over 126 million Australian Carbon Credit Units (ACCUs). ACCUs are initiatives that avoid clearing vegetation in Australia. 

Investing in Carbon Credits as Market-Based Solution

In 2021, Ontario Teachers’ has also supported carbon market developer GreenCollar with a $250M investment, apart from last year’s funding. This alongside KKR investment accounted for about 2/3 of the developer’s shares.

The generated carbon credits are sold by GreenCollar to first and secondary markets.

OTPP supports GreenCollar because they see the positive impact of its carbon credit projects which align with their return goals.

In this new transaction, the Ontario Teachers’ Natural Resources group will manage the investment. Operating within the Infrastructure and Natural Resources department, the group boasts extensive experience investing in various environmental sectors, including agriculture, aquaculture, timberland, and natural climate solutions.

Remarking on their new deal, Senior Managing Director Christopher Metrakos said that:

“We are pleased to increase our investment in GreenCollar… a proven leader in delivering positive environmental outcomes with market-based solutions and we are excited to continue supporting the company in its next chapter of growth in Australia and beyond.”

In Australia, KKR has invested across sectors including financial services, healthcare, infrastructure, technology, real estate, consumer goods, etc. since 2007. The global investor has also impact investments in other regions such as in Asia Pacific.

Since 2011, KKR portfolio companies have awarded billions of dollars through broad-based equity programs to 60,000+ non-senior employees. In all these investment programs, a culture of employee ownership is reinforced. 

Ontario Teacher’s transaction with KKR will close in the 4th quarter of 2023, pending customary regulatory approvals.

Interests and investment opportunities in environmental programs are growing, with global carbon markets expected to hit $22T by 2050. 

Ontario Teachers’ Pension Plan’s expanded investment in GreenCollar demonstrates its commitment to environmentally responsible investments and carbon reduction strategies. If more large pension plans choose to have the same goals as OTPP, the planet will see significant carbon reductions. 

BeZero Carbon has given its first Biochar project the rare “A” rating, only 21 projects of the 350+ projects rated on their platform have an A or an AA rating. This rating is based on a comprehensive analysis of publicly available data and assesses the project against various risk factors, including additionality, carbon accounting, and non-permanence risks.

This pivotal move signifies the maturation of the Carbon Dioxide Removal (CDR) sector and particularly biochar which accounts for over 90% of all CDR deliveries.

The engineered carbon removal sector has been hindered by a lack of transparency and public information and that is set to change.

• Puro.Earth expects the supply of CDR in the next 18 months to grow by an “order of magnitude”.
• The U.S. Department of Energy has plans to purchase up to $35M of CDR credits from a portfolio of CDR pathways consistent with the objectives of the Carbon Negative Shot.

What is Engineered Carbon Removal?

As the world grapples with the climate crisis, there is a growing consensus that large-scale engineered carbon removal is indispensable.

In fact, projections indicate that by 2030, the annual demand for durable engineered carbon removal could range from 40 to 200 million tCO2. Rating the quality of these carbon credits including biochar will help enhance transparency and integrity in the market.

Currently, here are the top 5 carbon dioxide removal technologies available:

Direct Air Capture (DAC)

• Captures CO2 directly from ambient air using chemical processes.
• Suitable for long-term storage or utilization in various industries.

Bioenergy with Carbon Capture and Storage (BECCS)

• Combines biomass energy production with carbon capture technology.
• Captured CO2 is stored underground.

Enhanced Weathering

• Spreads crushed minerals on land or in the ocean to react with CO2.
• Forms stable carbonates, storing CO2 in a solid form.

Ocean Alkalinity Enhancement

• Increases the ocean’s capacity to absorb CO2 by adding alkaline substances.
• Also helps to mitigate ocean acidification.

Biochar

• Involves the pyrolysis of biomass to create a stable form of carbon.
• Can be added to soil to improve its quality and store carbon long-term.

What is Biochar?

Biochar is a form of charcoal produced from the pyrolysis of organic matter, usually plant-based materials like wood, crop residues, or manure. Its molecular structure changes to a more stable form, thus storing carbon much longer than biomass feedstock.

Key Advantages

Stable Carbon Storage: Biochar is highly stable and can remain in the soil for hundreds to thousands of years, effectively sequestering carbon.

Soil Fertility: When added to soil, biochar can improve water retention, nutrient availability, and microbial activity, thereby enhancing agricultural productivity.

Waste Utilization: Biochar can be produced from agricultural and forestry waste, providing a way to utilize these materials while reducing methane emissions from decomposition.

Energy Co-Production: The pyrolysis process also generates heat and syngas, which can be an input for energy.

Earlier this year BeZero Carbon found that biochar encounters fewer obstacles to scaling compared to other methods under consideration. 

Notable advantages for biochar include third-party verified methodologies, cost-effectiveness, well-developed ancillary value chains, and the potential for energy production. 

Biochar: The Market Leader

Biochar is at the forefront of the ex post technological carbon removal market; it is furthest along the Technology Readiness Level (TRL) of all carbon removal methods.

As a product of pyrolysis, a high-temperature, low-oxygen process, biochar has the ability to store carbon for extended periods, far surpassing its original biomass feedstocks. 

The process also generates waste gasses that can be useful as waste heat in district heating networks. Biochar’s versatility extends to its use as a soil amendment, a feed additive, and even as an input in concrete production.

‘A’ Rating: A Benchmark for Excellence

BeZero’s ‘A’ carbon rating is based on the rating analysis of publicly available information. Carbon credits rated ‘A’ have a high likelihood of achieving 1 tonne of avoided or removed CO₂e. This biochar rating assesses the project against BeZero’s risk factors.

Carbon Credit 3rd-Party Verification

In the Voluntary Carbon Market (VCM), third-party verification is a fundamental aspect of the carbon credit process. It serves as the initial step in confirming that a carbon removal activity has occurred. 

There are two ways to perform verification:

1. Developing an internal methodology that is subsequently verified by an external auditing service
2. Adopting methodologies established by third-party standards-issuing organizations.

Currently, key third-party methodologies available for Biochar include the European Biochar Certificate, Puro.Earth, and the Verified Carbon Standard.

A lower hydrogen to carbon and lower oxygen to carbon ratio generally means the Biochar is more stable and less likely to break down, making it better for long-term carbon storage. 

As the CDR sector gains momentum, biochar stands out as a key solution for long-term carbon sequestration and soil improvement. BeZero Carbon’s ‘A’ rating for a biochar project underscores the growing importance and effectiveness of engineered carbon removal in addressing climate change.

A report by Trove Research revealed that there’s a total of $36 billion invested in carbon credit projects from 2012 to 2022, accelerating with more than $18 billion raised in the last 2.5 years. But global efforts are still short of $90 billion to meet the 2030 carbon reduction targets.

Investments in developing carbon credit projects are an important market signal indicating levels of corporate climate action. 

However excessive criticism of quality may deter companies from engaging in their voluntary commitment to support carbon credits. This, in turn, may undermine critical voluntary climate actions from large companies. 

The new commitment will deliver over a thousand new carbon projects, ranging from forest protection to carbon capture and storage solutions. It will also provide a growing supply of carbon credits that companies can use for their net zero strategies. 

Trove Research is a leader in delivering data and intelligence on voluntary carbon market (VCM) and corporate climate pledges.

Carbon Credit Investments Reach $36 Billion

The report also analyzed capital invested in 7,000+ carbon credit projects from 2012 to 2022. Around $36 billion has been invested over this period, with $17 billion in 2021-2023 and $7.5 billion of this investment in 2022 alone.

The increase in investment is especially notable in the years from 2020 to 2022 as seen above. This has been fueled by the ballooning interest in using carbon credits by corporations to reach their climate targets. These corporations include the world’s largest companies.

The researchers also examined announced capital raises associated with the VCM since 2021. Results show that a total of $18 billion has been secured for carbon credit funds just for the last two and a half years. 

The largest raise was in 2021 with $7.8 billion. And around $3 billion has been committed up to 2025. 

Among those raised funding and committed investment, over 80% or $15 billion are for nature-based projects. These include REDD+, nature restoration, and improved forest management. A total of 246 nature-based initiatives cover a total area of 30 million hectares, almost the same size as Italy. 

But notably, there’s a growing share of capital for carbon engineering projects which include Direct Air Capture (DAC) and Bio-energy with CSS (BECCs). 

DAC, in particular, has been getting attention both from the private sector and federal government. Billions of dollars have been invested and promised by the U.S. Department of Energy into DAC and other carbon capture innovations. 

Bridging the $90B Funding Gap 

By region, since 2020 North America maintained the top spot as the largest destination for carbon credit investment, accounting for up to 16%. In comparison, only 1% of global carbon credits funding went to Europe. 

In terms of share, the East Asia and Pacific region got the biggest investment, representing ⅓ or $2.7 billion in 2022. However, the Sub-Saharan African region is keeping pace with its 70% increase in global investment share. 

The analysis also showed that since 2020, over 1,500 new carbon credit projects have been developed and registered with the 5 leading carbon registries. It represents a 160% increase in registration rate compared to the 2012-2020 period.

Together, these new projects claim to reduce an additional 300 million tonnes of CO2 annually, or about the same as the UK’s annual emissions. 

Amid the growth in the number of registered projects, more than 3,000 additional projects are awaiting registration. Once implemented, together they could reduce another 530 million tonnes of CO2 emissions. 

Developments in carbon credit investment are bullish. However, the current commitment is still not enough to satisfy the global 2030 emission reduction targets. In fact, it represents just a third of the total funding needed to realize enough carbon credits by the decade’s end. 

The report said that another $90 billion in capital is necessary by 2030 to meet net zero goals. By 2050, that capital expenditure must grow to a whopping $1,600 billion, or $1.6 trillion, in carbon credit funding to reach the 1.5C scenario. That means a $60 billion annual investment in carbon credit projects. 

Investments in carbon credit projects have surged but a significant gap remains to achieve 2030 climate targets. Urgent funding is required to bridge the $90 billion deficit and accelerate the transition to a net zero future.