Biochar: An Opening for Impactful Decarbonisation Investments

If you happen to be part of the carbon capture ecosystem, chances are that you have heard about biochar several times. However, compared to direct-air capture (DAC) and geologic storage, biochar is seldom discussed outside of the voluntary market. Why does biochar command such interest from the voluntary market, yet command little investment compared to other CCS methods? Why should investors, regulators, and industrialists spend more time exploring this solution; one that combines both engineering and nature?

Climate change issues are both numerous and multi-sectorial. As one of the most studied, recognized and alarming problematics, greenhouse gas emissions have been the focus of climate actions. Emission reductions bring a necessary deceleration to the amount of CO₂ released in our atmosphere. Is a deceleration enough to attain global goals set by the international scientific community and signatories of the Paris Agreement? According to the IPCC, carbon dioxide removal solutions are necessary to reach our goals. And biochar has been recognized officially as one of those solutions, providing a long-awaited recognition to the industry.

The voluntary carbon market has exploded over the past two years, and with it the demand for biochar carbon removals. Emitters rightfully believe that to stay compliant, their organization must compensate carbon emissions and improve their ESG reporting. But even world-renowned organizations, revered for their dedication to social impact and environmental considerations, find it difficult to align financial goals with their sustainability commitments. Although there has been a surge in demand, and supply have been difficult to secure for buyers due to limited production capacity and commercially operational facilities, meaningful investment in the biochar project lifecycle remains limited. One would think that such a situation would promote access to capital for producers; however cash-flow remains difficult to secure for early biochar projects.

GECA has seen a rise in investment interest for high-quality projects across the world, with private venture capital, alternative financing firms and even multinational corporations exploring equity, debt, royalty or direct offtake opportunities. Such entities have been, and are still reluctant to commit to biochar projects due to perceived risks and limited knowledge of biochar project implications. More specifically, they are not so familiar with biochar project development steps and requirements. These steps differ when contrasted with nature-based solution projects.

Afforestation projects, to use one example amongst many, generally involve limited initial risk that increase with time as reversals are made possible from natural and non-natural causes. When all goes well, nature takes over and does the work required to remove large amounts of carbon from the atmosphere, enabled by project developers through photosynthesis. Many of these projects rely heavily, if not completely, on the income of the carbon market to make the venture financially feasible and further profitable. For some corporate buyers and actors within this class of projects, permanence over time, monitoring, and risk of reversal may have been understated in early days to the point of public controversies and market skepticism. Authentic, integrated, and transformative collaboration could positively impact market stakeholder trust and reduce future risks of controversies. Our removal buyers believe that risk mitigation could be summarized as a caricatural choice: either spend your time and talents denying allegations, or prepare and prevent risks with a genuine commitment and execution.

At GECA, we provide tailored guidelines so buyers can always have a helping hand to leverage best-in -class impact for their investment. Biochar projects depend on a consistent technology component that enables the long-term removal of carbon from the atmosphere. For a project developer to be issued removals through any certifications, it must produce and place, so sell or donate, the physical biochar before issuance of the credits. The production of biochar is one of the complexities of this type of project, since it necessitates dedicated industrial facilities, most of them running 24/7, with specialized human capital, markets for the biochar, and monitoring of the biochar itself through tracking. Pyrolysis, the main type of biochar production processes, is however well-known and mastered, having been used for centuries. Technology, when carefully selected by experts in the field, represents a relatively low risk for carbon projects. While the tracking of the biochar to its final application can be daunting, it indirectly provides the advantage of reducing reversal risks to almost zero. Once the removals are issued and a buyer has purchased and cancelled them, their risks, including reversals and controversy, are limited.

In fact, biochar projects also require several verticals to be profitable – in almost all “projects”, relying on the carbon market to be economically feasible does not suffice given the current price for carbon removals. Carbon projects now have been catalyzing the development of biochar projects across all continents, simultaneously raising shy, but persistent interest from capital markets and promoting sustainability in many sectors such as agriculture. The catalytic role of carbon markets in the biochar industry has been highlighted indirectly by Verra in their new methodology via the use of market penetration as the basis for additionality. Other standards consider additionality as de facto for biochar, such as Carbon Standard International, or push for financial additionality, such as Puro.earth. That being said, all the above standards strive to establish strict conservative guidelines for one purpose: to allow the market to hold biochar removal procurement agreements to the highest standard. Delegate the technical risk analysis to an expert, and you are almost geared up to invest in a real and much needed legacy for decarbonisation.

In spite of that, the time to commercialisation for biochar projects has been an important barrier with financing entities looking to see a relatively rapid return on investment. Project development timelines have increased over the past year mainly due to equipment manufacturing delays, exacerbated by limited manufacturing sites and components shortage, as well as cost of capital in a bearish market. New risk-mitigation frameworks are currently being developed to provide removal buyers and investors assurance that their investments are somewhat protected. An example is Kita, a new UK-based insurance company specialized in the carbon market who is developing, with inputs from stakeholders such as Puro.earth and GECA, an insurance product for biochar removal buyers.

Finally, biochar carbon removal is one of the best opportunities to invest in a durable, low-risk solution with high co-benefits in a market where demand will only keep growing. Given the important carbon price of the removals, the need for capital and the flexibility of financial models in the industry, biochar projects represent a real opportunity to invest in a multi-lateral solution to our climate problems. While carbon is a catalyst, it is not the only environmentally positive outcome of such ventures, but a tip of the iceberg. It is then not surprising that Meta, Swiss Re, Zurich Insurance, Shopify, and the Chan Zuckerberg Initiative are betting on biochar with upfront and/or long-term involvement. Deployment of a proven large-scale removal strategy requires a systemic change and a genuine desire to do good for the planet and its people. Is the market ready to acknowledge and invest in proven impact? Are we truly educating stakeholders on sustainability? New and returning actors will surely influence the deployment of biochar as a global carbon removal method. True collective commitments affect how sustainable markets grow, and as a consequence, whether we can reach global sustainability targets.

For financiers looking to understand the biochar market further, offtake or invest in this solution, contact Saad El Kassab or Melissa Leung at GECA Environnement.

Authors: Melissa Leung
[email protected]
Saad El Kassab
[email protected]
www.gecaenviro.com

Printed in Issue 2, 2022 of Carbon Capture Magazine