Diving headfirst into the carbon markets
Nick Adeyi

Carbon offsets get a bad rap these days, but we desperately need to deploy and scale carbon removal. Project developers hold the keys — so who is helping them?

Market-based mechanisms have long been touted as the silver bullet climate policy for driving economy-wide emissions reductions. When thoughtfully designed and properly implemented, these mechanisms create economic incentives that push polluters towards emissions-reducing behaviors. Carbon offsets are a particular carbon pricing mechanism and asset class whereby buyers certify emissions reductions through credit purchases in lieu of reducing their own emissions. In theory, carbon offsets buy time to decarbonize hard-to-abate activities such as aviation and heavy industry while bringing emerging carbon removal technologies (such as Direct Air Capture) down the cost curve by financing initial deployments and scaleup.

The ugly truth of today’s carbon market

Or so the story goes. In practice, the development of a healthy carbon offset ecosystem has been hampered by questions of additionality and permanence, and markets lack robust, standardized protocols for the measurement, reporting, and verification (MR&V) of carbon removal. Despite continued market growth, pricing across the asset class is inefficient, failing to account for permanence, reversal risk, and co-benefits.[i] Carbon markets suffer from an oversupply of cheap, low-quality credits; in 2020, estimated trade volumes in the voluntary markets increased 80% YoY to 188.2 Mt CO2e while credits transacted at a weighted average price of just $3.13 per metric ton.[ii] Compare this price to the $51 per metric ton estimated social cost of carbon[iii] and you’d be right to be skeptical of this 16x+ disparity.

Quantity at the expense of quality makes it far too easy for polluters to claim emissions reductions and hampers progress towards the IPCC’s estimated 2–10 Gt CO2e of annual removal required to achieve global net-zero emissions by 2050.[iv] Of the total 154 Mt CO2e and 16 Mt CO2e Microsoft and Stripe reviewed in recent carbon removal procurements, just 3% and 0.15% respectively both met their criteria for high-quality carbon removal and were immediately available.[v] What we need, as Ed Smith of Carbonware puts it, is “a market rally for quality,”[vi] starting with massive investment into durable, verifiable, offsets.

Where do we turn to fix our supply issues? (hint: it’s developers and price security)

This market environment has made financing for carbon project developers particularly scarce. Few credit-worthy offtakers will sign long-term carbon purchase agreements, without a regulatory or market-based imperative. And absent predictable cash flows, developers struggle to access development capital and commercial debt. Similar hurdles compound upwards through the capital stack, effectively hamstringing developers’ access to project financing. While a growing number of startups address MR&V challenges in offset markets by ensuring accurate measurement of carbon flows (Pachama, Sylvera), and others facilitate offsetting operational emissions (Cloverly, Patch) or provide a marketplace for offset transactions (Nori, puro.earth, NCX), few if any focus on solving the challenges developers must overcome in order to grow the supply of high-quality carbon removal projects.

Enter, Evergrow. As the world’s first company purpose-built to finance carbon developers, Evergrow will both contract offtake of credits from projects that avoid, reduce, or remove carbon, and provide project capital to finance development. We believe Evergrow is poised to drastically reduce both the cost and time to deploy offset projects while improving the overall health of carbon markets by kickstarting a more robust financing environment, providing pricing clarity and stability. While we are in the early days, we are excited to partner with James and Luke alongside the XYZ and First Round teams to raise the bar in the carbon markets.

- Nicholas Adeyi is an Investment Analyst at Congruent Ventures, an early stage venture firm founded in 2017 that partners with companies in the sustainable technology ecosystem.

[i] https://www.nature.com/articles/d41586-021-02606-3

[ii] https://www.ecosystemmarketplace.com/publications/state-of-the-voluntary-carbon-markets-2021/

[iii] https://www.scientificamerican.com/article/cost-of-carbon-pollution-pegged-at-51-a-ton/

[iv] https://apps.ipcc.ch/outreach/documents/451/1551801374.pdf

[v] https://www.nature.com/articles/d41586-021-02606-3

[vi] https://carbonware.substack.com/p/carbon-credit-sales-are-booming-a

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