Biorecro met with Dominic Lüdin, Altug Ekici, and Sebastian Manhart of Carbonfuture to explore the company’s progress in the carbon market and assess what work still needs to be done. Dominic Lüdin oversees business development and product at Carbonfuture, while Altug Ekici serves as supply manager and as a scientific assessment lead. Sebastian Manhart leads policy at Carbonfuture and is primarily focused on the United States and the European Union. He also sits on the board of a couple of trade associations, including the US Biochar Coalition and the German CDR Association.
Can you briefly explain the role Carbonfuture plays in the carbon market?
Dominic Lüdin (DL): Our focus is on durable carbon removal. The question is how do we build carbon removal you can trust? Our best climate models say that to reach net zero we need to remove 10 gigatonnes of carbon from the atmosphere annually by 2050. If we can’t assure quality for all projects, we’ll never get to that scale.
At Carbonfuture, that translates into two products. The first is Carbonfuture MRV+, a digital monitoring, reporting, and verification solution for CDR projects that helps carbon removal suppliers bring high-quality carbon removal into the market.
We do so by gathering all the data required to verify that they are actually removing the amount of carbon from the atmosphere that they claim. Carbonfuture assists with data gathering at each stage of the removal journey and adds transparency layers, such as the physical tracking of the removed carbon from production to carbon-preserving end-use. We then end the journey with third party verifiers, like Puro, CSI or VERRA, the gatekeepers that verifies that the amount of carbon that you claim is in the credit so that it can go to the market as a trusted, high quality carbon removal credit.
The second product is adjacent to that which is the Carbonfuture Marketplace. We have marketplace services where we find buyers for these removal credits in the form of corporate players that need them to reach their net zero targets. We work with buyers and suppliers to craft multi-year contractual relationships that get transaction costs down for all interested parties and create the long-term security that these removal projects need.
Regarding Carbonfuture’s trust infrastructure, what data is used for evaluation?
Altug Ekici (AE): We gather initial data for the project’s feasibility, finances, and its net negativity. Following the project’s activities, we also collect necessary information during production, transportation, and all the steps until the final use of the carbon. In essence, we gather all the information about the net carbon removal potential of the project including all the emissions and the stored carbon within the LCA (life-cycle-analysis). We use this information together with a company’s reputational standing for evaluation to help us ensure a reliable carbon removal activity.
What kind of carbon removal suppliers does the company currently service?
AE: We work with a lot of biochar carbon removal suppliers and are increasing our visibility and interactions with different BECCS offerings, but we are tech-agnostic. We are either working with, or open to work with many different durable carbon removal techniques, such as enhanced rock weathering, bioenergy carbon capture and storage (BECCS), and direct air capture. Within the Carbonfuture Catalyst program, our team works with suppliers in bleeding-edge novel carbon removal techniques like ocean-based and other kinds of carbon removals.
Do your suppliers come across any common challenges or obstacles that you help them with during the process?
AE: Absolutely, the most common challenge that we encounter with them are certification pathways. It is an unknown black box for most of the suppliers that are new to the carbon removal space.
That’s why we provide certification guidance to suppliers we work with. It’s sometimes very confusing for them to realize there are different standards, different methodologies, and different requirements and timelines that are required. So we provide a consultation service to help suppliers find the best fit for their project.
And secondly, a very common challenge for CDR suppliers is securing financing. Projects require upfront payments in the beginning and certification takes some time. Often, the financing may not match the timeline when they need the cash. So we try to give them realistic expectations of when they can actually make use of the credits and how much revenue they can generate from it so that they can have a valid business plan for the future.
How long is the timeline from when you meet with a supplier to when they’re ready to sell their credits?
AE: There’s not an average timeline because it’s specific for each carbon removal method. An enhanced weathering project will be very different from a biochar carbon removal project. We have the most experience with biochar carbon removal projects and those can go a bit faster — anywhere between 2 and 6 months. From there, biochar suppliers can start issuing credits that can be sold on our marketplace and start getting revenue from these sales.
With BECCS, the actual carbon removal depends on the storage providers and the transport providers. Or with enhanced weathering, the removal process can sometimes take years to decades because the natural weathering is a very slow process. This is why the timeline between the project initiation and when suppliers can actually sell the credits depends on the method.
How does Carbonfuture help these suppliers with financing?
DL: Suppliers need financing to get their projects going and they need it upfront. Therefore, this is one major pain point for nearly every supplier. Carbonfuture helps “de-risk” the project through our trust infrastructure by making due diligence data easily accessible for potential financiers and utilizing the right methodologies for suppliers to reduce the delivery risk to buyers.
We also find buyers to purchase the resulting removal credits via long-term offtake purchase agreements. Such purchase agreements can serve as a collateral to secure financing from financial institutions we are increasingly collaborating with. Such financing can come in the form of equity, debt, or both.
Suppliers are evaluated for their eligibility through assessments. What does that process entail and what factors make a supplier ineligible?
AE: The eligibility process has several steps. Suppliers provide their project information with an explanation of their techniques. Carbonfuture gives a short assessment and then we apply a due diligence process. In this due diligence process, we assess the overall company and talk with the owners about their experience, their sectoral associations, and the project’s techniques.
Carbonfuture has two core principles: projects have to provide durable net negative carbon removal, and no negative environmental harm must be caused by these projects. If a project is producing carbon removals but is also polluting the environment, we would consider this an ineligible project.
We also consider other vitally important criteria when considering project eligibility, such as social justice and its impact on local communities. We also review whether these projects aren’t supporting environmentally damaging sectors such as oil and gas or mining. Ultimately, we only want to support companies that are doing carbon removal for the sake of carbon removal. If companies are not following our core principles, they are ineligible.
What is your take on the general pulse of buyers in the market right now? What are they looking for in terms of credits?
DL: The removal market is relatively new, but we see exponential growth in this industry. A lot of it is driven by companies that have set a net zero target for themselves. As we all know, you will only reach net zero with carbon removal. It’s encouraging to see that many leading companies are starting to build that part of their portfolio now and are getting into the market.
What has become clear during the last 12 months is that the desire for high-quality removal and transparency has increased quite a bit. One could speak of a flight to quality. In addition to nature-based and avoidance credits that are often available at scale and at a lower price today, more and more buyers are extending their portfolios with durable carbon removal.
Transparency, traceability, and lower risk of reversal are key quality criteria here. In terms of what the buyers look for next to these quality criteria; it’s to find an advantageous price. We do see that some of the price targets that companies have at this point lead to a portfolio containing a mix between durable carbon removal credits and nature-based solutions.
We do see the need for these mixed portfolios too, which is why we work with partners such as CEEZER to make sure they can include durable removals as part of the package. Overall, I would say there’s a solid and increasing appetite for durable carbon removal and an increasing focus on quality.
What should buyers be looking for in your opinion within the market?
DL: High quality. I think we all recognize the importance of striving for accuracy within the current capabilities of existing technologies. It’s our goal to establish accuracy and transparency levels that are market leading.
How do you advise your buyers when it comes to the types of credits they purchase? Do you give recommendations based on what industry a company operates in?
DL: There are preferences or sometimes even requirements that come from companies. For example, they may have geographic preferences, e.g. selecting projects where the company has operations or important client markets. In general, we believe that we have one atmosphere and that wherever the technology makes sense is where we want to facilitate projects. This translates into a global portfolio. I think quite a few clients appreciate that a portfolio can have a global footprint and impact. This approach allows buyers to diversify both their geographic footprint and risk exposure.
What is the purchasing process and timeline for buyers?
DL: We provide standard portfolios to offer clients a streamlined experience, such as the option of a global portfolio. Opting for a global portfolio reduces geographical risk for clients and often comes with a favorable price, facilitating a straightforward transaction setup.
Nevertheless, we recognize that some customers have specific preferences regarding project locations. These might be tied to their company narrative or supply chain. In such cases, the process may take a bit longer, as we curate a portfolio meeting these clients’ needs and unique requirements.
What kind of buyers does Carbonfuture usually have? Is there a sector that you see more often than others?
DL: Carbonfuture works with buyers from diverse sectors, ranging from technology, to (re)insurance and private aviation. One sector I would single out in the US and in Europe is the tech sector, encompassing both hardware and software. I think this can be attributed in parts to the problem-solving mindset inherent in tech companies and their desire to stay at the forefront of technological advancements.
The second prominent sector is reinsurance, where the reliance on climate stability plays a crucial role. Business cases in this sector often hinge on preventing the most catastrophic effects of climate change. The establishment of multi-year contracts with reinsurance companies, known for their risk-conscious approach, reflects a solid foundation of trust. This trust underscores our position in a growing market where Carbonfuture plays a pivotal role in assisting customers in building robust removal portfolios.
Are there any other industries you are looking to break into for new customers?
DL: Some of the other verticals that we have been focusing on are in professional services such as consultancies. They are not only buyers in their own right but can additionally help us reach a multitude of companies and spread the word about the carbon removal market to those who may not have heard of it or want to educate themselves more. There are still a lot of people that haven’t heard much about carbon removal. It’s splendid to have partners that can help spread the word. Furthermore, the outdoor sports equipment sector has a strong connection to nature, as enthusiasts aim to minimize their environmental impact by actively addressing traces they cannot entirely avoid or reduce.
Sebastian, as the senior policy advisor, what are the most important aspects of the carbon market that policymakers need to consider?
Sebastian Manhart (SM): Most countries have net zero targets at this point so most countries will need a lot of CDR. Governments that need gigatonnes of CDR are operating under the assumption that at some point they can just turn on a magic tap and get gigatonnes of CDR.
I think they fail to understand how technological development works. This is a huge issue because the needed supply of CDR won’t be there in 10-15 years for governments to procure if it doesn’t scale right now. The voluntary carbon market (VCM) alone is probably not going to get us there. The VCM will get us to a certain point, but we will need government involvement to get us to gigatonne scale.
The most important thing for policymakers to understand is that if they want to achieve their net zero targets, they need to get involved with carbon removals today and not ten years from now. They need to put money on the table today. As such, a lot of our work and focus is on getting governments to understand that, put policies in place, and start financing CDR.
What are the government incentives and legislation for carbon removal that you find the most worthwhile right now?
SM: Broadly, the main incentives today are focusing on Direct Air Capture. Examples include the 45Q tax credit in the US.
"There's actually more and more developing for BECCS, which I think is rather exciting. For example, Sweden has a dedicated 2030 target of 1.8 megatonnes for BECCS . They've already passed a reverse auction scheme for BECCS, which amounts to €3.3 Billion by 2030. It's a huge program in Sweden. "
It’s worth mentioning that 45Q does also apply for BECCS, but the amount is lower. It’s $85 for sequestration and $60 for utilization. DAC gets almost double the amount, but there is still money on the table for BECCS in the US.
The Department of Energy also has a purchasing pilot coming up at 35 million USD. It’s small, but it’s the world’s first government-led purchasing pilot. There’s a lot on the table already.
At Carbonfuture we’re putting a lot of our focus on the European Carbon Removal Certification Framework. That will form the basis for a lot of future demand-side policies such as the European Trading Scheme (ETS). We’ve been focusing on those medium- to long-term targets that could provide a real change to the market, but they will take a while to materialize.
The government’s collaboration with private businesses and individuals is essential to achieve carbon reduction goals. How does Carbonfuture foster cooperation between those three parties?
SM: Carbonfuture regularly hosts gatherings across Europe and in the US to bring together these types of stakeholders that you just mentioned: from industry, government and academia.
For the first time this year, we organized a conference and made it as inclusive as possible. We essentially held a free conference for attendees and a very broad array of stakeholders on stage. While these conferences can be very expensive, it was a fantastic opportunity because academia and government often operate in an isolated fashion. We might have suppliers and buyers interacting more because there’s a natural link, but those in academia and policy aren’t often at events like that.
Is there anything Carbonfuture is currently working on that you’d like to share?
SM: We’ve been working on a policy guide for buyers, which is a comprehensive report that analyzes key US and EU policies with relevance to buyers. We have created a lot of knowledge assets for buyers and suppliers alike.
AE: Today, we’re already providing the most comprehensive MRV solution for biochar carbon removal tracking. We’re currently focused on advancing our MRV capabilities to include BECCS. We are actively developing an advanced BECCS MRV system, and plan to pilot initial projects. Our goal is to align with third-party methodologies set to be published in 2024, ensuring our MRV system enhances transparency and quality for BECCS credit issuance.
