An AMC Is A Good Start But We Need More

Big Tech has announced an Advance Market Commitment to buy 20M tons of nature-based removal credits. This is good news, but it will only work if they also fix key broken elements of the buying market:

1: Pay more - as much as $46/ton.

Forward carbon sale prices for nature-based removals need to be higher, or the economics just don’t work for organizations doing the work. Right now the forward carbon price is around $6-8/ton, with spot market prices around $12-18/ton.

Terraformation now has extensive experience analyzing the cost structure of high-quality ARR projects and the organizations who can do it.?The long-term value of this carbon removal is not adequately reflected in today’s price.

https://twitter.com/RobertHoglund/status/1790243218526974118

While the price difference represents a major increase over the current market, it is still much, much lower than engineered removals and other methods. It is frankly a great bargain given what we collectively receive in return.

Put simply, it’s the cost of doing things right: avoiding monocultures and other bad practices, ensuring local communities are engaged, and that the project utilizes the latest known science. Paying for quality is the right thing to do: it ensures long-term stability and is ultimately the cheaper option.? The key point about paying for quality is PAYING for quality.

Terraformation helps plant forests that are resilient and self-sustaining - forests that become true deep carbon sinks over decades and centuries. People naturally understand paying much more for quality if you’re buying a lifetime product. Forests are even longer-term than that: we will hand them down for generations.

2: They also need to be willing to pay cash up front, immediately.

Too many pledges are promises of payment later, or (worse) payment upon delivery of the carbon. “Payment upon delivery” means “10 years after you planted the tree.” ?

But 90% of project cost is incurred in the first 2 years of the tree’s life: in the planting and early maintenance when mortality rates are highest. Communities and organizations who do the tree-planting don’t have money, and need it immediately (to pay expenses so they can live). ?No one can foot the bill for millions dollars of planting costs and wait 8 years for a payment contract to be fulfilled.

Paying for carbon on-delivery today (i.e. trees planted in the past) to offset your emissions today is a non-starter. It’s one reason why the nature-based removals industry is not moving and has been at a virtual standstill for over 4 years. This appears to be one of the biggest blind spots of current nature-based carbon removal pledges: when it comes to forests, you can’t have a transactional Net Zero-style “offsets for this year” mindset - you have to invest today in that future capacity.

https://www.terraformation.com/blog/why-you-shouldnt-go-net-zero-this-year

This is the key gap when it comes to AMC or any pledges to fund ARR/NBR. An offtake agreement that pays when credits are validated (i.e. 10+ years in, maybe 5 years) means the projects starve. ?Offtake agreements must release cash on Day 1, or no plants ever get into the ground.

The last thing is why we see this oddly paradoxical situation:

• Lots of money in tree-planting pledges but funders can’t find ways to deploy it
• Lots of organizations with people willing to plant trees but no one has any funding

Organizations and communities who can do it right exist and are STARVED for funding.

My organization (Terraformation) runs an accelerator to train and equip these organizations, and we have a pipeline of over 700 project applicants worldwide but to get them started, we (they) need funding - as in cash today.

The very funders who claim they want to supercharge nature-based removals won’t actually pay cash at the time it’s needed.? They want to pay cash “on delivery” which means “years after the planting.”

That time never comes because the cash is needed before planting can even begin. Everyone wants some cake, but no one is willing to help bake the cake.

(There are a small number of forward-carbon contracts, but these go for such a huge discount ($6/ton instead of the needed $40+/ton) that projects are barely viable)

Paying premium prices 20 years ago for solar is what helped make it a success today. Doing the same (where premiums means quality, which means long-term sustainability and ecological health) when it comes to nature-based removals is similar.

Terraformation itself is able to fund a small number of pilot-scale projects (okay, 20 of them, but the world needs ~2M) because we have raised enough equity funding to pay the costs from our balance sheet.? Even so, our finances have to be very tight. Most forest restoration organizations cannot do that, and need the cash upfront at a high enough carbon price so that they can pay for infrastructure, team staffing, and planting upfront. Many organizations WILL do it, if the money is really there.

The AMC is a great step forward. But there is a still to gap to close, and our time to close it is running out.

https://www.businesswire.com/news/home/20240521133634/en/Google-Meta-Microsoft-and-Salesforce-pledge-to-contract-for-up-to-20M-tons-of-high-quality-nature-based-carbon-removal-credits-by-2030?utm_campaign=shareaholic&utm_medium=linkedin&utm_source=socialnetwork