Corporate buyers are pushing ahead with big carbon deals in spite of setbacks for climate policy and climate action.
New offtake commitments from Shopify and Microsoft highlight a growing preference for higher-quality – and higher-priced – credits in the carbon dioxide removal, or CDR, corner of the voluntary market.
Microsoft last week inked deals with Re.Green in Piracicaba, Brazil, and Chestnut Carbon in New York to earn credits from reforestation and land restoration projects in Brazil and the southern US. Shopify agreed to buy credits generated from Houston-based Mati Carbon, which uses “enhanced rock weathering” to sequester carbon in the ground.
Combined, the deals promise to remove nearly 11 million tons of carbon from the atmosphere.
Many more projects like these, which sequester carbon in soil, plants and rock, will be necessary to make a meaningful dent in global CO2 emissions, which are still on the rise.
But carbon dioxide removal accounts for just 4% of credits in the voluntary carbon market, where companies buy and sell credits to offset their emissions. The majority of credits available come from carbon-avoidance projects in renewable energy, forest management and nature conservation.
Questions about the credibility and transparency of many carbon-avoidance projects have driven prices below $6 per ton. In contrast, carbon-dioxide removal credits can fetch several hundred dollars per ton of carbon.
Upfront offtake agreements like Microsoft’s and Shopify’s, “are essential to scale a nascent CDR market,” finds a report from Carbon Direct, a carbon accounting software provider. “For market-based mechanisms to meaningfully contribute to scaling up CDR, private sector demand must accelerate quickly.”
Offtake agreements
As much as 98% of credits in the nascent carbon dioxide removal market come from nature-based projects that capture carbon by restoring land and soil health and through tree planting and growth. Most of these projects can only guarantee carbon removal for up to a century, because they’re vulnerable to incidents like wildfire, deforestation, and land-use changes, which would rerelease carbon into the atmosphere.
The other 2% of carbon removal credits are classified as “high-durability” because their methods can certifiably sequester carbon for thousands of years. These include direct air capture and storage and “mineralization” processes that can store carbon in geologic formations.
Both nature-based and high-durability carbon removal projects are in short supply. High-durability projects are especially capital-intensive. Upfront off-take agreements, Microsoft’s and Shopify’s, are considered critical to the acceleration of the carbon removal side of the market.
As a buyer, Microsoft is the undisputed leader in the carbon removal market. The company has invested in both nature-based and high-durability projects as part of its goal of becoming carbon negative by 2030. Like many tech companies, its appetite for offsets is growing alongside its footprint of energy-guzzling AI data centers.
“There’s no question that they are at the cutting edge,” says Shannon Smith of Chestnut Carbon, which last week signed an agreement to sell to Microsoft credits accounting for seven million tons of removed carbon over the next 25 years.
Chestnut Carbon will work to restore 60,000 acres of farmland to forestland the firm acquired in Arkansas, Texas and Louisiana. The sites Chestnut Carbon has targeted are livestock farms, and soy, corn or rice farms, that will be retired and replanted with trees.
With Re.Green, Microsoft committed to buying over the next 15 years credits for more than 3.8 million tons of CO2 captured through forest restoration in the eastern edge of the Brazilian Amazon and in several parts of the Atlantic Forest, which runs along the coast of Brazil.
The agreement marks an expansion of a project Microsoft inked with Re.Green last year. The combined scope will cover more than 80,000 acres of forestland, more than three times the size of Paris.
Doubling-down on durability
Such up-front, fixed-price contracts are “shifting this industry,” because of their transparency and rigor, Smith tells ImpactAlpha.
Microsoft “is starting to bring other people along with them,” she adds. Last year, it helped launch the Symbiosis Coalition, along with Salesforce, Meta and Google, to help standardize the proposal, approval and contracting process for carbon removal projects.
“The technology companies, financial services companies and consulting firms, are among the lower emitters in the global economy,” notes Smith (though this is changing with the AI boom). “But we need the energy companies, the consumer packaged goods companies, and the airlines – the companies that are the bigger emitters – to continue to work to decarbonize their operations as well.”
For Shopify, the bulk of its carbon emissions come from the small businesses that set up stores on its platform. Part of its work to neutralize these “Scope 3” emissions includes a carbon removal offtake agreement with Mati Carbon, a nonprofit.
The agreement promises to remove 5,000 tons of CO2 from the atmosphere this year. That’s tiny compared to Microsoft’s agreements, but it’s a milestone for the tiny high-durability carbon removal segment.
Shopify’s credit offtake commitment will support Mati Carbon’s work with 20,000 smallholder farmers in India, who will add basalt and other types of rock dust to their soil to accelerate its ability to store carbon. The project – one of the largest initiatives of its kind – aims to prove that high-durability removal projects can be relatively low-cost in order to attract more capital and commitments.
Shopify’s agreement with Mati will also generate added income for participating farmers and local communities.
“This presents a significant market-based mechanism to address part of the massive $75 billion annual adaptation finance gap for smallholder agriculture in developing countries, who produce 35% of the world’s food supply,” Mati Carbon said in a statement.
Ashish Kumar, a climate investor and advisor to Mati Carbon said the “high-quality co-benefits” is a key differentiator of Shopify’s agreement. “Most developers in the carbon removal space are delivering removal as the main benefit. For Mati Carbon, smallholder farmers’ resilience is their primary mission and carbon removal is the way they do it.”
Mitigation intent
Carbon removal’s ability to impact climate change depends on efforts to curb, not just offset, emissions. This doesn’t always align with the views or incentives of carbon removal project developers.
Chestnut Carbon, for example, was capitalized and launched by Kimmeridge, a New York-based asset manager that primarily invests in oil and gas projects. A managing partner at Kimmeridge, Ben Dell, wanted to be able “carbon neutral” oil and gas by bundling the fossil fuel products with carbon removals. The lack of available quality carbon removal credits spurred him to start Chestnut Carbon.
Kimmeridge continues to support the development of new oil and gas assets in the US, where fossil fuel output is at a record high.
“I don’t think it undermines the work that Chestnut is trying to do,” says Smith of Kimmeridge’s work in fossil fuels. She argues that fossil fuel companies need to do more to “decarbonize” their operations.
“For the foreseeable future, we’re going to continue to be dependent on traditional energy. It’s not a fast transition,” she says, “so I would much rather create a product and help offset what we’re going to be continuing to use.”
The authors of a Microsoft-funded study in Nature find, however, that without “stringency” in future mitigation efforts, nature-based carbon removal projects, like the kind Chestnut Carbon is developing, won’t have an impact on global warming and “would serve only to delay the occurrence of a given warming level, with no other long-term climate benefit.”
Carbon Direct estimates that high-quality nature-based credits may be harder than expected to execute successfully.
“These projections purposefully assume rapid, effective deployment to illustrate the best-case scenario for supply based on investable capital,” Carbon Direct reports. “In practice, deployment is likely to be slower and some will be low quality.”
