ANALYSIS: Long-term biochar carbon price already below $100/tCO2e, say developers
Quantum Commodity Intelligence – The price of long-term biochar carbon credit deliveries is already well below $100 a tonne of carbon dioxide equivalent (tCO2e) based on current economics in certain countries, a sign of the sector's potential to scale, several project developers have told Quantum in recent weeks.
Biochar carbon removal (BCR) credits have been in high demand, with prices seen trending up in recent months due to a growing appetite from corporates and a dearth of supply, said traders and developers. Some deals have been heard as high as $525/tCO2e in small volumes, but most trades have been between $100-200, depending on the volume involved, the location, the financial terms and 'financial additionality' (ie, need for carbon finance) of the project in question.
Several high-profile BCR purchasers include Microsoft, Meta, JP Morgan and Klarna, although some of these announcements have also gone with investments into the producers themselves. As one producer recently put it to Quantum: "Pricing transparency is low and deals can be confusing... it's often unclear whether they are straight market transactions or include an element of equity investment, which often appears to be the case."
Paradigm shift
Lately, a paradigm shift has occurred with several firms announcing larger investments in new BCR plants in the US, Bolivia and Brazil, rather than the sector's traditional European base. These new plants are expected to be significantly larger than the previous generation of BCR facilities and thus contribute to a step-up in output.
The largest single operational BCR plant in the world is currently Exomad Green, based in the Bolivian Amazon, giving it access to ample sources of wood waste to turn into biochar. Exomad aims to deliver removals of 200,000tCO2e a year from 2024, and has offered its carbon credits at €140 ($150)/tCO2e to potential buyers.
Quantum has also covered Carbon C2's 10 projects in California, which are collectively offering 1 million credits as forward sales, with the biochar generated from wood waste from the state's forests. "I see the market for pre-purchase of BCRs at $80 for quantities of around 50,000-100,000 t over five years," said Kevin Corbett, the company's founder, who has called for a huge increase in scale to bring costs down.
"We are offering $60 because of the risk of being part of project number one. We will gradually get closer to $80 to $100 advance purchases as we prove our execution," he said.
Unlike most other offset markets, the BCR curve is widely recognised to be in backwardation, meaning that the current or spot price is higher than forward delivered credit vintages, said sources. This is because of the lack of supplies in the short term as well as inherent risks developing new projects.
Offtake deals
"My main issue is that most deals are long forward offtake deals and it's unclear what will be delivered and what is the payment structure," said another developer. "If I get 25% prepayment, I can offer far better prices. In the extreme in which I receive 100% upfront I can look at 'cost plus' rather than value pricing. Another aspect that is not disclosed in the deals is how much financial additionality there is."
Industry sources said deals with a minimal amount of payment upfront – also known as 'offtakes' in industry jargon – typically cost between $20-30 less than those that involve more money upfront. "Most of influence on the price has: 1) how far out the client is willing to sign an offtake (ie, will underwrite a 2030 offtake) 2) Does that come with pre-payment and, if so, how much 3) Size matters for sure as well 4) In which stage the project is," said a source in the financial sector.
At the moment, most of the new supply coming to market seems to be in the US, helped by generous tax incentives for carbon dioxide removal (CDR) projects and the country's strong entrepreneurial base. But sources said that, over the long term, biochar supply is bound to move to the developing world, where more ample sources of biomass exist.
This is the thesis behind a company such as Net Zero, which plans to commission its second processing facility in Brazil early next year and has plans for many more.
The firm, which is certified under the Puro.earth standard, operates a plant in Cameroon, one in Brazil and plans to scale its modular technology to tropical countries that often have good sources of unused biomass.
It has already started building a second plant in Brejetuba, in the state of Espírito Santo, Brazil, just 25 kilometres from the first site, which will use coffee husks as feedstock.
"Latin America will lead, but Africa is massive and will catch up and exceed Latin America... Indonesia is actually a larger opportunity than both areas as it has more degraded forest than the other two combined," said Carbon C2's Kevin Corbett.
To aid progress in developing nations, where larger plants can be hard to finance, new standards have emerged authorising waste biomass from an artisan's farm, from processing at cocoa mills and sawmills, and from disaster debris.
C-Sink standard
Switzerland-based Carbon Standards International (CSI) said the Global Artisan C-Sink Standard "guarantees that the biomass feedstock in low, lower middle and higher middle income countries is sustainably produced in an artisan way with Kon-Tiki type pyrolysis, thus reducing emissions in the production process of biochar".
Sources said C-Sink credits typically change hands at a $20 discount to those verified by Puro.earth, even if they typically have more social co-benefits compared with larger facilities. "A lot of global south projects come in, mostly using Kon-Tikis, Artisan or ArtisanPro under CSI," said the finance sector source. "So far those projects hardly found any consideration, but given that companies tend to focus more on co-benefits... the interest rises."
However, for many carbon credit buyers in the voluntary market, BCR remains far too expensive, and it is unclear if the demand will materialise in significant numbers.
"Prices are really all over the place. We see high-tech US projects selling for $120 for 2024 vintages, while Europe is at €180-200 for next year for example," the financial sector source said. "It feels like the market for biochar will change quite a bit."
To date, most BCR over-the-counter deals have been with technology firms or financial institutions with a lot of cash on their hands, or smaller firms that buy just a handful of credits.
"A small service company can buy BCR, but at the kinds of volumes we buy, we cannot afford to pay much more than $30/t," said one executive at an energy firm which is one of the largest buyers in the voluntary carbon market. "Above this level, we have to launch more R&D initiatives or look to decarbonise further."
Quantum Commodity Intelligence now assesses biochar carbon removal credits in four different regions of the world, based on several standards and volume definitions.
Delivery terms range from spot all the way to 2027 vintages, with each delivery term commanding a different price.
For each category, the assessments are based on the most competitive prices available in the over-the-counter marketplace.