Canadian carbon investor details ARR investment strategy

18 Sep 2023

Quantum Commodity Intelligence - Canadian investor Key Carbon, formerly known as Carbon Neutral Royalty, has released a five-part series outlining its investment strategy with regards to afforestation, reforestation and restoration (ARR) projects, providing a rare glimpse into the company's carbon projects.

Key Carbon, which prides itself on a rigorous review process for investments, is building a portfolio of 'high-quality' carbon credits and said it has invested in clean cookstoves, mangroves and ARR to date.

This includes an investment into Kenya-based cookstoves manufacturer Burn Manufacturing, which produces a large chunk of Africa's cookstoves and earlier this month rolled out a range of new electric cooking products across several African countries.

Key Carbon has built in-house models to estimate the best ARR investment opportunities worldwide and said that, based on these, Brazil, China, Mexico, the US and India have the highest reforestation potential.

Brazil, which is currently undergoing a series of carbon market reforms, could generate between 500 million tonnes (t) and 2 billion t a year of credits, with a central estimate of around 1.2 billion t per year, its calculations show.

Meanwhile, Myanmar, Thailand, the Democratic Republic of Congo (DRC), Ivory Coast and the Philippines also present significant opportunities.

"We prioritise geographies where deforested land is abundant, available at a reasonable cost, and where the government requires financial assistance for ARR efforts," said Key Carbon.

"We aim to maximise the amount of CO2 equivalent (tCO2e) sequestered per hectare of land while minimising the time required to generate carbon credits while maximising the project’s duration," it added.

The investor insists ARR can be a "cost-effective" way to capture carbon if planned properly, however it has also identified many pitfalls with this project type.

High upfront costs

These include substantial upfront costs due to land acquisition, tree planting and the creation of monitoring systems.

"The delay in receiving returns until carbon credits are issued further diminishes the appeal of ARR projects to investors, as they may need to wait several years before recovering their initial investment," said Key Carbon.

The fund advises several key measures to stem cost inflation, including:

  • partnerships with private landowners, government agencies or conservation organisations to access land;
  • collaborating or creating local nurseries for tree saplings;
  • employing mechanised planting techniques to reduce labour costs;
  • Using remote sensing techniques for MRV and online training courses for staff;
  • engaging with environmental consultants or legal experts;
  • regular inspection and early detection of pest infestations or diseases; and 
  • finding alternative revenue streams.

To ensure the projects it invests in are additional, Key Carbon said that it typically steers clear of commercial forestry activities, including improved forest management (IFM) projects.

It said native species should be prioritised because they provide better ecological benefits and that, although fast-growing trees are more suitable for ARR projects, slower growing species should also be considered to ensure the "holistic sustainability and resilience of the restored ecosystem".

"While our primary focus, to date, has been on native species, we acknowledge that there may be rare occasions where the inclusion of non-native tree species in afforestation projects may be considered in future projects," the company also said.

"Non-native species would only be considered if they are not invasive and do not pose a threat to the local ecosystem."

The investor said it uses a multitude of sources to identify the best projects worldwide, including data on aboveground and belowground biomass carbon density, global livestock distribution, wildfire and flood hazard levels, and soil properties, among others.