INTERVIEW: US nature-based carbon removal projects offer high co-benefits, low risk: CFO

High-quality US nature-based removal solutions, which extend beyond permanence, are crucial for voluntary carbon markets as technology-based solutions progress along their cost and innovation curves in the medium term.

"We feel [nature-based removals don't] have the same complexity as [bioenergy with carbon capture and storage] or direct air capture. You don't have a technology readiness level to deal with," said Greg Adams, chief financial officer of Chestnut Carbon, adding that while engineered carbon removals will play a role, they are still developing along the technology readiness and cost curves.

Chestnut Carbon, a US-based developer of nature-based carbon removal solutions, specializes in afforestation, reforestation, and revegetation projects. ARR projects aim to restore marginal crop and pastureland to diverse, natural ecosystems that are optimized for each region's soil, drainage, native species, and community land use, contributing to carbon sequestration.

In addition to ARR, Chestnut manages improved forest management projects under Forest Carbon Works. IFM practices enhance carbon sequestration through sustainable management techniques, focusing on forest health.

"Trees are pretty efficient machinery that has been around for about 400 million years, and are really good at capturing CO2," Adams said. "Their whole mission in life is to capture CO2. [The removals project] is scalable, and we think we can do all that and still be at the front end of the cost curve."

Chestnut has over 160,000 acres across 36 states of forested land owned by private or nonprofit landowners.

Across carbon segments, "different location, the geography, the rule of law will also impact the value of the premium or discount applied to that product," Adams said. "I see a lot of interest in people tethering themselves to US projects, particularly US-based companies."

Nature-Based 'made in America' credits

Earlier in May, as reported in the Wall Street Journal and other news outlets, Netflix and Meta faced potential loss of carbon credits due to a Kenyan court ruling in favor of Maasai herders in a dispute over grassland access.

The Northern Kenya Rangelands Carbon Project, a global soil-carbon initiative, aims to preserve 4.7 million acres of grasslands to sequester carbon. Several local groups communally own this land, which is protected as an area for endangered species.

Besides viewing Article 6 as a real risk, buyers look at the stability of the government of the issuing project, Adams added. Article 6 of the Paris Agreement outlines mechanisms for countries to collaborate on achieving climate goals through market and non-market approaches.

"It helps reinforce the permanence and the credibility around my ability to deliver against the contracts in addition to the authenticity argument," he said.

He added, "The US is far from perfect, but we have laws around land ownership that I feel comfortable with, because at the end of the day, we own that land that we build these projects on."

Earlier this year, Chestnut signed a deal with Mercedes-AMG PETRONAS Formula One for 5,500 mt of carbon credits from its ARR projects, to be delivered from 2027 to 2030.

Tech giant Microsoft also secured a 25-year contract for over 7 million mt of ARR credits from Chestnut's gold standard certified projects. This follows an initial ARR agreement from December 2023 with Microsoft for a 15-year agreement.

"And so, I think a lot of people like the authenticity that carbon projects in and around their own area," Adams said, referring to companies like Microsoft.

Chestnut previously completed an IFM carbon credit deal, certified by the Verra registry with JPMorgan Chase and other corporate buyers, totaling 64,000 carbon removal credits. The credits averaged $34 per mt of CO2 equivalent, according to Chestnut.

Chestnut declined to disclose the price of the ARR credits for their offtakes, yet said, "Our ARR credits are priced at a premium compared to IFM credits."

Platts, part of S&P Global Commodity Insights, assessed nature-based carbon removals for the current year at $15/mt on May 23. This assessment reflects removal projects that fall within the AFOLU category, including ARR, soil sequestration (not including biochar), and wetland restoration.

A second US developer recently indicated IFM credits without co-benefits at $15-20/mtCO2e.

A broker shared an IFM offer for above 10,000/mt with multiple co-benefits in line with the United Nations sustainability goals, such as clean water and sanitation for life and land, valued at $26.65/mtCO2e with a vintage of 2023 and delivery in 2025.

The role of co-benefits

What constitutes a carbon credit is a "pretty muddy picture," Adams said, "I'd like to think you are starting to see people look at permanence as kind of the one vector, and I think that's a mistake."

Carbon permanence refers to the longevity and stability of carbon sequestration or emissions reductions achieved by a project. Many VCM participants use this measure as a differentiator, with a general perception that higher permanence is preferable.

While permanence is one of many different attributes, in the case of nature-based removals, there are co-benefits that engineered tech solutions don't have and thus mark a struggle for buyers to put projects side by side and make a fair apples-to-apples comparison, Adams added.

These co-benefits are the added "positive" outcomes beyond the primary goal of reducing greenhouse gas emissions -- including environmental, social, and economic benefits such as improved air and water quality, biodiversity conservation, job creation, community development, and enhanced ecosystem services.

Co-benefits help increase the overall value and appeal of nature-based carbon projects across different segments and across the VCM space.