Indian biochar developers optimistic on CDR demand despite Microsoft's procurement pace

Indian biochar developers expressed optimism about demand prospects for the near-to-medium term from large corporates in the US and Europe for biochar credits, despite Microsoft announcing it was adjusting the pace of procurement of removal credits.

Evolving dynamics stemming from developments in West Asia are not expected to significantly reduce buying interest from corporates for carbon dioxide removal credits,  developer sources told Platts, part of S&P Global Energy, in the week to June 12.

"Perhaps appetite from large corporates in the West may have reduced by just 25% from earlier, despite ongoing geopolitical conflicts, an India-based developer said.

Market sources told Platts they expected a slowdown in investments in sustainability from large corporates, as they are currently prioritizing ensuring they retain liquid cash flow to cushion against any inflationary blows.

Rising energy costs and subsequent increase in logistics have made securing energy for corporates quite expensive, market sources said.

Despite these emerging challenges, the first India-based developer said corporates would still be interested in investing in removal activities as such efforts often take time to yield the required results, and it wasn't as if CDR credits were readily available in the spot market in large quantities.

Platts reported in April that Microsoft had not completely abandoned their removal purchase program but was just recalibrating their approach by assessing the pace of procurement going ahead.

So far, Microsoft has been one of the largest corporations in the world that has made heavy investments in carbon mitigation activities, mainly driven by its ambition to set up energy-intensive data centers across the globe.

"The bargaining power may shift more in favor of buyers now after such a development," a second India-based developer said, saying other than that, they don't see much negative impact on buying sentiment.

The second India-based developer added that every entity in the market has its own strategy and priority with regard to carbon mitigation, and just because one company has said it would reduce the pace of procurement, that doesn't mean other companies would follow suit.

Sources also said the recent transactions by Indian developers for biochar and enhanced rock weathering credits were a positive signal to the Indian market, as they would aid in improving the momentum further for domestic participants.

Platts previously reported the 180,000-mt deal India-based Equilibrium signed with Altitude, along with the ERW deal Microsoft signed with Alt Carbon, showing a persisting interest in the market for removal credits. 

Demand from large corporates for engineered removal credits, especially amid evolving geopolitical dynamics, was also declining due to higher prices for these credits compared with avoidance credits, market sources said.

Platts assessed prices of current year renewable energy credits at 45 cents/mtCO2e June 12, while the current-year biochar India price was assessed at $137/mtCO2e, both unchanged from the previous session.

Usually, removal credits command a premium in the market over avoidance credits because the volume and permanence of carbon removal from the atmosphere are much greater than those of avoidance projects, which only ensure that further emissions are prohibited.

Further, a third India-based developer said projects that successfully demonstrated measurement, reporting, and verification, along with robust traceability, still found takers in the market.

"If a developer has data on MRV and traceability that can be accessed by the buyer at any random time, then they are able to sell their credits," the third India-based developer said.

Even though developers were optimistic of continued interest from corporates, a few challenges remain in the Indian market, such as delivery risks stemming from biomass feedstock sourcing issues and a lack of firm end-use biochar application avenues.

The second India-based developer said it was a "failure" on the part of the developer if they have not been able to identify their biomass source when looking to set up an industrial-grade biochar plant.