🌱 Biggest Capital Raise Week of 2023?
(119) credit where credit is undue: capitalization of carbon finale
Good Morning
What we’re reading this week:
How Better Tech Could Save Lives in a World of Bigger, Faster, More Devastating Fires (WSJ)
All about the Smart Surfaces Coalition
The Greendicator
Top Deals of the Week
![This is a model of the Spiritus equipment used to remove carbon dioxide from the sorbent. This is a model of the Spiritus equipment used to remove carbon dioxide from the sorbent.](https://substackcdn.com/image/fetch/w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Ff260c963-b518-4233-b567-3c43ec33e48d_2874x2874.jpeg)
Battery recycling startup Ascend Elements raised a $542M Series D led by Decarbonization Partners (TC)
Lyten, a lithium-sulfur battery startup, raised a $200M Series B led by Prime Movers Labs (TC)
EIT InnoEnergy, a sustainable energy investor, raised over $150M in funding led by Societe Generale, Santander CIB, PULSE CMA CGM Energy Fund, and Renault Group (FN)
BlueWave, a solar developer, owner, and operator, raised $91M in financing: a debt raise of $64M with KeyBank and a tax equity raise of $27M with U.S. Bancorp (FN)
GHGSat, a greenhouse gas emissions intelligence company, raised a $44M Series C1 led by BDC Capital, Fonds de solidarité FTQ, and others (FN)
Pulsora, an all-in-one platform for enterprise sustainability management, raised a $20M Series A led by Galvanize Climate Solutions (BW)
Optera, a provider of an ESG and carbon management software platform, raised a $12M Series A led by Next Frontier Capital (FN)
DAC (Direct Air Capture) startup Spiritus raised an $11M Series A led by Khosla Ventures (FN)
Industrial waste management startup Advantek Waste Management Services raised an $8M seed round led by Lowercarbon Capital (FN)
Retail energy management platform Ostrom raised an additional $8M in funding led by SE Ventures (FN)
Detrapel, a sustainable coating manufacturer, raised a $7.6M Series A led by Material Impact (FN)
Land, an electric mobility and battery manufacturer, raised a $7M Series A led by Ancora (FN)
Scala Biodesign, an Israeli startup specializing in protein development, raised a $5.5M seed round led by TLV Partners (FN)
Green Theory
Undue Credit: The Capitalization of Carbon Part III
Staring into your 800-acre private forest, you’re holding a contract from a logging company. You can sign it right now, and walk away with $650,000, knowing the thousands of trees before you will be chopped up and hauled away. With a sigh, you uncap the pen and bring it toward the paper, when suddenly your phone buzzes with an offer from a startup:
“We heard you’re logging your land. If you wait just one more year before harvesting your forest, we’ll pay you $6,500.”
Welcome to the carbon offset market.
In our third and final chapter on the capitalization of carbon, we’ll look at the unregulated marketplaces selling the excuse to pollute. Carbon credits or offset schemes combine the two carbon concepts explored in the last two weeks: (1) economic approaches to emissions reductions, and (2) some mechanism to capture, store, or remove carbon. Let’s follow up on your intriguing offer to learn more.
Building a negative supply of emissions
You dial the number in the offer email, and ask why someone would want to pay to delay your harvest by a year. The representative explains that their company identifies likely logging locations. Then, they can calculate the climate benefit of waiting just one more year before annihilating the forest. In your case, it’s worth $6,500 to rewrite the future—just for a year.
Like other carbon credit companies, this offset scheme needs to build up a supply of would-be emissions that were prevented, or removed from the atmosphere. They count delaying your logging as prevented emissions or negative emissions.
Looking out at your beautiful forest, you think about the joy of visiting the untouched woods for another year of picnics, with a nice chunk of change, too. “I’m in,” you decide. “How soon can I get my money?”
You’ve just created a carbon credit, also known as an offset, or negative emissions.
Most startups working on carbon capture and storage sell their services as negative emissions, but other forms of offset supply exist too: from humble tree-planting operations, to the more complicated distribution of gas cookstoves, deployment of clean energy, and more. The underlying methods are diverse, but carbon offsets share in their unreliability in delivering lower emissions or atmospheric carbon reductions.
Demanding an excuse to pollute
At the very moment you hang up, two phone calls reach the carbon offset startup. One is from an oil & gas public relations agent, who’s looking to purchase some carbon credits for a feel-good press release. The second caller is a frequent flier, who’s doubling their annual flying from 6 coast-to-coast roundtrips per year to 12, and starting to feel guilty about emitting over 3x the average US citizen. Rather than sit on hold, the flier goes to the startup’s website.
Each buys carbon credits from the startup, and pats themself on the back. They’re still increasing atmospheric carbon dioxide, and damaging fragile ecosystems. But by paying a little, they can subtract your negative emissions (from your 800-acre forest living one more year) from their real emissions to get net zero emissions, right? In theory, but not in practice.
![](https://substackcdn.com/image/fetch/w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F86d6b58d-484c-4d81-99c9-26d6f7219671_1486x616.png)
What happens if your forest burns down a week later? Or what if you weren’t really about to log your forest? Now we can’t say you canceled their emissions out, but they already paid you for it. These markets can facilitate exchanges of carbon credits with elegant software tools, but like a fiat currency or crypto token, the credits don’t need to represent any real value. Similar to indulgences sold by the Catholic church, offsets let buyers feel relief from guilt as soon as they purchase, without worrying about the real impact afterward.
Paid to pollute
Selling a year’s logging delay to a carbon credit startup, you could try to negotiate on price, but not on the company’s underlying carbon accounting model. The startup, in turn, wants to maximize your ability to supply them with credits, so the more favorable their accounting of carbon per tree (or per acre, per stove—or whatever unit you demonstrably have), the more carbon credits you can supply.
On the other side of the market, carbon offset buyers have little reason to question the quality of their offsets’ accounting, either. The less expensive the carbon offsets are, the more carbon one can afford to boast about buying. Picking the least expensive carbon offsets, large buyers elevate the markets and methods with the least-strict standards.
A fragile bargain
Unless every individual in the value chain possesses a genuine desire to reduce emissions, it’s easy for these unregulated markets to create more emissions, not less. It only takes one opportunist, at one point in the carbon credit “negative supply” chain, to invalidate the good intentions of all other parties. A single whistleblower can walk away, or write an op-ed, but startups have a way of blundering past critique, as long as the money lasts.
Before the supply of offsets is created, the supplier needs to offer genuine additionality. That means a credible threat that if they weren’t paid for the offset, they wouldn’t take the proposed carbon-negative action. This is simple for the carbon removal and storage companies: if they don’t get paid to suck carbon out of the air, or store it in seaweed, they won’t do it. It gets more complicated with something like a new hydrogen plant or a solar farm—was it really not going to get built without someone paying for carbon offsets?
![](https://substackcdn.com/image/fetch/w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2Fed157b7d-79a0-419f-8473-7039cfdbe3b8_1220x628.png)
Next is accounting for how much carbon was offset, and pricing the value of that offset. A lot of carbon offset schemes can’t offer us specific amounts of carbon, as they’re too new or too variable to rely on. Take NCX’s unusually favorable ton-year accounting method, or a UN trial on cleaner cookstoves, where researchers found “a higher proportion of black carbon in PM2.5 emitted from intervention [new stoves] compared with traditional stoves.”
From questionable economic gymnastics, to inaccurate physical modeling, there’s a lot of opportunity for the market itself to fail in delivering real emissions removal or reductions.
Regardless of these inherent flaws in the incentives of those creating and accounting for carbon offsets, the buyers keep lining up. Looking to greenwash their emissions, buyers can find any number of sites to purchase unproven offsets. Unlike a cap-and-trade policy, there’s no body lowering the total amount of carbon that can be emitted. Instead, carbon offset credits provide an elaborate cover for firms and individuals to continue polluting and locking-in new fossil fuel infrastructure, deepening our dependence on non-renewable resources.
The capitalization of carbon
We’ve found powerful governance mechanisms for reducing emissions economically through cap-and-trade, and import tariffs. Scientists are hard at work developing new methods of carbon capture and removal, as discussed in part II. Still, business minds staking claims in the uncertain area of carbon offsets threaten to do more harm than good.
As Carbon Plan, an organization dedicated to heightening ethical and methodological standards in carbon offsetting, explains:
No doubt one response to this criticism will be the standard line in the voluntary carbon markets: “critics can’t let the perfect be the enemy of the good.” The problem with this position — aside from higher emissions — is that unregulated carbon markets have no governance system to review claims and make changes over time. Instead, critical technical choices are left up to private parties, like NCX, that have a direct profit motive to sell more offset credits for a given volume of temporary carbon storage. —Carbon Plan’s critique of NCX
Indeed, what startups claim is “good” could be good for their profits, but bad for society at large. Individuals pursuing this field are likely to spend this critical decade building solutions that will go nowhere, at best, or damage the earth, at worst. At the same time, we already have the electrification technology needed to clean up an overwhelming majority of emissions.
Why doesn’t everyone focus on solving the crisis, instead of building more band-aids?
Because it’s nearly effortless to make a net-zero pledge, especially compared to actually future-proofing your supply chain, infrastructure, or lifestyle. Startups are happy to sell you the illusion of fulfilling your pledge, while you carry on with business-as-usual.
Consolidating the critical stance on the industry, in a piece where the MIT Technology Review took aim at one of its own incubated startups, Running Tide, James Temple writes:
“…as more companies develop net-zero emissions plans, the public relations and financial incentives are pushing players on all sides of this market in a single direction: toward developing, funding, accrediting, selling, and buying as many carbon credits as possible, even if some of the practices have questionable benefits or could inflict environmental harms.”
—Running Tide is facing scientist departures… from the MIT Technology Review
Instead of creating a scalable framework for saving the planet, carbon offset schemes are entrenching yet more investment in fossil fuels, breaking promises, and inflicting ecological damage.
We can choose clean energy, clean agriculture, protected forests, and marine sanctuaries. We can research and develop truly clean pathways to more challenging sources of emissions. The global north can pay its climate debt to the global south by building clean energy infrastructure, instead of donating to nominal emissions ransomers. Alternative solutions abound.
In this critical decade, can we afford to gamble our time, money, and emissions on this speculative field of private offsets and credits?
The Closer
From the NYT