Nori’s view on the Supply crunch for CDR credits
Written by Radhika Moolgavkar, JD, Nori’s Head of Supply and Methodology.
Carbon offsets have seen a large spike in popularity and demand in recent years. In fact, according to the 2021 Ecosystem Marketplace analysis by the Forest Trends Association, traded volumes of carbon offsets in voluntary markets have seen increases every year since 2017. Noticeably, the first 8 months of 2021 had surpassed all of 2020 by 27%. The full report can be found here.
This report highlights the difference between carbon removal offsets as compared to reduction offsets and the 5x (on average) price premium of removals over reductions. Carbon removal is an offset product that represents sequestering CO2 out of the atmosphere and storing it in some way. Removal offsets have seen massive increases in popularity in recent years, having been partly led by the 6th and latest IPCC report placing emphasis on the need to grow the carbon removal industry. These reports highlight that carbon removal is unavoidable in order to reach net zero and necessary to avoid environmentally catastrophic events.
Additionally, guidance from Science-Based Target Initiatives points major global companies to carbon removal offsets where it is simply not possible to avoid emissions entirely at the source.
As many major companies, governments and individuals set public, optimistic climate goals, the appetite for carbon removal grows, and with it the demand for growth of the carbon removal industry. These factors have led to a global shortage of high quality carbon removal available for immediate retirement.
In this post, I will describe some of the trends and categorizations that we have discovered in our work of scaling up Nori’s carbon removal supply. But first, it’s worth noting that since the Nori marketplace issued and sold its first Nori Carbon Removal Tonne (NRT) in 2019, Nori’s supporters have provided 14 regenerative farming projects with over $1.3 million dollars in additional revenue through the sales of over 86,000 NRTs. Given current market conditions, the demand for our carbon removal product now outweighs our supply. For this reason, Nori has implemented a fulfillment queue where we will retire orders on a first come, first serve basis as NRT inventory becomes available. The buyers queue and supply pipeline updates are published at https://nori.com/registry.
Growing the supply of carbon removal and NRTs.
Generally speaking, Nori thinks of supply in two broad categories: Higher risk-reversal natural solutions such as soil, shoreline restoration (mangroves and seagrass) and forestry, as well as lower risk-reversal manufactured solutions such as direct air capture (DAC), ocean CDR, and mineralization.
Currently soil and forestry solutions are the most developed and widely available, but do come with higher risk-reversal from events such as tilling, burning, development, etc.
Manufactured solutions, on the other hand, are being developed at an accelerated pace but unfortunately most of these businesses won’t have carbon removal credits until at least the mid-2020s. Much of the future supply has been pre-sold to large companies, and credit-buying pioneers such as Shopify, Microsoft and Stripe. It appears these companies are funding start-up solutions in the hopes that a subset will be highly effective in the years to come and, with the successful companies, long-term partnerships will be formed.
This means that these early stage companies are generally not creating projects nor developing methodologies on traditional registries — though at least one of these companies has created a methodology with Gold Standard and some registries are contemplating new methodologies for these manufactured solutions. Additionally, most of these early stage companies require high upfront capital to fund development of their carbon removal technology and the associated verification and monitoring of their sequestration methods.
Additionally, companies with net-zero commitments have banded together to fund Advance Market Commitment (AMC) groups. These are financing mechanisms that are using vaccine development as a model to fund fast-moving start-ups in the CDR space. The most well known, with over $900 million in funding, is Frontier. “Frontier aims to accelerate the development of carbon removal technologies by guaranteeing future demand for them. The goal is to send a strong demand signal to researchers, entrepreneurs, and investors that there is a growing market for these technologies. Importantly, Frontier aims to help create net new carbon removal supply rather than compete over what exists today.”
In May 2022, corporations, and 8 governments (including India and the UK) joined the First Movers coalition, a group committing to buying low-carbon industrial products to speed decarbonization in those sectors. In the same announcement, carbon removal was added to the list of 6 sectors the coalition is buying from. Additionally, funding from the philanthropic sector (like the Chan-Zuckerberg Initiative) and various legislative efforts to drive local, state and federal government procurement is creating a supply crunch for carbon removal credits that are not even created.
The Path Forward
Optimistically, there is lots of interest and capital finding its way to all areas of carbon removal solutions which gives us all hope for rapid development! Additionally, there is a growing focus in the policy arena on carbon removal which, hopefully, will remove some of the bureaucratic hurdles, like permitting, that have slowed some of these projects and will provide necessary research dollars into the field. In the meantime, however, supply shortages persist for immediate retirement of high quality offsets across all marketplaces.
In line with global marketplace trends, Nori shifts in and out of having carbon removal available for immediate retirement. We still accept orders, and these orders are highly important, but simply guarantee we will retire them within a year as new supply comes on board. For all intents and purposes, any buyers can rest assured that their funds will find a vetted and approved supplier of carbon removal.
To address these unique problems, we are working with larger partners to secure high quality supply for the long term. Additionally, our methodology team is working to create new methodologies for solutions outside of soil that would diversify our offerings and provide a new stream of credits. Finally, we are growing our team so Nori can produce scientifically rigorous methodologies more quickly. The next few years are going to see accelerated growth and interest in CDR technologies and credits. Nori is excited to be part of this growth and be the marketplace where these credits are sold.
