The Net Effect—The Entrepreneurs Putting Greenhouse Gas Offset At The Heart Of Their Business Models

When the global great and good fly to Glasgow later this year to attend the COP26 climate change summit, they will—one would fervently hope—be at pains to offset the carbon pumped into the atmosphere as a result of their journeys.

And as the world gears up for several months of intense negotiation and lobbying on measures to put the brakes on global warming—starting this week with President Biden’s online summit and culminating in the Glasgow event—we’re probably going to hear a lot more, not only about emissions reduction but also carbon offsetting.  

Here’s why. Governments around the world—including here in the U.K.—are setting themselves ambitious “net zero” targets. But that doesn’t mean—at least in the short and medium-term—that emissions will fall away to nothing. Certainly, carbon output will fall but reaching net-zero will also depend on tools such as offsetting and a system of carbon offset credits.   

Essentially offsetting allows businesses to go on polluting while buying credits that support carbon reduction projects elsewhere in the world. This provides, in theory, time for major polluters to gradually reduce and eventually eradicate their emissions when new technologies come into play. 

Carbon trading schemes can be controversial but they are undoubtedly part of the climate change mitigation toolbox. On the face of it, they are the preserve of big companies and supranational regulators, such as the E.U. and United Nations. But they also offer a route for entrepreneurs to develop services that align with the offset system.  

Milking It

Mootral is a case in point. Earlier this month, the Wales-based company—owned by Swiss biotech entrepreneur, Thomas Hafner—announced that it was selling carbon credits linked to animal feed that reduces the methane—another greenhouse gas—emissions from cows.    

As Hafner explains, the offset credits system has provided a means to bring the product to market. When he initially bought the Welsh company the food technology in place, but not a viable commercial business plan—farmers didn’t have a commercial incentive to buy the product. 

So instead, a business model based around carbon offset credits was constructed. Following trials showing an average reduction of 30% in methane production, Mootral devised a system under which businesses in the supply chain—such as supermarkets and restaurant chains—pay for carbon credits, with the money going to farmers. “We sell the credits on behalf of the farmers and we have contracts with corporate businesses,” says Hafner. The product has been approved by standards body Verra. 

It’s early days for Mootral, with the feed being used on just one “flagship” farm in the U.K. However, Hafner is looking forward to national and international expansion, saying the nature of the product means the benefits in terms of greenhouse gas emissions will be long-term and sustainable when compared to some other offset mechanisms which might deliver less of a reduction than advertised. 

“When you plant a tree, anything can happen to that tree—it might be chopped down at a later date,” he says. “Our product is proven to immediately reduce emissions.”  

But we probably shouldn’t underestimate the value of trees. Nature-based solutions—such as tree planting and land restoration—also seem set to play an important role both in mitigating climate change and preserving a diverse environment.  

Who Pays And Why?

But again, there could be an incentive problem. Yes landscapes can be restored either to sequester carbon or reverse environmental degradation, but who pays and why?   

That’s a problem that Cultivo—a purpose-led startup with offices in London and the Bay Area has set out to solve.  

Put simply, the company identifies stretches of land that could be reclaimed or restored to improve biodiversity, create or store water, sequester carbon or otherwise contribute to improving both the environment and economic life. This is done by working with NGOs and landowners on the ground and—crucially—analyzing satellite data using our analytics powered by our new best friend, artificial intelligence. A proprietary algorithm assesses the impact of any restoration project. 

Once the analysis is done, the project is pitched to investors. Cultivo has developed a special-purpose instrument that allows institutions to invest on a commercial basis,, with returns coming from carbon and biodiversity offsets and other factors such as improved soil quality or eco-tourism. 

As co-founder Manuel Piñuela stresses, landowners are fully consulted throughout the assessment process, during which a plan for restoration is drawn up ahead of being pitched to investors. “We don’t charge the landowners,” he says. “They do have an option to invest.  

The hook for institutional investors is the opportunity to make a difference while also securing good returns. “The ROI is very attractive,” says Piñuela. Investing in nature is far away from being a philanthropic activity. There are real returns.”

Piñuela cites a Cultivo project in Mexico which has a multiple of invested capital expected to come in at x2.5. 

According to the company,  there is a lot to play for. Nature-based solutions could account for 30% of carbon mitigation goals, but currently, only attract 3.0% of the funding allocated to emissions capture. The key is to bring in finance.

There’s a philosophical question here. Should matters as important as environmental degradation and land restoration be dependent on the calculations of investors and financialized accordingly or is this an area that really needs governments around the world to create some kind of a green Marshall Plan to tackle what is effectively the biggest problem facing the world.  

The respective roles of private and public finance will doubtless be endlessly discussed at upcoming summits. In the meantime, there are entrepreneurs are looking at ways to not only address climate and environmental issues but also scale the solutions.

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