Greg, could you start by providing our audience with an overview of Chestnut Carbon? What is the mission and vision of the company, and how does it fit into the landscape of carbon, nature-based solutions (NBS)?
At Chestnut Carbon, we help to sustain the planet through long-term, nature-based carbon solutions. We develop and deliver high-integrity, US-based carbon removal credits. We work to increase biodiversity, restore lands to their natural state, and bring economic opportunities to local communities.
Our business has two main segments – one segment is afforestation whereby we purchase marginal or degraded farmland in the United States, we plant trees, and sell the offsets. We are effectively returning these lands to their natural state 100+ years ago by restoring biodiverse forests. The other segment is improved forest management (IFM) under our Forest Carbon Works brand that works to conserve and enhance existing forests and support private forest landowners in bettering their stewardship.
On the afforestation side, our customers can visit our US-based properties themselves, meet our team, and see our technology firsthand, which gives them a lot more comfort than other nature-based projects that are figuratively and literally farther away. We plan to plant hundreds of thousands of acres of new US forestland to achieve our goal of removing millions of tons of carbon dioxide from the environment. These lands would not be under restoration in the absence of the carbon market, making our projects truly additional. We are doing all of this while being at the front end of the cost curve, which is extremely important when you consider alternatives such as direct air capture, which are economically prohibitive. Developing high quality removal credits is key, but it needs to be done competitively, and at scale.
For some people, nature-based solutions seem intangible because you are planting trees and capturing CO2, something you can’t see. However, for our afforestation projects, with our land in Arkansas, Alabama, Mississippi and Louisiana, our customers and other stakeholders are encouraged to visit, see the trees that have been planted, and meet the team that is working to develop the project. In addition, these stakeholders can see how our efforts are delivering co-benefits as we restore these lands to their native biodiverse ecosystem (as opposed to a monoculture), improve water and air quality and foster a healthier and more robust wildlife habitat. These co-benefits underscore the value of nature-based solutions and afforestation credits in particular.
With Forest Carbon Works (FCW), in the past year alone, our team has signed up over 100 private forest landowners in the US, totaling over 40,000 acres for conservation commitments spanning between 60-100 years – generating true additionality. By working with FCW, landowners can get paid for conservation. We also offer landowners the ability to participate in the expected significant potential future growth of the carbon market through a revenue-sharing mechanism. We are uniquely partnered with our landowners in this way because we believe it is important to ensure they get a fair deal and provide a healthy income stream for the life of the agreement.
In your experience, what are some of the biggest hurdles that energy companies face when considering investments in nature-based solutions and what are some alternatives to mitigate these risks?
One of the biggest challenges may be the negative perception of many nature-based solutions and voluntary carbon offsets in general. In my view, this is due to a big portion of NBS projects failing to deliver as promised, lack of transparency around how the project methodology is created, questionable permanence, an apparent disregard to the importance of community engagement, lack of true additionality and location in countries that don’t benefit from the same rule of law that exists in the US. Credibility and integrity matter, a company’s reputation should matter. Customers should feel confident that what they pay for is what they get. If they are going to invest in NBS, buyers need to be convinced that what they are buying is real and genuine. If you want quality and integrity, you simply can’t cut corners.
Another challenge with voluntary offsets historically has been the massive price disparity, ranging from a dollar per ton to over $1,000/ton. It’s like evaluating platinum and tin solely on the basis that they are both metals – they just aren’t the same. Additionality and durability have a higher price in the carbon market. We are seeing a positive shift with discerning companies willing to pay a higher price for quality offsets that are generated in the United States, assuming the offsets adhere to the highest standards and deliver true additionality.
With regards to E&P companies specifically, I think the first step would be to address the need to decarbonize and reduce emissions, starting with their own organization. This is sometimes a challenge unto itself given pressure from an array of stakeholders who may not share the same view regarding climate change as well as the cost to effectively mitigate one’s emissions. Assuming a company has crossed the Rubicon and is evaluating how to mitigate its emissions, it should consider adding high quality nature-based credits to its portfolio as a scalable and cost-competitive solution.
What are the different ways that traditional energy companies can partner with nature-based project developers? Can you elaborate on the collaborative opportunities, mutual benefits and business models that arise from such partnerships?
The potential partnership opportunities and synergies with energy companies really depend on what their needs are. Initially, E&P companies should look at how they can organically reduce their emissions and what type of engineered solutions can be implemented based on their particular time and cost parameters. But every business, no matter how green, has a carbon footprint that needs to be offset if we’re to achieve our global net-zero goals. NBS solutions can provide a more cost-effective and timely emission mitigant than a lot of engineered carbon capture solutions and for energy producers who own large land positions that could be suitable hosts for planting trees, this makes them eligible for insets (i.e. planting trees on their land to generate credits for their own use). Obviously that land first has to meet some specific conditions for tree planting, but assuming it’s viable, we can partner with these companies and bring to bear our know-how and experience in optimizing carbon yields. In those scenarios, we provide what we call “afforestation as a service”. We analyze the land, assess its crediting potential, and utilize our technology and knowledge to determine what species of trees to plant, source the seedlings from our trusted suppliers to promote biodiversity, and handle the planting and registration process.
I’d also note that in any fully functioning commodities market (e.g., NYMEX natural gas or WTI), there is a need for adequate liquidity (i.e., real two-way interest from buyers, sellers, and intermediaries) both in the spot market and forward curve. By comparison, the voluntary carbon market is still quite immature. As Chestnut continues to develop both IFM and afforestation projects, while we will look to enter into long-term off-take contracts with corporate customers for a good portion of our credits, we see the benefit of maintaining a merchant position to help facilitate the development of this young market. To that end, we are working with traditional physical traders and financial institutions to provide liquidity to a market which has had little to date. Some oil and gas companies participate in this space already, but more can play a significant role in helping to develop a liquid carbon market and a visible, mature carbon price. These companies, who have a longstanding history of actively trading other commodities, can help the overall market develop by investing in the space, actively purchasing offsets to meet their emission targets and/or becoming more involved in market making to commoditize carbon markets, which will be extremely beneficial for all participants.
You have recently announced a foundational deal with Microsoft. What does that mean for the company and what lessons can be learned and applied by potential customers such as energy operators?
Our deal with Microsoft is important in many ways. First, they are one of the largest and most sophisticated buyers of NBS and carbon credits, in general. They see the value of what we bring to the table by signing a long-term contract. The voluntary market has struggled with credibility and transparency and these types of longer-term contracts enable project developers like us to secure non-equity financing solutions and continue to invest and build new projects to deliver even more high-quality credits to the market in the future. Long-term contracts with creditworthy off-takers enable the right financial foundation for a company like Chestnut to continue growing and creating a more sustainable business model, which ultimately also benefits the clients and the overall market.
We encourage companies across various sectors, including energy, to consider long-term off-take agreements to secure their supply of high-quality credits, the same way a utility or other large-scale power producer signs PPAs or a natural gas buyer signs long-term LNG off-take contracts. Chestnut bought the land, invested the capital, and provided the know-how to generate these premier credits, but it’s critical for us to have high quality counterparties to enable us to raise more capital and invest in new projects that deliver the volumes required to meet the needs of customers by 2030 and beyond.
The Carbon Solutions Forum is just around the corner. What excites you the most about this event, and what key discussions are you most looking forward to?
Coming off the hottest year ever recorded, it’s clear that climate change is real, and no sector is immune. From our perspective, we are very excited to be part of the Carbon Solutions Forum and the broader carbon ecosystem to talk about the impactful things our organization is doing to help fight climate change.
Our view is that we are all in this together and NBS are an important tool. We are bringing technologies and solutions to the market that, if properly deployed, will support all sectors, including the E&P community, as the world transitions to a net-zero future. Our products represent high-integrity and low-cost solutions that should be complementary to traditional energy producers as they look to mitigate their emissions and achieve their ESG goals. Moreover, this is a solution that works today.
We are part of this community, and we are keen to fulfill the demands of consumers as we look to develop more projects. We want to ensure that we are designing projects that meet their needs, and the CSF is a great place to continue that dialogue.
