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The net effect – entrepreneurs place greenhouse gas offsetting at the center of their business models

Thomas Hafner, CEO of Mootral, has put greenhouse gas offsetting at the heart of his feed company … [+] Business plan

© Alex Rumford

When the great and good people of the world fly to Glasgow later this year to attend the COP26 climate summit, they will – as one would fervently hope – endeavor to offset the carbon pumped into the atmosphere by their travels.

And as the world prepares for months of intense negotiation and lobbying on measures to curb global warming – starting this week with President Biden’s online summit and culminating in the Glasgow event – we are likely to hear a lot more. not only to reduce emissions, but also to offset CO2.

Here’s why. Governments around the world – including here in the UK – are setting ambitious “net zero” targets. However, that does not mean – at least in the short and medium term – that emissions will fall into the air. Certainly CO2 emissions will decrease, but reaching net zero will also depend on instruments such as offsetting and a system of carbon credits.

In essence, by offsetting, companies can continue to cause pollution while buying loans that support carbon-reduction projects in other parts of the world. This theoretically gives the major polluters time to gradually reduce their emissions and eventually eliminate them as new technologies come into play.

Emissions trading systems can be controversial, but they are undoubtedly part of the toolbox for mitigating climate change. At first glance, they are reserved for large corporations and supranational regulators such as the EU and the United Nations. But they also offer entrepreneurs an opportunity to develop services that are tailored to the offset system.

milking

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

As Hafner explains, the offset credit system provided a means to get the product to market. When he first bought the Welsh company the food technology, but no viable commercial business plan – the farmers had no commercial incentive to buy the product.

Instead, a business model based on carbon credits was developed. After trials that showed an average reduction in methane production of 30%, Mootral developed a system whereby companies in the supply chain – such as supermarkets and restaurant chains – pay for carbon credits and the money goes to farmers. “We sell the loans on behalf of the farmers and have contracts with companies,” says Hafner. The product has been approved by the Verra standards body.

It’s early days for Mootral as the feed is only used on a “flagship” farm in the UK. However, Hafner is looking forward to national and international expansion. Due to the nature of the product, this means that the greenhouse gas emissions benefits will be long-term and sustainable compared to some other offsetting mechanisms that may reduce less than advertised.

“If you plant a tree, anything can happen to that tree – it could be felled at a later date,” he says. “Our product demonstrably reduces emissions immediately.”

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

Who pays and why?

But here too there could be an incentive problem. Yes, landscapes can be restored to fix carbon or reverse environmental degradation. But who pays and why?

This is a problem Cultivo – a purpose-built startup with offices in London and the Bay Area – is looking to solve.

Put simply, the company identifies tracts of land that could be reclaimed or restored to improve biodiversity, generate or store water, sequester carbon, or otherwise help improve the environment and economic life. It does this by working with local NGOs and landowners and doing critical analysis of satellite data using our analytics backed by our new best friend, Artificial Intelligence. A proprietary algorithm evaluates the impact of a restoration project.

Identifying and seeking funding for nature-based solutions

Manuel Pinuela, co-founder of Cultivo

Culture

As soon as the analysis is completed, the project will be made available to investors. Cultivo has developed a special tool that allows institutes to invest on a commercial basis, with the income coming from carbon and biodiversity offsets and other factors such as improved soil quality or ecotourism.

As co-founder Manuel Piñuela points out, landowners are consulted extensively throughout the assessment process. This involves drawing up a plan for recovery before presenting it to investors. “We don’t charge landowners,” he says. “You have the opportunity to invest.

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

Piñuela cites a Cultivo project in Mexico that is expected to come in multiples of the capital invested at x2.5.

According to the company, there is a lot to play with. Nature-based solutions could account for 30% of the CO2 reduction targets, but currently only attract 3.0% of the funds made available for recording emissions. The key is to bring in finances.

There is a philosophical question here. Should matters as important as environmental degradation and land restoration depend on investor calculations and be funded accordingly, or is this an area where governments around the world really need to create some sort of Green Marshall Plan in order to effectively address the biggest problem with which they face the world.

The respective roles of private and public finances will no doubt be discussed endlessly at the coming summits. In the meantime, entrepreneurs are looking for ways to not only address climate and environmental issues, but also to scale the solutions.

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