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Market insight

Investing in CDR projects for a diversified portfolio

February 14, 2024

In 2023, CDR investment totaled $1.23 billion in 2023. Coalitions of buyers such as Frontier and the First Movers Coalition made headlines and massive investments to support entrepreneurs and drive the creation of projects. Yet, this level of investment is still not nearly enough – it represents only a fraction of what is needed to achieve the gigaton scale required for reaching net zero emissions.

Tech-based CDR solutions hold immense potential. With the right disclosures around financials and carbon accounting to assess, it's possible that many of these innovative technologies, like direct air capture, are a surefire means for removing more carbon from the atmosphere than any of the solutions available. 

However, the reality right now is that nascent CDR technologies lack consistent methodologies and data transparency, making it hard for buyers to assess carbon credit integrity. Project level due diligence is required to mitigate and manage risk stemming from variability in quality both within and between project types. Sylvera’s innovative approach to assessing quality can help organizations make sense of the range of projects and make confident investments. 

What is CDR?

There are already a remarkable number of activities and technologies to draw down carbon. From removing carbon through naturally occurring carbon fixation and storing in biomass, such as biochar and bio-oil, to bioenergy production with carbon capture and sequestration (BECCS), rock weathering and mineralization, and, most novelly, engineered systems like direct air capture (DAC), carbon stripping, and ocean alkalinity enhancement. 

Each of these categories has its own risks and quality drivers, and these nuances between them have a significant impact on the value of credits. For buyers and investors, it is critical to have consistent and comparable data to drive funding to the projects having the most impact. 

Pillars of Carbon Integrity

To source high-quality carbon credits from these project types, Sylvera can help buyers and investors at every point in the journey with our end-to-end data platform. Whether devising a strategy for CDR investment or conducting due diligence, the core pillars of carbon integrity are the same for each CDR project type.  

1. Carbon Accounting

Does the number of credits generated support actual activities and outcomes net of leakage? 

Life Cycle Assessments (LCA) are the primary driver of over-crediting risk in CDR projects. LCAs investigate multiple forms of environmental impact across life cycles of a product or service, from upstream all the way to downstream impacts. Rigorous LCAs include a cradle-to-grave boundary of assessment that typically consists of 5 phases to account for the project’s total GHG impact:

  • Raw material extraction phase (upstream impacts of products/materials purchased or used in the making of the product)
  • Manufacturing/production phase
  • Transportation phase
  • Use phase
  • End-of-life phase

Sylvera assesses the methods--boundaries, assumptions, inputs and accounting decisions--the project used to determine the credit volume. Some projects make assumptions when modeling how much carbon they've avoided or removed, but these assumptions aren't always clear. This can make it tricky to know if one carbon credit really equals one tonne of carbon removed, making it harder for a retiree to use against a climate claim.

2. Additionality

Would activities or outcomes happen without the money earned from reducing carbon emissions? Is the counterfactual ‘no project’ scenario correctly treated?

It's essential to properly assess whether a project would truly make a difference in reducing carbon emissions compared to doing nothing at all. To do this, it's vital to thoroughly examine whether there are other sources of income available for the project besides the money earned from cutting carbon emissions. If there are, it suggests that the project's success isn't solely driven by its ability to reduce carbon emissions. Assessing additionality ensures that carbon reduction projects are making a meaningful impact on the environment.

3. Permanence

How long will the reduction in atmospheric CO2 last?

For durable carbon removal projects, typically technology-based methods, permanence can last tens of thousands of years. This is much longer than nature-based removal methods, which typically last just decades to a few centuries. Carbon storage approaches, like geologic storage or conversion to solid carbonate minerals, have diverse physical leakage risks. It's crucial to carefully assess both the natural and human factors to make sure the CO2 stays securely stored for a long time.

Non-carbon attributes

4. Co-Benefits

What other positive effects does the project have on biodiversity and the local community?

Investors and buyers can look at co-benefits to help prioritize investment decisions. This is about understanding all the extra positive outcomes beyond reducing carbon emissions, like protecting wildlife and supporting local communities. Sylvera actively assesses both positive and negative impacts on biodiversity and the community to ensure that investment decisions properly consider these benefits.

5. Scalability

What factors constrain and enable a CDR technology from being viable at scale?

Buyers and investors want technologies that can grow and become cheaper because carbon removal is crucial for achieving net zero commitments. Different types of carbon removal all face limits based on what they need, such as sustainable biomass, special minerals, and clean energy. Plus, there are challenges with finding enough available storage and keeping costs down.

Scalability is figuring out what makes a carbon removal method easy to expand and use widely and what holds it back. Buyers and investors want to support technologies that can scale up effectively and become more affordable over time.

Transparency and the future of CDR

With the right disclosures around financials and carbon accounting to assess, it's possible that many of these innovative technologies like direct air capture are a surefire means for removing more carbon from the atmosphere than any of the solutions available. New regulations, like California's AB 1305, push for more openness in how projects calculate their impact. In the meantime, Sylvera can help companies stay ahead of reputational and regulatory risks. 

If you’re interested in CDR and how it’s evolving, be sure to sign up for our newsletter ‘CDR Currents’, where we bring you the latest developments in the space each week.
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About the author
Senior Technical Climate Consultant

Annalise Downey is a Senior Technical Climate Consultant at Sylvera, helping market participants define their carbon strategy and navigate the voluntary carbon markets. Annalise was brought in during the early days of Sylvera as a member of the ratings team, analyzing carbon projects and helping to develop project-type frameworks including REDD+ and ARR. Annalise brings experience in commercialization and new product development as co-founder of a subsea remote sensing company. She is passionate about bridging disciplines to develop data-driven and scalable solutions to tackle climate change.