SFV’s Investment in Carbonfuture
We are thrilled to announce our participation in Carbonfuture’s most recent financing round. Carbonfuture has built a rigorous platform for MRV (monitoring, reporting, verification) and sale of permanent carbon removal offsets. Here’s why we are so excited about the company:
By Matthew Chagan and Reid Carroll
Real estate companies face a dilemma.
On one hand, they must decarbonize their businesses. Their most important stakeholders, from occupants to lenders, are all pushing them to reach net-zero targets.
On the other hand, the economics of reaching net-zero carbon remains challenging. Operational net-zero in buildings will require expensive retrofits that energy savings rarely justify, and the embodied emissions associated with new buildings aren’t going to be eliminated anytime soon.
The sobering reality is that real estate companies will struggle to reach net-zero this decade with mitigation alone.
Carbon Offsets to the Rescue?
One way for real estate companies to achieve their net-zero goals is to participate in the voluntary carbon offset market, but there are issues with this approach.
Most carbon offsets are based on the avoidance of CO₂-emitting activities. For example, an emitter might pay a forest owner — through carbon offsets — to preserve trees that otherwise would be cut down. Unfortunately, there have been many instances where such offsets have been overestimated, double-counted, or even fraudulent.
The other problem with offsetting using avoided emissions is that it doesn’t do anything to mitigate the CO₂ that has been emitted to the atmosphere. This means there is a fundamental flaw in using avoidance offsets (even of high quality) to get to net zero . This diagram, originally created by Swiss Re, depicts the dilemma nicely:
So what are corporates in the emissions-heavy built environment to do?
The Carbon Removal Opportunity
To truly offset their emissions (which stay in the atmosphere for centuries), corporations would need to pay for a corresponding amount of carbon to be removed from the atmosphere and stored for hundreds of years. This is called a carbon removal offset. Operations that were offset in this fashion could truly be labelled as net-zero:
The supply of such offsets, whilst small today, is primed to explode in response to growing demand:
- Microsoft and Swiss Re have already explicitly stated that their focus will be on offsetting their emissions using carbon removal offsets.
- A consortium led by Alphabet, Stripe, Shopify, Meta, and McKinsey has committed $925M to help grow the carbon removal supply via advanced purchase agreements.
- The real estate industry is waking up to the importance of removals, too.
As a result, huge sums of money are being funnelled into the development of nascent carbon removal technologies including biochar, direct air capture, and mineralization.
Why did this get us so excited? Well, if the carbon removal capacity of these technologies reaches 500 Mt by 2030 (and it could be several times larger than that), we’re talking about a $50-$75B market based on today’s prices of $100-$150 per ton. To put 500Mt in perspective, that would still amount to removing less than 2% of today’s annual CO₂ emissions.
For this market to materialize, a couple of things need to happen:
- Carbon removal technologies will need continued investment to reach a scalable price point. Corporations and governments are beginning to step up here.
- There needs to be sufficient trust that removal claims match reality — without such trust, removal offsets will carry many of the greenwashing risks that have plagued avoidance offsets. This trust is exactly what Carbonfuture’s platform provides.
The Carbonfuture Platform
Carbonfuture’s platform has been designed to track the operations of carbon removal processes, quantify their impact, produce offset certificates, and sell offsets to corporations. The certificates are issued in partnership with third party registries, eliminating any conflict of interest.
Carbonfuture started with biochar, which is the most commercially viable carbon removal technology today. Biochar is created by burning organic waste (like agricultural leftovers) in low oxygen conditions through a process called pyrolysis.
This process removes carbon from the atmosphere by durably storing the CO₂ that plants have naturally absorbed. This frees up living plants to absorb more atmospheric CO₂.
Carbonfuture’s sink tracking platform requires multiple parties to independently verify that the promised quantities of biochar made it to the pre-specified carbon sink (usually underground).
While Carbonfuture’s initial focus has been biochar, the tracking platform was built to accommodate other removal technologies as they enter the market. They’ve already delivered on that premise by onboarding Neustark, which mineralizes CO₂ in recycled concrete.
During our diligence process, we got particularly excited about three things:
Carbonfuture is winning supply and attracting the most sophisticated offset buyers in the world
The carbon offset landscape is supply constrained. There simply are not enough high-quality credits to meet demand. Value is accruing to those that bring supply to the table, and Carbonfuture has secured a meaningful share of global biochar offsets. Why? A prominent biochar supplier we spoke to said that Carbonfuture is the most trustworthy platform available, in large part because they combine their own tracking platform with third party certifications.
By winning supply-side business and applying their market-leading tracking and verification services, Carbonfuture has also attracted the most forward-thinking carbon offset buyers in the world to their platform — companies like Microsoft, SwissRe, South Pole, and Klarna. One such buyer told us that their perception of the credits tracked and sold by Carbonfuture is so high that they are willing to pay a premium over other carbon removals.
This is a blue-ocean opportunity
With the caveat that the space is moving quickly and lines between categories are blurry, here is a snapshot of how we visualized Carbonfuture’s market position:
Most other carbon removal MRV players (the leftmost part of the map) are focused on soil carbon (highlighted brown) and forestry (green), leaving a market void for MRV associated with most other carbon removal technologies. Carbonfuture has an enviable position as the market leader.
This is the right team for the job
We would be remiss not to mention the first thing that got us excited about Carbonfuture: the team. CEO Hannes Junginger has surrounded himself with biochar and carbon removal experts who have spent years in the space — since before most even knew it existed. The credibility that comes with so much time in the trenches goes a long way with suppliers. Carbonfuture’s team can credibly assist suppliers with their development pain points and maximize the value of their carbon removal credits.
We are joined in this round by Carbon Removal Partners, Übermorgen Ventures, Wi Venture, and 4impact Capital. We expect that this is just the start of Carbonfuture’s exciting growth trajectory and look forward to supporting them on their journey.
