We at the PTC are seeing an increasing amount of Climate Tech Funds in our network raising new Funds (+ attracting more LPs) where carbon offsets are embedded into the investment thesis. Many of these Funds are looking into opportunities in Proptech/Contech and we are seeing an increasing uptick in deal flow on intersection Real Estate, Climate and Technology. Our team is beyond excited about the opportunities for our clients + network relationships.
Low-carbon and renewable energy deals:
In recent years there has been significant increase in investments in the low-carbon and renewable energy sectors. In 2020 the total investments in renewable energy was approximately $266 billion, which is an increase of 7% from the previous year. Investments in renewable energy has grown steadily since 2004, with a compound annual growth rate of 12%. In addition, the 2020 Climate Finance Landscape report found that total climate finance flows reached $657 billion in 2020, which is a 17% increase from the previous year. The same report also stated that investment in renewable energy accounted for the largest share of climate finance, with a total of $370 billion in 2020. The World Bank's Climate Business Plan 2021-2025 highlights the trend of private sector investments in low-carbon and renewable energy projects. The World Bank Group is committed to providing $25 billion per year in climate financing to support developing countries in their transition to a low-carbon, climate-resilient future.
Some of the leading Fortune500 companies are making significant investments in low-carbon and renewable energy deals as part of their efforts to address climate change. Amazon has put forward the goal of being carbon neutral by 2040, Apple committed to becoming 100% carbon-neutral for its entire business and supply chain by 2030. Microsoft on top of that wants to be carbon negative by 2030, and the list goes on. All of these companies have made significant investments in wind and solar energy.
The rapid increase in global temperatures, rising sea levels, and increased frequency of extreme weather events are consequences of human activity emitting greenhouse gases into the atmosphere. In order to address this issue, governments, organizations, and individuals have been exploring various ways to reduce their carbon footprint and transition to more sustainable practices.
One solution to this challenge is nature-based carbon credits, a form of carbon offsetting that involves investing in conservation and restoration efforts in natural ecosystems, such as forests, wetlands, and grasslands. These ecosystems absorb and store carbon dioxide from the atmosphere through photosynthesis, a process that converts the carbon into organic matter. Let's not forget that trees are the best "hardware" and photosynthesis is the best "software" that humanity has got...
On an annual base, the world’s forests alone absorb net 7.6 billion tones of carbon dioxide. By protecting and restoring these ecosystems, we can increase the carbon storage capacity and help mitigate the effects of climate change. Allowing forests to regrow naturally can potentially absorb up to 8.9 billion tones of CO2 per year through 2050, while still maintaining native grasslands and current food production levels.
For that reason, if you care about climate, you need to care about a sustainable real estate industry given the scale of industry + opportunity.
Nature-based carbon credits are typically generated through projects that reduce emissions from deforestation and forest degradation. These projects aim to prevent the destruction of forests by encouraging local communities and landholders to adopt sustainable land-use practices, such as agroforestry, eco-tourism, and non-timber forest products. The projects generate one carbon credit for every tone of CO2 equivalent GHGs that they remove or avoid from entering the atmosphere. The carbon credits generated are then sold on carbon markets, allowing individuals and organizations to offset their emissions by investing in conservation efforts. Regrowing, preserving, and managing forests is a crucial step towards plans to reach net-zero emissions by 2050. In 2021, carbon credits from nature-based projects accounted for over 66% of total transaction value in voluntary carbon markets. Forestry and Land Use carbon credit projects led the growth made up for over $1.3 billion worth of transactions.
With the race to net-zero ramping up, carbon markets have been growing significantly. The value of total transactions in the voluntary carbon markets in 2021 reached nearly $2 billion, which is 3x since 2020. Nearly 350 million carbon credits were issued in 2021 alone, a 220% increase from the year before.
There are several benefits to using nature-based carbon credits as a solution to climate change. Firstly, they provide a cost-effective way for individuals and organizations to reduce their carbon footprint. According to the World Bank, the average cost of carbon credits generated from nature-based projects was $5.60 per ton of carbon dioxide equivalent in 2020, compared to $10-20 per ton for more traditional offsetting methods. These methods are typically based on the principle of reducing emissions at the source, rather than through the protection and restoration of natural ecosystems. Think about renewable energy, energy efficiency, waste management or review industrial processes.
Secondly, they support conservation and restoration efforts in some of the world’s most valuable and threatened ecosystems, such as tropical rainforests, wetlands, and grasslands. Thirdly, they generate income and employment opportunities for local communities, helping to alleviate poverty and promote sustainable development. In 2020, it is estimated that nature-based carbon projects generated over $2 billion in revenue, supporting the livelihoods of >10 million people in developing countries.
However, there is also challenges associated with nature-based carbon credits, including the need for accurate and transparent methods for measuring and verifying carbon sequestration. In addition, there is a risk that some projects may not deliver the expected carbon benefits, or may have negative impacts on local communities and ecosystems. For that reason it is important to ensure that nature-based carbon credits are subject to robust governance and oversight, to ensure they deliver real and lasting benefits. Liability can be preserved by legal agreements agreements that ensure the long-term protection and management of ecosystems, as well as regular monitoring and verification of carbon sequestration or storage benefits.
Nature-based carbon credits offer a promising solution to the challenge of climate change, providing a cost-effective way for individuals and organizations to reduce their carbon footprint, while supporting conservation and restoration efforts in some of the world’s most valuable and threatened ecosystems. According to a recent report, the demand for nature-based carbon credits increased by over 30% in the past three years, as more individuals and organizations look to offset their emissions and support sustainable development.
By working together, we can help to create a more sustainable and resilient future for all.
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