All Access

Climate Deals

Standard

Climate Deals Thought Bubble

Thought Bubble

Climate Deals Alerts

Alert

mustard

BFD Expert Voices - Climate Deals

BFD Expert Voices

Over a dozen city forestry projects across the U.S. earned more than $1 million in the first bundled sale of carbon credits generated exclusively by urban forests, representing the largest U.S. sale of urban-forest carbon credits, Climate Deals has learned.

Why it matters: The sale price was about four times greater than that for offsets from rural forests. 

What's next: Proceeds from the sale will be used to expand tree cover in cities, opening a new type of revenue stream for a widely popular — but typically zero-income — city sustainability effort.

"How do we look at every possible way to create value out of the urban forest, in the private market in particular? Carbon credits became the logical place to look," says Ian Leahy, vice president of urban forestry at the nonprofit American Forests, which advised City Forest Credits.

The details: City Forest Credits, a nonprofit, sold the offsets on behalf of the forestry projects to Regen Network Development, a blockchain software development company that says it's developing "a global marketplace for the Earth's ecosystem assets." 

The forests are located in Idaho, Illinois, Iowa, Ohio, Pennsylvania, Tennessee, Texas, Virginia and Washington, in cities such as Boise, Chattanooga, Cleveland, Pittsburgh and Richmond.

The offsets amounted to 31,533 carbon credits, representing 31,533 metric tons of CO2.

Of note: The credits are being retired after the purchase, meaning they can't be resold. 

"These will not be tokenized and then sold around over and over again," Doug McPherson, who represented the projects in the sales process, tells Alan. "The idea is to not create a blockchain asset that is just arbitraged and traded around as the price goes up."

What they're saying: The sale commanded a higher price precisely because the trees are located in cities, McPherson says: "Social equity is an important part of why these urban forest credits are so valuable, and several of the planting and preservation projects are tackling these issues through their projects." 

The planting projects will include workforce training programs and focus tree-planting efforts in underserved communities, McPherson tells Alan. 

"Another reason for the high price is that this portfolio of credits represents all of the U.S. urban forest carbon credits available," he adds. "Regen Network effectively cornered the market on 2021 credits of this type. "

💭 Our thought bubble: Expect the sales price to propel further interest in carbon credits from urban forests — both from tree-planting organizations looking for new ways to fund their work, and buyers searching for credits that help mitigate skepticism about the true impact of offset programs.

1 big thing: Urban forests sell credits for $1m+

Illustration of an aerial view of treetops in the shape of a dollar sign.

Q1 data from Refinitiv showed big activity in the energy sector, and the transition to cleaner energy will keep prices higher, industry pros tell Megan. 

Why it's the BFD: The transition to cleaner energy is leaving buyers scouring the market for companies with the necessary expertise, and those are in short supply. 

State of play: Charles River Associates principal Enrique Glotzer tells Megan not only are target companies in short supply but ESG professionals are as well — which is driving up the prices per deal.

Other areas like carbon capture just make sense to build in-house because a company is just fortifying its existing assets instead of looking to expand its capabilities, Glotzer explains.

Geopolitical instability, brought on in Q1 first from Omicron and later through the Russian invasion of Ukraine, has also shifted energy companies' acquisition interest from lowering cost to enhancing security.

The intrigue: Global ESG standards are still a ways off. Europe is among the leaders in instituting ESG requirements when reviewing deals, though the U.S. isn't too far behind, Glotzer says.

"In Europe, we can't get a deal done without thinking about climate and energy," he says.

However, Glotzer adds, investor interest remains one of the most significant driving factors behind the deals.

"Climate risk is financial risk, and investors have come to realize that," Glotzer says.

Zoom out: Though lagging behind 2021, 2022's deal numbers are nothing to sneeze at. 

Energy deals represented two of the top 10 deals in Q1 overall. 

Constellation Energy Corp's spin-off from Exelon on January 28 was the third largest overall at $21.7 billion.

U.K.-based National Grid's sale of 60% equity interest in its U.K. gas transmission and metering business to a group of Australian investors was the eighth largest overall at $12.6 billion.

The bottom line: As Dan Primack wrote Friday and Glotzer echoed, it's hard to extrapolate deal flow for the rest of the year based on an odd quarter. But the up-and-to-the-right trend among energy investment interest is only expected to continue.

2. The BFD: Energy's $100B quarter

Illustration of money falling onto a rising stock trend line

Female Founders Fund, a seed stage generalist firm, has joined the burgeoning trend of generalist funds backing early-stage enterprise software companies that help businesses track, manage and reduce their carbon footprints.

Why it matters: Without deep climate or science expertise, generalist investors have to get creative to responsibly back companies in the industry. And most Silicon Valley investors are extremely comfortable evaluating software companies. 

What's happening: The fund, which primarily backs female entrepreneurs, built its climate investing thesis around a handful of headline-grabbing software acquisitions in 2021 and early 2022, estimates a $46 trillion market for climate technology using its fairly narrow definition. These transactions from the past six months provide evidence.

S&P Global purchased The Climate Service, a North Carolina-based climate risk analytics company, for an undisclosed amount on January 4.

Privacy startup OneTrust acquired Planetly, a Berlin-based carbon management software maker, on December 8.

Generac Power Systems, an equipment manufacturer, purchased smart thermostat maker Ecobee for $770 million on November 1.

Corporate governance software startup Diligent purchased the Ireland-based Accuvio, a data software startup for ESG, for an undisclosed amount on August 10.

What they're saying: Female Founders Fund principal Adrianna Samaniego tells Megan that, just like other modern industries, the future of climate technology will depend on cloud software companies.

"There are more investors who never would have invested in climate tech after the last climate tech bubble, so many people stayed away from it. Everyone is trying to understand who they should pay attention to," Samaniego says.

Specialist investors tell Axios that they are glad generalists are starting to invest in climate technology, but are curious to see whether they go beyond software companies.

"Software will be nice, it's nice to have efficiencies of business, but I tend to like investing in things people will pay any price for," Mayfield partner Arvind Gupta, who leads the fund's climate and engineering biology investments, tells Axios.

The bottom line: "Especially for generalists, we think we don't have a role or we are on the edges doing limited things, but every investment in every sector has an impact," Samaniego says. 

3. Tech investors battle FOMO

Illustration of a keyboard key with a globe on top.

What happens if the U.S. hits pause on new gas pipelines? The U.S. Energy Information Administration examined the potential market impacts if the country stopped building new natural gas pipelines from 2024-2050. 

In short: 5% less natural gas production, 4% less natural gas consumption, and an 11% jump in spot prices, compared to the agency's reference case. The price increase would be mostly felt in the electric power sector, which is more sensitive to price changes than the residential, commercial and industrial sectors, EIA says. That would make renewables — but also potentially coal — more cost competitive.

Speaking of natural gas: JPMorgan Chase CEO Jamie Dimon published his annual letter to shareholders — and, surprise, it calls for developing more fossil fuels. 

"We need to increase our energy production and get more gas (in the form of liquefied natural gas) to Europe immediately," Dimon writes. "We also need immediate approval for additional oil leases and gas pipelines, as well as permits for green energy projects; i.e., solar and wind." 

That's roughly in line with what BlackRock CEO Larry Fink wrote in his letter to investors last month.

4. 🌡️ Temperature check

Illustration of an earth in space covered in red and blue meteorological color lines.

Equinix (Nasdaq: EQIX), a digital infrastructure company, priced $1.2b amount of 3.9% senior green notes due 2032 in its fourth green bond offering. The offering is expected to close April 5. http://axios.link/k873 

⚛️ Fluor Corporation (NYSE: FLR) announced that Japan Bank for International Cooperation has invested $110m in NuScale Power, which is developing a fusion reactor. JBIC, through a special purpose investment entity, Japan NuScale Innovation LLC, purchased equity from Fluor, which remains NuScale's majority owner, as well as from other existing investors. http://axios.link/yscA

⚡ Equinor South Korea Co has selected Technip Energies (Paris:TE) to perform front-end engineering design (FEED) for Equinor's offshore floating wind project, Firefly, about 44 miles off the east coast of South Korea. http://axios.link/PbXl

🔋 Energy Dome, developing long-duration energy storage, has entered a nonexclusive license agreement with Ansaldo Energia, a power OEM and service provider, to partner on the commercialization of long-duration energy storage facilities across Europe, the Middle East and Africa. Energy Dome says it's near completing its first commercial CO2 battery-storage facility in Sardinia, Italy. http://axios.link/bMFG

Actis, a global investor in sustainable infrastructure, has exited Echoenergia, a Brazilian independent renewable energy platform, through a sale to the listed utilities company Equatorial Energia (BVMF: EQTL3). http://axios.link/aCZn

🌳 ClimeCo, a carbon and resources commodity trader, funded 6,000 acres of mangrove restoration in Indonesia in partnership with local environmental group YAKOPI (Yayasan Konservasi Persisir Indonesia) and reforestation group PUR Projet. http://axios.link/v6eL

5. Hot deals

Oscar Brown was appointed CFO of FREYR Battery (NYSE: FREY), which is developing next-generation battery cell production capacity. http://axios.link/jH3s

Amit Chaturvedy was appointed managing partner, SE Ventures, by Schneider Electric. Chaturvedy will lead Schneider Electric's newly combined venture investments and partnership activities. http://axios.link/7EdB

6. It's Personnel

🌍 Situational awareness: For you climate-watchers, the latest meeting of the IPCC went into overtime this weekend, but the report is out now, and Axios' Andrew Freedman has the deets.

🍓 Megan hit the farmer's market hard on Saturday morning because California produce remains unbeaten. Luckily, she has visitors in town this week who can help demolish an extra pint of strawberries (or three) while they're here. 

🍳 Alan's family next month will be celebrating their first Mother's Day as a unit, with the 10-month-old in tow. They'll be newly arrived in the Boston area, so they're actively soliciting brunch recommendations. (Note: They do know about Johnny's, and it is indeed spectacular.) 

Thanks for reading Climate Deals! Please share with your banker, consultant and lawyer.

April 04, 2022

1 big thing: Urban forests sell credits for $1m+