(Bloomberg) — Startup Chestnut Carbon has raised $160 million to plant, restore and manage trees on degraded farmland, generating carbon credits for customers that include Microsoft Corp.
The company’s goal: Providing high-quality, nature-based credits that sidestep issues that have plagued carbon markets.
The Series B round, led by Canada Pension Plan Investment Board, comes less than a month after Chestnut signed an agreement with Microsoft to provide 7 million tons of carbon removal credits. That’s the second-largest carbon removal agreement the tech giant has struck. With a number of tech companies struggling to meet their climate targets due to a surge in energy-intensive data centers, carbon removal has taken on added importance.
Nature-based carbon projects have come under scrutiny for delivering low-quality credits and don’t help the climate as much as they promise. That sowed distrust in the market and led to a downturn in the number of credits purchased.
Chestnut’s approach addresses the “credibility crisis” of the nature-based carbon market, said investor Nancy Pfund, the founder and managing partner of DBL Partners, which participated in the raise. Many of the company’s projects involve purchasing non-performing agricultural and pasture lands and planting trees rather than paying farmers to do so. About 80% to 90% of project costs are land purchases, which will allow Chestnut to better assess afforestation efforts. The company has also developed a proprietary device that helps measure and track how much carbon is removed by their projects.
“We can deliver the credits and at scale,” said Chief Executive Officer Ben Dell, who is also the founder and managing partner of energy investor Kimmeridge Energy Management Co.
One potential issue that could be hard to fix even with safeguards is leakage, or emissions simply moving from one place to another, said Peter Minor, co-founder and chief executive officer of carbon removal quality assurance provider Absolute Climate. If a firm like Chestnut buys land from farmers who then move their crops or cattle somewhere else, cutting down trees in the process, that could negate some of the climate benefits.
Engineered carbon removal solutions like using machines and speeding up natural processes promise lower risks of leakage and reversal than nature-based solutions but are further from commercialization and more expensive. Affordable but still durable carbon removal solutions are critical now as the artificial intelligence boom makes it harder for tech giants like Microsoft to fulfill their ambitious climate goals.
Kimmeridge founded Chestnut in part because Dell had trouble finding high-quality carbon removal credits to purchase as a corporate buyer. “I didn’t want any PR risk of buying a low-quality credit,” said Dell, who added that companies are willing to pay a premium to avoid that.
He declined to say the cost of Chestnut’s carbon credits, but did add that they are “materially more” than credits from the United Nations-led REDD+ initiative. Under the right conditions, BloombergNEF estimates the carbon market could grow to as much as $1 trillion by mid-century.
Chestnut’s raise will go towards supporting the growth of its forest restoration and conservation projects. Since it was founded 2022, the company has acquired over 35,000 acres of land in six states, targeting states like Arkansas, Mississippi and Louisiana, which have high growth rates and low fire risk. Chestnut will begin delivering its first afforestation credits in two years, Dell said.
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