How to make money and sell biochar

Part 1: Carbon

At risk of rehashing past articles: we have lots of evidence that people want to make biochar at scale, but not very much that people want to buy biochar at scale. Nevertheless, it looks like an increasing certainty that people do want to buy negative emissions, and with the rapid emergence of the voluntary offset markets, it feels like the industry is finally on the verge. On the verge of what? Growth, methinks. What kind? I think about it like this - the market for biochar mirrors software products in an interesting way: you can try to get to scale as fast as possible, lose money on production but monetize things other than your product, or you can bootstrap a product with good unit economics. In biochar, both of those paths are open, and I want to spell out what they look like, and how they correlate with opportunities to get to scale. 

Let’s go the carbon offset route first, as it seems the one that would speed up the scale of the industry most quickly (and, given my personal interest in negative emissions, be particularly exciting).  

(Full disclosure: I’ve found true market data, especially that which is free and publicly shareable, either too elusive, too expensive, or too time consuming to pull together. If you want hard numbers, talk to the experts. Like everything on this blog, my information for the below is anecdotal, and to be taken with a grain (teaspoon?) of salt. I welcome feedback, information, and corrections and will update this piece accordingly.) 

Photo by Jason Blackeye on Unsplash

Money for nothing, biochar for free

What if we (contrary to a lot of what I believe, and have written) pretend that biochar is useless, and focus on optimizing for the negative emissions? Demand for negative emissions is getting stratospheric as corporate majors try to line up their ducks. And while they’re now facilitating pre-purchases, Puro looks to be sold out every time I’ve checked their platform. In some sense, this should be a warning to the field - we’re at the start of both a sprint and a marathon, and the tanks are nearly empty.  Given this context, I see two primary business models to monetize this opportunity.

Business model 1: The simple carbon play

The negative emissions supply is not keeping pace with demand after six months of frenetic announcements from the world’s most forward looking large corporations (Antti predicted it here). And yet, the carbon neutrality deadlines are still 5-10 years out. All the early adopters are locked into ever increasing offset purchases, and every other corp is figuring out how to get to the table. Which is to say, barring force majeure, I just can’t see this market going away. I think about monetization in two ways: 

1. Sell offsets via voluntary platforms (Puro/Carbon Future/Future Offset Platform X): Currently, most of these markets operate with pricing run a bit like AirBnb; providers set their price, and purchasers select their providers (and pricing). I suspect this will continue until the market becomes liquid and smaller purchases become common. At that point, markets will move towards market pricing as it becomes feasible. 

2. Sell offsets directly to partners. This is a guess, but I suspect that as demand for negative emissions increases and prices increase (or threaten to), you’ll see corporate dynamics change - moving away from the altruistic behavior (field building, data sharing, etc.) that has defined the field thus far (see Stripe, Microsoft, and Shopify). In an arena of potential scarcity, there is a strong likelihood that offsets will be another arena in which to compete, and corporate partners will be will looking to lower cost (by purchasing larger # and over long periods). As they do this, they’ll likely try to build relationships directly with providers to secure preferential pricing.  

Photo by Pierre Châtel-Innocenti on Unsplash

Business model 2: Carbon as a service

Assuming that the macro trends described above are clear in the next year or so, I think you’re going to see the development of a very promising business model for producers. Corporations, having promised to be carbon neutral and being held to increasingly strict standards by the public, will try to internalize their negative emissions costs, not only because it will cost them less the purchasing the offsets on the free market, but because they will be able to direct the benefits to internal and external stakeholders. (An easy example: a large ag company begins to pyrolyze seed waste and claim offsets instead of buying them. It can then distribute biochar to in-network farmers at below-market cost, etc.) Two monetization strategies come to mind here. 

1. Operational partner: The company pays biochar company X to set up and run their facility. Straightforward, and as biochar companies tend towards cash-poor, likely to happen first. 

2. Arbitrage: A company offers a long term agreement to provide feedstock, operate the machinery, and buy a certain amount (say 75%) of sequestered carbon at a below-market rate. In exchange, the biochar company that builds and finances the machine takes the remaining 25% of the offsets, which it then can sell at market rate. I don’t know how the variables and negotiations would shake out practically, but if biochar companies can get access to cheap capital (seems inevitable in Europe and the US via Green Banks, etc.) this would be a way to put more money to work especially for corporations that can’t afford the upfront cost to finance a pyrolyzer.

Photo by Paweł Czerwiński on Unsplash

LOI’s rule everything around me

So, if you look at the above and say, “Oh, Pete, growth! What a brilliant idea. If only we’d thought of that! We’re already doing everything we can, but we can’t do more until we can build our larger facility.” I hear you. What the field needs is about 500M in project finance, but that’s not going to happen because banks like receipts. With a single exception, I don’t know of anyone who is holding long term offtake agreements from a creditworthy company. This means no one can get project finance for their factory, which is why everyone in the industry has been scrapping for the last decade. 

What if long term offtake agreements could come from carbon offset platforms instead of customers buying biochar? If that flips, the industry could move *very* quickly (and god, do I hope it does). Pre-purchases are directionally right, but unlikely to convince a bank in the way a binding offtake contract would. Will negative emissions platforms pony up for 5 year LOIs? Will corporate sustainability offices? Whoever gets there first will have a lot of leverage, and I’m sure it’s *very* tempting for the negative emissions exchanges to offer long term offtakes for carbon offsets in exchange for below market rates, with the plan to then sell them at market, betting prices increase. Anyone want to jump in while the water is still cold? 

TL/DR: This is all to say, if you want to scale, you need project finance. If you want project finance, you need guaranteed recurring revenue. If you need guaranteed recurring revenue, you need an long term offtake agreement. If your play is a carbon play, find a long term LOI. That’s the point of departure for true scale.

And, what to do with the leftover biochar (besides put an egg on it)?

In these models, the focus is on making biochar and issuing the consequent offsets, not selling the biochar. But, an incomplete list, from least to most heretical, of fun things to do with biochar that have traditionally been out of reach on account of cost: 

• Agriculture: At long last! I think agriculture applications don’t start at a meaningful scale until the per yard cost drops below $50. It might have to be $25 before it really takes off. Nevertheless, the dream of rehydrating the exhausted soils of the world with biochar remains top of mind. 

• Aggregate: Carbon negative foundations, roads, landscaping, stormwater drain systems, scale filtration, scale nutrient capture. To win city contracts, the price has to be pretty low, but helping meet carbon 

• Additive: Carbon negative concrete! It’s currently just too expensive (competing with sand :-/ ). 

• Throw it in a hole: Ahhh! This makes me crazy, but it’s totally on the table. We’re pumping bio-oil underground at $600 a ton, so, you know, get that 💰. Consider this, you don’t get to play any fun games that come with scale if you don’t get properly paid. 

You Are The Average Of The Five People You Spend The Most Time With

Given that we know that biochar can be functionally used to do so many great things, why focus on the carbon side of the equation? Because, after trying to compete in mature markets like soil amendments and nutrient filtration, now producers can choose to compete in the fast growing but immature market of carbon capture. That means higher margins, more leeway to figure things out, and less sophisticated and capitalized competition. In the negative emissions space there are *a lot* of options, but very few with permanence over 500 years. Biochar, enhanced rock weathering, DAC, bio-oil injection, BECCS. That’s the whole list. And, critically, they’re all mostly sold out, scaling as fast as possible, and getting PAID. If you want to get to scale, and you’re picking a peer group, this is your peer group.

Quantity over quality

We’re at an interesting moment: if carbon offset sales scale up, they will bias biochar infrastructure towards scale. Prioritizing scale production inherently favors minimizing marginal costs, and in doing so, it will encourage production of higher volume biochars that are less specific, less fit to particular applications. If the offset market doesn’t hold, you may see the reverse - movement towards lower volumes and higher precision. So what kind of pyrolyzer should you build? Depends on if you want to sell offsets or not.

Thank you’s

For helping me understanding offset dynamics: Antti from Puro, Andreas from Carbon Future & Simon from BiocharWorks, and so many others.

For helping me get my head around markets and opportunities: Tom from the USBI, Sampo from Carbofex and so many others.

Up next: Functional biochar and unit economics

I’ll get the next piece (on non-carbon offset business models and markets I like) as soon as I can. Until then, keep it burning.