- Companies are required by law to reduce their carbon footprint from 2023
- Opportunities arise that can be taken advantage of to make venture capital investments
In 1856, the science of climate change was born and more than 160 years later, governments and organizations around the world continue trying to stop global warming and suggesting new strategies that help reduce the climatic effects of these gases. One of the most common strategies is reducing the carbon footprint. But what is that? The total amount of greenhouse gases, expressed in carbon dioxide equivalents, that are released into the atmosphere directly or indirectly.
Spain approved Law 7/2021 on Climate Change and Energy Transition, which forces companies to reduce their carbon footprint from 2023, encouraging their contribution to meeting the objectives established for the reduction of CO2 emissions. This law includes an upward update of the current paths to reduce greenhouse gas emissions, and an absorption increase through drains. Land plays a critical role in this regard, acting as a carbon drain or storage room. In fact, the latest National Greenhouse Gas Inventory reflects very positive news: absorptions due to land use amount to 47.4 million tons of CO2 equivalent. This represents 16.1% of gross emissions in 2022.
In our country, the useful agricultural area represents more than 23 million hectares, and almost 17 million of them are used for farming. This means that we are acting on a third of the Spanish territory constantly, which offers great potential to begin measuring how much CO2 our land absorbs and record the results of our agricultural activities to know how much they contribute to increasing CO2 absorption. Once we know it, we will have a more real photograph of our carbon footprint, and we will be able to use it from an environmental and financial point of view.
For farmers to benefit from the market, they must measure the carbon sequestration produced by their activities and their soil quality. In addition, the increase in carbon in agricultural soils brings benefits such as greater water storage, greater biological activity, better soil aggregation, greater crop yield and resistance. This is confirmed by the Soil Health Institute: 97% of farmers declared that their crops were more resistant to extreme conditions after adopting soil improvement systems such as carbon sequestration. Here is where we find Climate Tech technologies aimed at mitigation through carbon capture, carbon agriculture, CO2 capture and storage or its corresponding elimination.
This global trend will continue throughout this year and the following, as the urgency of climate action, the latest developments in innovative technologies and political support are major drivers of investment. Investors will play a crucial role in the quick development and implementation of Climate Tech solutions. We must carefully analyse each proposal anywhere in the world and join those that truly take care of the environment and are at the same time very profitable. It is not easy to separate the chaff from the wheat, but with the right international partners and a deep knowledge of the sector, it is possible. An example of these technologies closely linked to soil carbon capture is YardStick. Carbon measurement is a very expensive process either done in laboratories or manually and not very accurately. However, Yardstick allows you to quantify soil carbon reserves and changes aligned to market standards, quickly and easily, with precision and quality.
A regulated tool
Carbon credit is a unit that represents one metric ton of CO2 and carbon offset is used to meet legal obligations. This market is projected to reach $206.9 billion dollars by 2030, growing at a CAGR of 28.8% from 2023 to 2030, according to Insights Leader. Furthermore, medium-term forecasts show a significant increase in carbon’s price, potentially even exceeding €100 per ton of CO2 eq. Mitigated, according to Deloitte.
There are two different types of carbon credit markets: mandatory and voluntary. In the first one, carbon credits are used to meet legal obligations and are regulated through mandatory carbon reduction regimes. In the voluntary system, offsets are used at the discretion of the companies, and this is known as the carbon offset mechanism.
It should be noted that there are several standards to certify that an emissions reduction has been carried out. The best known are VERRA (the most popular) and Gold Standard. And they use methodologies that demonstrate that an emissions reduction is real, measurable, permanent and additional. An example of this voluntary carbon market can be found in Spain: O.Live. Taking advantage of their hectares of olive trees, they have decided to get an extra yield from them. Each hectare has a net absorption capacity of between 2 and 5 CO2 credits, and each carbon credit is equivalent to 1,000 kilos of carbon dioxide.
The carbon market is already a reality for both farmers and companies that must offset their emissions and provides an unparalleled opportunity to invest. With more companies and governments committing to achieving net zero emissions, demand for these credits will continue to grow, making them a highly attractive long-term investment.
There are numerous technologies that are in line with new European regulations such as CBAM and, if you know how to choose them, they can be part of a very profitable portfolio when these laws come into force. These opportunities are rarely seen, if you have a good flow of real information about the market and what is coming, that is why you can make the most of them with great precision to make venture capital investments.
The carbon market represents a fantastic opportunity to create a more sustainable planet, for companies to adopt practices that offset their pollution, so that farmers can extract another additional yield from the field using their carbon supply power. And also, to promote scientific and technological projects that help measure carbon in a simple and profitable way.
