Microsoft has struck a long-term agreement with Chestnut Carbon, a US-based developer of nature-based carbon projects, to restore 60,000 acres of forest over the next quarter century. The deal is part of Chestnut Carbon’s larger project to remove 100 million tons of CO2 from the atmosphere over the next 50 years.
The offtake agreement is the second-largest carbon removal contract Microsoft has ever signed, and its largest in the US.
“It’s just a really different business model construct,” says Chestnut Carbon COO Shannon Smith of what attracted the tech giant. “We’re very fortunate to be able to have the capital to buy the land, plant the forest, and say this is a minimum of 100 years that we’re committing to restore this forest.”
‘If we can’t find it, we’ll build it’
Alternative asset manager Kimmeridge, a firm best known for investing in energy management, founded Chestnut Carbon in 2022.
According to Smith, Kimmeridge was looking for carbon credits to offset its emissions and couldn’t find anything it wanted to buy. “They decided, ‘if we can’t find it, we’ll build it.’”
Chestnut Carbon was born to create these high-quality, nature-based carbon offsets through afforestation projects (e.g., planting trees or restoring native forests) that remove carbon dioxide from the environment.
To date, the company has planted more than 10 million trees across 15,000 acres, mostly in the Southeastern US, Smith tells AgFunderNews. It aims to have 500,000 acres (roughly 781 square miles) planted by 2030.
“We own land in six states. It’s all still roughly the southeast [US], but we’ve significantly expanded our footprint,” she notes, adding that Chestnut Carbon primarily works with forestry supplier ArborGen to procure the millions of trees required for the reforestation efforts.
50 years of carbon credits
Chestnut Carbon signed its first agreement with Microsoft in 2023, after an invitation to participate in an RFP for the tech giant, who Smith says is actively pursuing ways of offsetting their carbon emissions.
The new agreement with Microsoft will span 25 years in a 100-year-long carbon removal project.
Chestnut Carbon will issue carbon credits for the first 50 years of the project; Microsoft has effectively secured half (25 years) of that time period, says Smith, who adds that her company expects to deliver more than 7 million tons’ worth of carbon removal credits during those 25 years.
“We’re committed to them [Microsoft] for the majority of the carbon credits we expect to have during 25 years out of the 50 that we expect to issue credits.”
Chestnut Carbon will cease issuing carbon credits in the second 50 years of the project, and focus on monitoring and maintaining the trees. Monitoring will involve “very light oversight of the project area and satellite imagery,” says Smith. “It’s mostly just about protecting the trees that are there.”
Part of Chestnut Carbon’s underlying ability to make such long-term agreements is that the company actually buys the land for its projects.
“We benefited by the fact that we have a private equity founder, and they took a big chunk of their raised capital and and put it towards Chestnut so we could go buy land,” says Smith. “We’ve already spent well over $100 million on land, and therefore we have outright ownership, and we can commit to that time period.”
“Most developers [of carbon removal projects] are either leasing land, so the landowners are less likely to want to enter into a commitment that long, or they’re acquiring a timber forest from some harvesting-oriented entity that will go back to harvesting after 20 years.”
A premium product
Smith says the credits issued by Chestnut Carbon are a premium product because they are “at the high end of the price range for nature-based products.”
These projects vary in value based on the actions being executed. Carbon avoidance projects are just as they sound: they prevent emissions from happening by, for example, avoiding deforestation. Carbon removal credits come from projects that both avoid making emissions and remove existing carbon via things like reforestation.
“All of our products are carbon removal,” says Smith, adding that this commands a higher premium. Whereas other projects might sell for $5 per credit in the developing world and $15 to $20 in the US, Chestnut Carbon has sold its credits for $34 each.
“We feel that it’s warranted, given our location exclusively in the US, the quality of our team, and the quality of our product,” she adds.
Benefits beyond carbon removal
A 100-year-long project is rare, which Smith suggests is a positive differentiator for Chestnut Carbon.
“A huge part of our operating model, and really just our strategic approach, is to think of our project as not just planting trees and we’re sequestering carbon. That’s what we sell, but we really look at it as a more holistic environmental improvement to the area,” says Smith.
“We’re taking what’s largely cattle pasture, sometimes farmland like soybean crops, and we’re restoring native forests in as close an approximation as we can create to what a native forest would have looked like 100 years ago, with a mix of some soft woods, a wide variety of hardwoods, etc.”
These native forests can also improve air and water quality in addition to bringing back wildlife and benefiting surrounding communities, she adds.
“So we’re really wanting this to become a broader benefit to the surrounding region.”
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