The company, which has just completed a second year of planting at one of its first projects in Sierra Leone, aims to generate high-quality carbon credits to help large buyers meet their net-zero commitments.
Klimat X has announced new milestones in its plan to scale up its activities as a provider of high-quality carbon credits sourced from afforestation and reforestation projects developed and owned by the company and its stakeholders.
The company, founded two years ago, said it had completed a second year of planting at one of its projects in Sierra Leone and that prerequisites had been met for a second disbursement of $500,000 under a pre-purchase agreement reached in mid-2023 with a Fortune 500 company.
Klimat X, headed by impact investor and academic James Tansey, is developing or seeking to develop nature-based carbon assets in several countries, including Mexico, Guyana and Suriname, in addition to Sierra Leone. In addition to terrestrial projects using native species, the company also has projects focused on restoration and conservation of mangroves. These are one of the most effective plant species for carbon sequestration and popular as a cost-effective way of generating carbon credits, as well as helping to protect coastlines and provide important natural habitats.
Vancouver-based chief executive officer Tansey told Impact Investor that rising demand for high-quality carbon credits had attracted him back to a sector he had been involved in for around a decade. Tansey had worked on projects in North America and the developing world, before he stepped away from it in 2015-16 at a time when the market was faltering. He returned to found Klimat X with his partners in 2021, listing it on the Toronto Stock Exchange.
To illustrate potential demand for credits, he cited figures from the Science-based Targets Initiative (SBTi), estimating that at the end of 2022, more than 4,000 companies covering over a third of the global economy’s market capitalisation, were setting targets to reduce or eliminate their net carbon emissions, or committing to do so via the SBTi.
Parts of the carbon credit market have had a rough ride in recent years, with environmental groups casting doubt on the effectiveness of some forms of credits in making an impact on net global carbon emissions. In particular, it is often difficult to prove that trees protected in some conservation projects generating credits would have been cut down had the project not existed – a requirement if credits are to make impact.
Companies such as Klimat X seek to allay such concerns by choosing projects that generate credits based on verifiable conservation measures alongside restoration – the benefits of the latter being more easily demonstrable, given restoration involves adding trees where there were none before.
Reputational risks
Tansey believes large companies in sectors such as oil and gas and technology are now more wary of the reputational risk of buying carbon credits with unclear provenance, given the degree of controversy that could potentially be generated.
“When we talked to the large buyers, they said they didn’t just want to buy credits from an exchange, they want certainty around provenance and quality control within the projects. They want detailed due diligence on all of these projects, and they want to work with owner-operators, not with intermediaries or exchanges,” he says.
Project de-risking
To set up a project, Klimat X de-risks it by making an initial capital investment, with a credits buyer then coming in with further investment via a pre-purchase agreement that funds the remainder of the cost of setting up the project.
For the Sierra Leone project, where an initial area of 5,000 hectares of land is being restored, Klimat X put in $2 million and then signed a $2.5m pre-purchase agreement with a Fortune 500 company. That firm later has the right to purchase further credits from the project at an index-linked price in the market. Klimat X said this first phase could produce up to 1.9m tonnes of validated and verified Verra carbon credits over 30 years.
Tansey estimates the project, which can be extended by a further 20,000 hectares, could generate $110m though carbon credit sales over its lifespan, describing it as a “very capital efficient model from the perspective of the markets”.
The project will restore degraded forest land owned by smallholders, providing income from carbon markets and creating employment to thousands of seasonal workers in a region with high unemployment and very low incomes, according to Klimat X.
Tansey said reforestation and afforestation projects tend to be small and scattered, creating a fragmented and inefficient sector. Klimat X’s plan is to expand projects in Sierra Leone and elsewhere to achieve economies of scale.
“It’s a bit like the Yukon Gold Rush in the 1860s, where there were lots of people scrambling around trying to find gold in the streams, but very few large industrial scale operators. Our approach is to industrialise carbon credit production and do it on a much larger scale,” Tansey said.
