FEATURE: Biochar carbon credit prices 'need to rise, not fall', while producers of the substance need buyers

Quantum Commodity Intelligence - Prices for CO2 removals (CDR) credits issued to biochar projects need to rise, rather than fall, for producers to have the right incentives to produce high quality biochar and have the finance to scale, a major producer of the material has told a bioenergy conference.

The viewpoint from French biochar producer NextZero goes against the grain of many in the industry, who say getting prices nearer $100 a tonne of CO2 equivalent is key to attracting buyers through offtakes, and generate sufficient finance to invest in new production techniques to increase biochar supply.

"Let's stop thinking that we can sell the carbon credit at $130 or $140 with an off-take agreement," Axel Reinaud, chief executive of NetZero told a panel discussion at the Bio360 expo conference in Nantes, France, last week.

"This is crazy. This is the industry killing itself, which is basically making zero-margin today and zero-margin in the future. An industry that starts shooting low in prices at the beginning is dead," he said.

"So carbon credits should be above $200 (each)," Reinaud added, pointing to a likely lack of large supply from other areas of the CDR market, and a likely continuance of biochar's dominance of credit sales in the removals market.

NetZero operates three large biochar production plants in Brazil after raising a combined €29 million ($30 million) in 2023 and 2024, and has plans to start 15 new production plants this year. But current prices for biochar CDR credits will be too low for producers of the material to use carbon finance for major new investments, Reinaud said.

He pointed to market fundamentals in the removals market that suggests prices could and should be going higher, rather than lower. "And at the current price of carbon credits, this industry can be barely profitable. But a barely profitable industry will not scale to the gigatonne, because it will not attract the capital needed," Reinaud said.

"So we need higher prices on carbon credits to attract investors because of the high margins," he told the expo. "There will be not enough biochar [credits] to meet demand," he said, pointing to much higher prices for direct air capture and enhanced rock weathering, for example.

Prices

Quantum assesses spot prices for Latin American biochar credit prices in a range of $130-$160, depending on the volume traded, with a $15 discount for credits dated year-ahead.

But these credit prices are barely enough to cover the cost of manufacturing, Reinaud said. This is despite the sector achieving high levels of compound growth in the past few years, according to the most recent global report for the sector, published last March.

Other voices in the sector took the opposite view that prices of biochar credit prices would need to fall for the market to scale, but for the prices of the biochar itself, to be priced higher. Biochar, which is made by superheating biomass through oxygen-free pyrolysis, is largely used as a soil additive by farmers but has multiple other uses, such as pellets for use in heating and power generation, or as a high strength material for product design or construction.

"The industry does well if the buyers are doing well. If your buyer can't afford to buy you, the industry is not going to grow," said Ankur Jain of Ankur Scientific Energy Technologies, an India-based biochar technology provider.

"The problem is that from 4 kilogrammes (kg) of biomass, you are making just 1 kg of biochar, and you have your manpower costs and your financing costs, and 50% energy costs," Jain said.

"Our inability to monetise the biochar is where the problem is...It cannot be a subsidy-driven market," Jain added, referring to an overreliance on carbon credit revenue.

One Kenya-based, German-financed biochar producer, Recycoal, told the panel that demonstrating the benefits of biochar as a product has taken up increased relative importance to farmers than their share of the carbon credit revenue.

"We might strongly see a decrease in the price because the interest in the biochar itself as a product is much, much higher, even more than the interest in the carbon," said Johannes Krey, a co-founder of Recycoal. "You have to think from the buyers' perspective."

One of the most prominent consultants to the biochar sector, said it is "super-risky" for producers in developing countries to be overly reliant on carbon credit revenue because policies that underpin demand for CDR credits are unreliable.

"Last year I reviewed about two dozen proposals from different biochar producers or carbon credit buyers predominantly from the global South and I would say 75% of them relied 100% on the carbon removal credits and their philosophy was zero for the biochar," said Kathleen Draper of industry body the International Biochar Initiative.

Biochar demand

Another issue is that the vast majority of biochar producers that want to sell CO2 removal (CDR) credits are struggling to find buyers for their biochar, a dynamic that will constrain supply of credits, a specialist intermediary advisory firm told the bioenergy conference last week.

Norway-based Accend said its own soon-to-be-published survey of 17 companies in the sector asked a range of questions to gauge the mood of biochar project developers at a crucial juncture for the sector. Offtakes for CDR credits are said to be strong, but demand for physical biochar is lagging behind, as not enough buyers appear aware of the benefits of the material, the conference heard.

"Almost every company that we talked to was struggling with finding buyers [of the physical biochar]. Over 90% of the projects said that this was either a major issue or a critical issue," Paul Ferguson, CEO of Norway-based Accend, told the Nantes conference. "That was the same for projects in planning but also projects in operation," he said.

If biochar is not sold and applied to soil or other permanent sequestration, credits don't materialise, therefore limiting supply of CDR credits. The biochar market has few major reference points in terms of market research, other than annual surveys carried out by industry associations, such as the International Biochar Initiative, which was last updated in March 2024.

Ferguson trailed many of the findings of the recently conducted survey to the expo, which is orientated towards project developers and service providers in the biochar sector, but doesn't typically get major engagement from CDR buyers.

Financing came in second place in terms of the challenges that the biochar sector faces, Ferguson said, "along with very simple things like underperformance of delivery equipment, but also increase of biomass prices".

These issues compound, and so a delay in the delivery of equipment can put back the commissioning date, he added. "A combination of these teething troubles at the start, and possibilities of equipment failure, then have an impact on the amount of cash that the project has, which then makes it harder to finance," the consultant said.

Although the perception from many developers is that biochar prices are currently too low for companies to make decent profits, a diversified strategy based on value-added biochar projects and products, such as energy feedstocks materials, bio-liquids and syngases can mean that companies can more easily manage risk.

"We've seen projects in both Europe and in North America struggle because they've been looking for one specific application, which has taken too long," Ferguson said.

"Then they've realised after a couple of years they're going to have to pivot to another application, but by then it's become too late. Cash reserves are lost, and it's difficult to finance them in the long term," he added.

Positives

However, the consultant pointed to positive developments that would encourage biochar production and provide some assurances to buyers. "The market and the macroeconomic outlook for biochar has been gradually improving. Over the last few years, there's been an increasing scientific consensus around the stability of biochar as a CDR solution," he said.

This is a reference to a 2024 peer-reviewed study that found most biochar is stable for at least 1,000 years and therefore offers permanent storage, although not all scientists and policymakers are convinced. "There have been positive local policy developments, such as the UK's decision to ban peat and composts is opening the door for biochar as an alternative," Ferguson said.

Meanwhile, Denmark's pyrolysis - the biochar production process - will generate DKK 1.3 billion ($181 million) of subsidies for biochar application across seven years, he pointed out.