INTERVIEW: Developer to triple REDD+ capacity despite downturn

Quantum Commodity Intelligence – Brazil-based project developer Ituxi is planning to triple the number of hectares covered by its REDD+ projects in the Amazon to 3 million hectares, despite recent market turmoil and a business environment in the region that remains difficult to navigate due to legal issues with land titles, its owner told Quantum.

Entrepreneur Ricardo Stoppe, who has worked and lived in the Amazon for over two decades and started managing Ituxi's work in carbon markets in 2011, recently joined efforts with the Brazil-based asset manager Azquest to raise funds to finance the land portfolio expansion.

For Stoppe, one of the main reasons for Ituxi's success, which issued over 4 million Verified Carbon Units under the US-based registry Verra, is its integrated business model, managing all project development steps from the land supply to carbon credit certification to the trading of credits.

"Ituxi... has the land, a developer team, and a carbon credit trading team," said Stoppe. 

The business model allows the company flexibility and control over the quality of projects even when operating in areas with the highest deforestation pressure in the country, also known as the "arc of deforestation", which is the case of the Unitor REDD+ project, situated in Amazonas state.

He claimed that owning the lands on which they develop their projects has helped Ituxi avoid legal issues surrounding land titles in the Amazon.

Disputes over land ownership are caused by endemic corruption in the Amazon, which he described as the "Wild West", and are a well-known problem for carbon projects.

For him, those willing to develop good-quality projects in the region should pay close attention to discover who really owns the land.

"People from outside the Amazon buy lands here thinking it is easy [to deal with ownership issues]," he said.

Falsification of documents in the region means that it is common to have multiple individuals claiming ownership over a single property, said Stoppe.

He claimed that there is no easy solution to the land title problem, which has affected some projects in the Amazon, and buyers should be patient when negotiating land in the region.

"When someone wants to sell me a property, I make a contract that allows me to place a security person in the land up for one year, just to wait and see if others will come along claiming to be the owner of that land," he said. 

"In the meantime, we proceed with the documentation analysis… land issue is a quite complicated situation [in the Amazon]."

He also said that the situation is especially delicate in the state of Pará, which is expected to launch a jurisdictional REDD+ programme over millions of hectares this year.

The Portel area of Pará currently has some carbon projects involved in legal disputes over land titles that have been suspended by US-registry Verra.

"Awful" media reporting

Stoppe remains optimistic about the carbon market despite the turmoil last year, which included prices for REDD+ credits collapsing on the back of "awful" media reporting project over-crediting.

He said the company was able to maintain prices despite the falls elsewhere, with Ituxi credits not falling below $12 a tonne of carbon dioxide with resilient demand from clients based in developed countries.

"Europe continue to buy with us; our credit sales have never stopped," said Stoppe. 

Cepsa, Spotify and Telefonica are among the European customers that have acquired credits issued by Ituxi, according to data from Verra.

He said the trust of old recurring clients, who continue to do business with Ituxi, is one of the main reasons for the company avoiding any impacts from last year's market problems.

The last batch of credits the company sold from its Evergreen REDD project was all bought by US aircraft manufacturer Boeing, the CEO said.

"We have a great portfolio of customers because companies do not want to take risks on new projects; they prefer the ones that they already know," he said.

Demand is also strong for other initiatives from the developer, such as the Fortaleza Ituxi REDD+ project, which currently has a waiting list for buyers, said Stoppe.

"Following COP28, we sold all of our available credits, and we expect to release a further 10 million credits this year," he said. 

The company signed purchase agreements for 5 million credits last year, Stoppe added.

Delays 

Another problem faced throughout 2023 by many project developers are delays in processing projects by US-based registry Verra, the most prominent standard in the Brazilian carbon market, and Ituxi was no exception.

Stoppe said Ituxi has waited up to four months to hear back from the registry on their project review requests.

However, he added that in spite of the operational issues and delays, Verra remains the preferred standard by clients acquiring credits from Ituxi's REDD+ projects.

"At the end of the day, customers want Verra. Everyone talks and talks a lot, but the [standard] that has the most credibility is still Verra," he said.

Stoppe said Brazil is heading in the right direction as Congress debates a new law governing carbon markets, even though he does not believe it is all good intentions from governments.

"It makes us optimistic when we see the government's intention to integrate the voluntary market into the regulated one," said Stoppe.

"Governments will nevertheless try to grab a part of [private] credits, for sure, but it should be all right if market prices continue to rise."

Heavy burden

The company is also involved in reforestation projects and, while these offer new opportunities for the company, public authorities still have not done enough to reduce high legal costs to develop this type of project, said Stoppe.

In Brazil, authorities expect new buyers to pay for any fees and fines for deforestation previously issued for a property, even if the intention is to buy the land to develop a reforestation project, creating a heavy burden on developers, he said.

"You need to buy the land, you need to buy the material for the reforestation process, and you still need to pay a fine over that area," he added.

In addition, developers also need a strong financial war chest to meet the high capital costs of a reforestation project, despite credits from such projects selling at higher prices than REDD+ units.

Quantum's VCS CCB/GS Latam ARR 2021 was assessed at $13.45 per tonne of carbon dioxide equivalent (tCO2e) on Monday, a $9.49/tCO2e premium to the VCS1382 Envira Amazonia Vintage 2021 20kt REDD+ project.

The premium is up almost $3 in the past six months, highlighting the stronger demand for carbon removal credits.

Nevertheless, operational costs can reach $10,000 per hectare, meaning that the enterprise is not economically viable until credits reach at least $150/tCO2e in some areas, Stoppe added.

Another important factor is the cost of the land, as project developers also have to compete against farming and other lucrative economic activities in search of properties in the Amazon.

"People keep saying about the need to recover 'degraded lands'," said Stoppe.

"But what people abroad call degraded land, we call it livestock farm in Brazil. And that costs a lot of money to buy."