Demand for biochar carbon credits has doubled each of the last two years, with prices trading consistently over USD100/t. The latest modelling by MSCI Carbon Markets suggests demand for this project type could grow 20-fold over the next ten years. Our price outlook however, has a different shape – in spite of higher demand, increasing supply and competition in the sector could see price compression in the short term before increasing again in the medium term.
Biochar Basics
Biochar is a form of charcoal made from the conversion of biomass in an oxygen-limited environment. This can be done in small-scale soil pits or boxes, or large-scale custom-built processing plants, using feedstocks in the form of forestry or agricultural residues, waste biomass or manure. The resulting char is then mixed with soil, locking up carbon, but also acting as a soil improver through the retention of water and micro-nutrients.
In the carbon market world, biochar credits are seen as a “removal” technology, where carbon dioxide is taken out of the atmosphere. This is in contrast to “reduction” credits, from projects that reduce or prevent the release of greenhouse gases. These may include energy efficiency and renewable energy projects or the prevention of deforestation.
Removal credits are often seen as superior to reduction credits in the global carbon market, and command significantly higher prices. This is because it is typically easier to justify the additionality of removal projects, and quantify the benefits, than for reduction projects; reduction projects often have other revenue streams, such as the sale of electricity or reduced energy costs. Removal credits are also seen as important in the longer-term fight against climate change: even if emissions are drastically reduced, carbon will still need to be removed from the air to prevent the most dangerous effects of climate change.
There are other means to remove carbon from the air, however. The most obvious is through growing trees, but these suffer from the potential of releasing carbon again if the trees die or are at risk of fire. Other removal solutions that offer a more permanent storage of carbon include Direct Air Capture, BioEnergy with Carbon Capture and Storage (BECCs), and Enhanced Rock Weathering.
The advantage of biochar is that it is simpler, more established, and less costly than these other forms of high-permanence carbon removal and storage. But this also raises questions. Biochar projects do have alternative revenue streams, notably as a soil improver for agriculture, which could affect the additionality claims of some credits. The permanence of soil-based biochar has also been the subject of some academic debate, although it now seems broadly accepted as a “high-permanence” technology by carbon market stakeholders over a 100-year timeframe.
Biochar Carbon Credits
Biochar earns carbon credits for the carbon that it keeps locked in the soil. If it had not been processed into biochar, that same biomass would have decayed or been burnt, releasing methane or carbon dioxide into the atmosphere.
The voluntary carbon market has seen a sharp upswing in interest in biochar in the 2020s. From less than a thousand tonnes in 2020, corporate use of voluntary credits from biochar projects jumped to 34,000 tonnes CO2e in 2022 and 65,000 tonnes in 2023, according to MSCI Carbon Markets. So far, two-thirds of all biochar credits issued to date have come from projects in the U.S., although the majority of credits issued in 2023 came from one Brazilian project.
Buyers of biochar credits have included some major corporate names, including Microsoft, JP Morgan Chase, Swiss Re and Nasdaq. Prices on some transactions have been as high as USD200 per tCO2e, with the overall average for 2023 at around USD150. This is far above the USD5.80 average seen for voluntary carbon credits as a whole in 2023, although deal sizes are typically much smaller for biochar credits.
Biochar Economics
Biochar projects have many valuable attributes, but biochar is not the only game in town. This means projects compete for customers with other removal technologies. They also compete for feedstock, especially with the biofuel sector and, crucially, with sustainable aviation fuel, or SAF. We calculate that if the global airline industry were to use 10% SAF in its fuel mix, it would take up most of the sustainable biomass supply around the world – leaving little for biochar.
On the price front, over the last two years, prices of biochar credits have followed a bullish trend, with many credits trading in the USD100-200 range. These high prices may reflect the permanence of removal credits, in contrast to nature-based removal credits such as afforestation and mangrove restoration. How sustainable this price range is, may be questionable. MSCI Carbon Market modelling suggests increased competition and margin compression could see prices soften between now and 2026, before potentially strengthening up to 2035.
Interested in learning more about why biochar is highly valued by the market and assessing its potential to scale the CDR market? Join us in our upcoming webinar “Biochar: Lift-off for Engineered Carbon Dioxide Removals (CDR)?” on 27th February 2024. Our team of expert analysts will discuss Biochar's key integrity considerations, leveraging our own integrity assessments of over 30 biochar projects, and provide an outlook for pricing and demand for biochar based on detailed production cost and market modelling. Register here to reserve your spot.