Adapting Project Finance to Unlock Biogenic Carbon Removal

In this conversation on The Sustainability Agenda, Jonathan Rhone and Natalie Khtikian of CO280 illuminate a critical pathway for scaling carbon dioxide removal (CDR) projects by meticulously adapting traditional project finance principles to the nascent carbon market. Their discussion reveals the hidden consequence of viewing carbon capture solely through a technological lens, neglecting the intricate financial scaffolding required for large-scale deployment. The non-obvious implication is that the true bottleneck isn't just engineering, but the creation of bankable, long-term revenue streams that satisfy risk-averse investors. This analysis is essential for project developers, investors, and policymakers seeking to understand how to unlock significant capital for climate solutions, offering a strategic advantage by demystifying the financial architecture of CDR.

The Bankable Biogenic Bounty: Unlocking Project Finance for CDR

The race to decarbonize is often framed as a technological challenge, a quest for the next breakthrough in carbon capture or sequestration. Yet, as Jonathan Rhone and Natalie Khtikian of CO280 articulate, the real hurdle for large-scale carbon dioxide removal (CDR) projects lies not in the engineering itself, but in the financial architecture that underpins it. Their conversation on The Sustainability Agenda highlights how CO280 is meticulously adapting traditional project finance models, particularly the concept of long-term offtake agreements, to make biogenic carbon capture projects "bankable." This approach reveals a crucial, often overlooked, downstream effect: by securing predictable revenue before Final Investment Decision (FID), CO280 transforms inherently risky environmental projects into stable, investable assets, creating a durable competitive advantage.

The core of CO280's strategy hinges on a fundamental distinction: biogenic versus fossil-based carbon. John Rhone explains that biogenic carbon, derived from recently living biomass, is essentially carbon that has been pulled from the atmosphere. When this carbon is captured and sequestered, it represents a net removal from the atmosphere, unlike fossil carbon, which adds to the existing atmospheric load. This distinction is not merely academic; it's the bedrock of their commercial model.

"But when you burn biogenic carbon, that's carbon that plants have recently captured from the air, so you're not adding to the total pool of carbon that's actually in the atmosphere. Because of that, you can generate a credit that has a lot of value."

-- John Rhone

This inherent value, stemming from genuine atmospheric removal, allows CO280 to generate revenue streams that projects capturing fossil CO2 cannot. The pulp and paper industry, as Natalie Khtikian points out, is a unique and massive source of this valuable biogenic CO2, with 80-90% of its emissions originating from biomass combustion. This makes it an ideal target for CO280's model, which partners with mills to develop, finance, and operate carbon capture and sequestration facilities.

The strategic importance of this biogenic CO2 is amplified by CO280's deliberate approach to technology selection and de-risking. Rather than developing novel capture technologies, they partner with established providers like SLB Captury, whose liquid amine technology has a proven track record in other industrial applications. CO280's role becomes one of adapting and validating this technology for the specific conditions of pulp and paper mill recovery boilers. The successful pilot at a US Gulf Coast mill, validating the chemical process on recovery boiler flue gas, was not about proving the technology's existence, but its application and reliability in this specific context. This is a critical distinction for project finance, where lenders require demonstrable proof of performance in the intended use case.

"The pilot we did was not to prove that the technology works and needs to be scaled up. It was really proving the process parameters to validate that the amine technology works on that particular flue gas."

-- Natalie Khtikian

This focus on application-specific validation directly addresses construction and technology risk, two major hurdles for project finance. By purchasing modular capture plants on a fixed-price basis from SLB Captury and engaging an EPC firm for integration and installation, CO280 creates a structured, predictable execution model. SLB Captury assumes process risk for the capture itself, while the EPC firm handles integration. This division of responsibility, coupled with performance guarantees, builds confidence among lenders who are primarily concerned with the project's ability to generate consistent cash flows, not the intricacies of novel engineering.

The linchpin of this entire financial structure is the offtake agreement. Natalie Khtikian emphasizes that these are not mere sales contracts; they are meticulously crafted, bankable, take-or-pay agreements, structured similarly to power purchase agreements (PPAs) in the renewable energy sector. These agreements, typically spanning 10-12 years from first production, provide the predictable revenue streams that underpin the entire financing. The customers are major corporations like Microsoft and JP Morgan, along with entities like the Frontier buyers (Stripe, Shopify, Google, etc.), who are actively seeking high-quality, verifiable CDR credits to meet their net-zero commitments. The innovation here lies in adapting existing financial instruments to a new asset class, demonstrating that the "new type of contract" can indeed work for the project finance market.

"We do sell those credits in a long-term offtake, and when I say long-term, I mean typically about a 10 to 12-year term starting from the first production. So it's a very, very long-term commitment, and they are structured similar to what you would see in a PPA."

-- Natalie Khtikian

The ultimate success of CO280's scaling strategy, however, depends on external factors beyond their direct control. Rhone identifies the crucial need for scaled-up CO2 transportation and storage infrastructure, particularly the speed and reliability of permitting processes. While Alberta, Canada, is noted as a leader in this regard, the pace of development in regions like the US Gulf Coast will be a significant determinant of rollout speed. Furthermore, the evolving landscape of carbon markets, specifically the integration of compliance and voluntary markets, will shape long-term demand for CDR. Despite these external dependencies, the core message is one of readiness: the capital is available, the projects are designed to be bankable, and the ingredients are in place. The challenge now is to accelerate the external factors that enable deployment.

Key Action Items

• Immediate Actions (Next 3-6 Months):
  • Secure EPC Partner: Finalize and contract with an experienced Engineering, Procurement, and Construction (EPC) firm for the integration and installation of modular capture plants. This action directly mitigates construction risk.
  • Refine Offtake Terms: Continue to engage with potential offtake customers to refine contract terms, ensuring they meet lender requirements and clearly articulate the value of biogenic CDR credits. This reinforces the revenue stream.
  • Engage Permitting Authorities: Proactively engage with regulatory bodies responsible for CO2 transportation and storage permitting to understand timelines and requirements, identifying potential bottlenecks early. This addresses a key scaling factor.
• Near-Term Investments (6-18 Months):
  • Finalize Project Financing: Secure debt and equity financing for the first commercial-scale projects, leveraging the de-risked technology and bankable offtake agreements. This is the critical step to FID.
  • Initiate Construction: Commence construction of the first modular capture plants, adhering to fixed-price contracts with technology providers to manage costs.
  • Develop Supply Chain for Modules: Work with technology providers to ensure a robust and predictable supply chain for the modular capture units, anticipating future project needs.
• Longer-Term Investments (18+ Months):
  • Advocate for Permitting Reform: Actively participate in industry groups and policy discussions to advocate for streamlined and efficient permitting processes for CO2 transportation and storage infrastructure. This builds the essential infrastructure for scaling.
  • Monitor Market Integration: Continuously monitor the evolving landscape of voluntary and compliance carbon markets, adapting commercial strategies to capitalize on integration and increasing demand for CDR. This ensures market relevance and sustained revenue.
  • Standardize Project Development: Leverage learnings from initial projects to further standardize the development, financing, and execution model, enabling faster replication across multiple pulp and paper facilities. This drives scalability and efficiency.