Klimat X Applies Innovative Approach to a Rapidly Growing Carbon Credit Market
The 2050 net-zero emissions target that over 1200 global companies are committing to is an ambitious goal that will require multiple approaches to achieve – including the production of large-scale carbon credits that can be purchased by organizations to offset the carbon they produce but can’t reduce.
It’s estimated that eight to 10 billion tons of carbon credits will be needed just to stabilize climate change at two degrees Celsius. It’s a huge challenge, one that Klimat X (TSXV: KLX), a carbon credit developer in the rapidly growing voluntary carbon market, is ready to tackle head on.
Klimat X focuses on nature-based solutions - projects that target the protection and restoration of forest and mangrove ecosystems that pull carbon dioxide out of the atmosphere.
The company’s business model is simple. They develop revenue sharing agreements up front with governments in the same way that an exploration company might develop an oil and gas or mining concession. Then they assume all the exploration and development risk, which includes raising capital. Once a project is validated by a third party, they market the future pipeline of carbon credits it generates to downstream or midstream buyers. It’s a model that puts Klimat X into a select category of companies that includes South Pole out of Switzerland and HSBC Pollination Climate Asset Management, that develop their own projects.
Currently, Klimat X is currently undertaking projects in Sierra Leone, Mexico and Guyana. In Sierra Leone, Klimat X is re-foresting 25,000 hectares by harvesting wild seeds from indigenous trees, raising them for about six months in nurseries and planting them back onto the land. Further expansion of this project is expected to incorporate a total of 75,000 – 100,000 hectares, which will restore the original rainforest cover that was cut down to establish plantations.
Klimat X is also restoring mangrove sites in Sierra Leone and in the Yucatan Peninsula, Mexico and is considering agricultural projects in countries like Colombia that will change the way land is managed so more carbon can be sequestered into the soil.
James Tansey, the CEO of Klimat X, estimates the potential impact of these projects. “Our current projects are still under development, but we expect them to sequester - just from the ones under contract - between 21 and 28 million tons of carbon credits.”
While Klimat X is doing its part to address climate change, it is also helping to reduce the pressures of poverty that drive people to degrade these lands. “In mangrove areas, we're providing alternative firewood, so the local community is not cutting down mangroves to burn in the fireplace,” Tansey claims. “We’re also providing commitments to invest in these communities through benefit sharing and employment creation programs.”
Kevin Godlington, Director of Operations for Klimat X, shared his “on the ground” perspective. “Sierra Leone is the seventh poorest country on earth and has been ravaged by war and Ebola. Over a long period of time, lots of commercial agriculture has failed and failed the people. So, there is a huge opportunity to create real assistance for people who have not had much luck. Our projects not only share the rent and the revenue from the carbon credit sale, but we also have a very robust community development action plan that involves helping with schooling, education, and infant mortality rates, along with a whole series of interventions which have proven to really have a meaningful impact on the ground.”
Klimat X isn’t just changing peoples’ lives. It is taking big steps to implement a modern approach to the creation of carbon credits that will help change the world.
According to Tansey, “Klimat X is an innovator. We've negotiated all these jurisdictional arrangements and mobilized capital markets, which nobody else has really done at scale before. The carbon credit market is currently very fragmented, with small scale projects and small-scale financing. Our jurisdictional approach is the way to develop, not just 10,000 or 20,000 hectares at a time, but hundreds of thousands of hectares. We think that's a real differentiator for us.”
The nature-based solutions market is engaging the interest of investors worldwide. Carbon credit prices have more than doubled since August 2021, driven by a rising demand and a decline of inventories. It is also anticipated that the market, estimated to be worth a billion dollars annually, will mushroom to $30 billion dollars a year by 2030.
While Klimat X’s projects are still in development, the company expects to quickly move into operation so they can fully capitalize on this golden opportunity. “Our conservation projects will show very early revenues,” Tansey said. “In Q4 2022 and Q1 2023, we expect to see large corporations signing prepaid offtake agreements, allowing us to demonstrate real revenues associated with these projects.”
Klimat X is in the process of working out additional jurisdictional agreements with countries they’re already in negotiations with. That should lead to the announcement of new projects in the coming months. It’s a story worth following.
For more information on Klimat X (TSX.V: KLX) please click the investor request info button.
FULL DISCLOSURE: Klimat X is a client of BTV-Business Television. This article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional. Any action taken as a result of reading information here is the reader’s sole responsibility.