The Smart Money Is Investing In Carbon Credits

Pachama, a vanguard in the fight to mitigate climate change, has some exciting news

A revolution is underway in the world of carbon credits. It is a revolution that has the potential to help civilization thrive and survive into the 21st century.

One of the vanguards in this revolution is the California start-up Pachama, a company I have featured in this column before (see Applying AI To Mitigate The Effects Of Climate Change). Pachama has had some exciting developments in the past few months and is receiving the attention of some very smart and well-capitalized investors.

Recall that Pachama is innovating the carbon credit markets by applying 21st century technology — LiDAR, machine vision, and machine learning algorithms — to automate the process of certifying and verifying forestry-related “voluntary” carbon offset projects.

(To understand what I mean by “Voluntary” markets and see the differences between voluntary and “Compliance” markets, please see my article entitled “ Want To Understand Carbon Credits? Read This “.)

Using legacy methods, certifying a forest’s carbon capture credit potential at a project’s initiation means sending out a forestry engineer to a forest to do a manual count and survey — counting trees and measuring their circumference by hand. Once this is done, the landowner needs to jump through a set of onerous paperwork hoops and meet with regulators and representatives from the credit registries.

Once the forestry offset project is finally approved, the engineer needs to return to the forest once a year or so to verify that the conditions originally earning the carbon credit certification are unchanged (i.e., trees haven’t burned, been cut down or died due to infection).

Using Pachama’s technology, verification of forestry projects can be done essentially real-time, as satellite imagery is analyzed by the company’s algorithms and sequestration levels are reported back to the project sponsor.

This kind of innovation clearly removes the enormous cost involved in manual surveys of forest stands and, if implemented on a wide basis, would help to contribute to carbon credit markets through reduced compliance costs and increased transparency.

Apparently, your correspondent is not the only one who thinks so.

When I spoke with Pachama’s founder and CEO, Diego Saez Gil, a few weeks ago, he told me that his company’s client count had roughly tripled in less than a year and that he was on track to have Pachama technology approved as a primary certification and verification methodology by at least one of the big carbon registries within about another year.

It’s hard to overstate how important this news is to the development of a robust and influential voluntary carbon credit market. Having a major carbon registry give Pachama its official nod will be an enormous game-changer for the markets and in turn for our civilization, since so many of the frictions involved in approving and monitoring projects will be removed.

Working capital — the cash required to support a business from day to day — is one big problem faced by a company growing as quickly as Pachama is. Supporting three times as many clients at the end of the year as you supported at the beginning of the year means you have to ramp up hiring, purchase new equipment and services, and spend more time making sure you are delivering on your promises. Some fast growers actually flame out for want of working capital at this stage.

Luckily, just as business was exploding, Saez Gil announced that he had succeeded in garnering $5 million in working capital from nearly a dozen investors, including several very prominent funders, Amazon’s Climate Fund and Breakthrough Energy Ventures (BEV).

While the Amazon fund is what might attract most people’s attention, my ears perked up when I heard the name BEV. This group was started by Bill Gates, and as I began researching climate-related ventures a few years ago, I noticed that every company I found particularly attractive and interesting had received funding from BEV.

BEV seems to be enormously well-informed regarding the state-of-the-art technology in climate change adaptation and mitigation and far-sighted in the kinds of projects it supports. The fact that they have found value in what Saez Gil and his colleagues at Pachama are doing is an amazing vote of confidence for the start-up’s vision and methodology.

Saez Gil, BEV, and I all know that human civilization needs to exercise all its ingenuity and adaptability to survive and thrive into the 21st century — doing so requires innovative ideas and efficient, well-incentivized markets.

Intelligent investors take note.

Postscript: In a cruel twist of fate, the week that Saez Gil finalized the investment with Amazon, BEV, and others, his home — situated in the beautiful forests of northern California — was burned to the ground by the well-publicized forest fires there.

The fact that this vanguard in the world of climate change mitigation has become a climate change refugee is a painful and telling irony. The sad truth is that this kind of poignant anecdote will, I believe, become more and more familiar to each and every one of us in the coming generations.

2020 is on track to go down as the hottest year ever recorded. In the perspective of our grandchildren, however, 2020 will be remembered as one of the coolest years in recent history. You can read Diego’s deeply personal and thoughtful account of the loss of his home in this blog post.

Originally published at https://www.forbes.com.

Passionate about harnessing the power of the free market to solve humanity’s biggest adaptation challenge.

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