Citi creates bond with returns linked to carbon credit generation

Citi has structured a $72 million Carbon Removal-Linked Note to finance a biochar project by Applied Carbon. The returns on this financial instrument are tied to the generation of carbon credits by the project.

Citi states that this new instrument offers a model for private capital to support large-scale carbon removal initiatives. Sonia Battikh, Global Head of Carbon Offsets Trading at Citi, emphasized the need for innovative financial structures to connect investor capital with the long-term funding requirements of carbon removal projects.

The financing structure involves an upfront capital investment from the Carbon Removal-Linked Note directed towards Applied Carbon's biochar project. Investors will receive payments linked to the issuance and delivery of carbon credits, rather than traditional coupon payments.

Biochar, a form of biological charcoal, is produced by heating biomass such as forest residue, wood, or crop waste in the absence of oxygen. This process creates a stable form of carbon that, when buried in soil, enables long-term carbon sequestration and enhances soil fertility. Biochar is gaining popularity as a carbon removal method due to its long-term storage capability, scalability, cost-effectiveness, and agricultural benefits.

Applied Carbon, founded in 2020, has developed a mobile pyrolysis platform that processes crop residue into biochar directly in the field. The company signed an offtake agreement with Microsoft in 2022 for a portion of the carbon credits generated by the project. Jason Aramburu, Founder & CEO of Applied Carbon, highlighted that this financing demonstrates the viability of structuring and financing biochar and engineered carbon removal projects like other assets.