Overcoming Challenges in Carbon Project Financing


19 May 2023

Harry Kearney, COO

In the quest to scale the voluntary carbon market (VCM) and drive impactful carbon removal projects, innovative solutions are needed to overcome the existing challenges in project financing.

A recent report by climate-tech start-up Thallo titled "Fast Forward: Challenges to Scaling the Voluntary Carbon Market" sheds light on some of these hurdles and emphasises the importance of new technologies in solving these challenges.

One of these technologies is conditional payments, enabled by smart contracts and blockchain, as a promising avenue for addressing the bottlenecks and advancing the VCM through forward financing.

Small to mid-size developers find it hard to get financing

Thallo's report underscores the critical need to address the financing barriers faced by small to midsize project developers in the VCM, as these developers often encounter significant challenges in securing the necessary capital to initiate their first projects, despite being the ones who need it most. These barriers hinder the growth and scalability of the voluntary carbon market, preventing the full realisation of its potential in driving meaningful climate action.

Forward financing, powered by conditional payments, emerges as a powerful solution to de-risk project financing. By providing upfront capital based on predetermined conditions, conditional payments empower smaller developers to undertake ambitious projects that contribute to the overall scaling of the VCM. This not only stimulates innovation and diversity within the market but also helps close the financing gap for projects with immense potential.

Streamlining transactions and minimising intermediaries

A second point in the report states that intermediaries and transaction inefficiencies create significant challenges. These intermediaries, including brokers and financial institutions, introduce complexity, add costs, and cause delays in the transaction process. The involvement of multiple parties increases the risk of miscommunication, reduces transparency, and hampers the overall efficiency of project financing.

Using conditional payments reduces dependencies on intermediaries by streamlining transactions, reducing costs, and ensuring greater control over the flow of funds. This empowers project developers to retain a larger share of the value generated by carbon credits, enhancing the efficiency and effectiveness of project financing in the VCM.

Harness the benefits of blockchain with conditional payments and forward financing

While there is a long way to go and many challenges in the voluntary carbon market, by embracing technologies such as conditional payments and forward financing, we can accelerate the deployment of carbon removal projects.

Becoming the first payments institution on blockchain means that platforms can now safely and compliantly use conditional payments and forward financing. Read more about how we received our payments institution licence last year to make conditional payments a reality here.

If you are curious how conditional payments work, take a look at our Guide to Conditional Payments, to see how you might set them up in four simple steps.

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© 2024 ZTLment | CVR 41801298 | FTID 22043 | Linnésgade 20A, 2.sal, 1361 Copenhagen, Denmark

© 2024 ZTLment | CVR 41801298 | FTID 22043 | Linnésgade 20A, 2.sal, 1361 Copenhagen, Denmark