Resources

• Microsoft Sustainability Report
• Microsoft Climate Innovation Fund
• Chestnut Carbon: a nature-based carbon removal developer
• Gold Standard and VERRA, two widely-recognized impact standards for climate action and sustainable development
• Symbiosis Coalition: an up to 20-million-ton advance market commitment to invest in nature-based carbon removals projects by 2030
• Frontier Climate: an advance market commitment to buy an initial $1B+ of permanent carbon removal between 2022 and 2030
• S&P Global CERAWeek: brings industry thought leaders to exchange on the future of energy, environment and climate
• Carbon Unbound Conference: a Carbon Direct Removal (CDR) summit in Europe
• BloombergNEF: focuses on global commodity markets and the technologies driving energy transition

Host and Guest

Host: Mike Toffel, Professor, Harvard Business School (LinkedIn)

Guest: Brian Marrs, Senior Director, Energy and Carbon Removal, Microsoft (LinkedIn)

Guest: Greg Adams, CFO, Chestnut Carbon (LinkedIn)

Transcript

Editor's Note: The following was prepared by a machine algorithm, and may not perfectly reflect the audio file of the interview.

Mike Toffel:

Brian and Greg, thank you so much for joining us here on Climate Rising. Why don't we start with some brief introductions? Brian, can you tell us a little bit about your current role, how you got there?

Brian Marrs:

Sure thing. Good morning and greetings from Seattle. I'm Brian Mars. I'm the Senior Director for Energy and Carbon Removal at Microsoft. And my team makes sure that our data centers have power when and where they need them. And then we support the company's efforts towards achieving our carbon negative by 2030 sustainability goal.

Mike Toffel:

Great, and Greg.

Greg Adams:

Thank you again Mike for having me participate today. Greg Adams I’m the CFO of Chestnut Carbon based here in Lower Manhattan, probably one of the few carbon developers in Lower Manhattan. We are backed by a private equity firm called Kimmeridge and we sit in their office here in New York. I have been in this space for just shy of two years.

Mike Toffel:

So we're going to start, by talking a little bit about Microsoft's energy strategy and how that fits within its carbon negative strategy. And then we're going to jump more into the voluntary carbon markets portion of that, where we'll hear from both Brian as the buyer of carbon credits and Craig you as the developer and supplying carbon credits.

So why don't we start by understanding a bit about Microsoft's energy strategy. I don't think most people know that Microsoft even has an energy strategy. They think of it as a technology player that creates software like Microsoft Office, has data centers, has some hardware like keyboards and so on. But I don't think people know it has an energy strategy. So, tell us a little bit about why does Microsoft has an energy strategy and how does that fit within its carbon climate negative strategy?

Brian Marrs:

Absolutely. Energy is important to Microsoft. Energy enables our cloud business and energy also fits squarely into how we approach our carbon negative by 2030 target. And I think when you back up and you look at the carbon negative target, which we set in 2020 and knew would be this decade long project out until 2030, there are really four missing markets that we set out to build towards achieving that target.

So, the first one is clean energy, which is debatable, not a missing market because it is maturing, but in 2020 it was more so. But also, clean materials. Can we get clean concrete and steel and cement and copper to go into our data centers? Just as an example. And then also clean transport or mobility and fuels to make sure that we've got a clean supply chain on that sense. And then the last one is carbon removal.

And the company purchases carbon removal for two reasons. One is to backstop ultra hard to abate reductions against the 2030 target. And so that's to the tune of around five-ish million tons a year deliverable in 2030 plus. And then we have historic carbon targets. This is the second one where Microsoft seeks to remove scope one and scope two emissions since the company's founding in 1975 by 2050. So, Microsoft is 50 years old this year. And by its 75th birthday, it will be historically carbon negative since the company's founding. And carbon removal is the only way to address emissions that have already occurred.

Mike Toffel:

Got it. Okay, so let's talk about the energy piece of this. So, it seems to me like there are maybe two reasons why you have a clean energy program. One is you need energy for these data centers, like other data center providers. It's not at all like an office or even a modest factory where you can rely on some excess capacity in the grid being able to supply what you need. These are big energy draws. And so, you actually need to think about: is there enough energy in the place we want to site our data centers? And if not, how do we either co-invest or encourage the grid to invest or the utilities? And while doing that, you also have to think about, well, which type of energy? And you're prioritizing, if I understand this correctly, renewables and nuclear power that are fossil fuel free, at least in the operations, rather than conventional fossil fuels. And so, if you could talk a little bit to us about these two portions.

Brian Marrs:

Yeah, it's a great point. And I think all big moonshot projects like our carbon negative by 2030 goal must balance pragmatism and ambition towards progressive outcomes. And when I think about what you just said, yes, we need power in the market to support our data centers. And we're very clear-eyed about what that means in today's energy market. At the same time, we're making substantial investments, literal investments through our climate innovation fund into companies that can provide clean energy solutions at scale. And at the same time, we are procuring both from those companies and the broader market to the tune of 34 plus gigawatts globally today of what we would think of as Carbon Free Energy. So CFE, that can support both grid capacity over time and then also the clean energy that we need, and then also public goals require.

Mike Toffel:

Got it. And you're doing that in the spaces where you're operating, Or is this more of an offset? There's a play sometimes people make, where we're going to invest in energy over there that's renewable and claim the benefits of it, even though we're not directly drawing from it. Are you doing that or some of that? Or are you really just focusing on the direct energy that feeds your facilities?

Brian Marrs:

So most corporate clean energy purchases are through power purchasing agreements, the majority of which are virtual. So, they try to locate within the same balancing area. All that to say, we try to align with prevailing carbon accounting principles as much as possible, noting that we have a large global portfolio of over 30 plus countries, hundreds of data centers. And so, there's no cookie cutter way to do that across the globe, but we have principles that we align to and that we outline in our annual sustainability report and execute accordingly.

Mike Toffel:

Yeah, okay, great. So, let's transition and talk a little bit about how the voluntary carbon market interacts with your energy strategy. So, you mentioned already that there's the plan to use these voluntary carbon market or carbon credits for these two purposes, in particular to remove the carbon dioxide that has historically been released from Microsoft's prior operations, as well as use it on a potentially ongoing basis for the particularly hard to abate sectors like concrete or steel or aviation. Those are often the hard to abate ones where the cost of making those operate in a carbon-free way is just so exorbitant that people say those are probably the last to transition unless there's some technological miracle that happens. So that's what you were saying you're going to use carbon credits for.

But there's lots of other uses of carbon credits that lots of other companies use them for, which is just to offset their normal power production, the fossil fuel element of the power generation. You didn't mention that as a part of your strategy, but is that part of your strategy, at least in the transition period?

Brian Marrs:

Yeah, and I think just to be very clear back to balancing pragmatism and ambition, we are a reduction-first program. So, we look wherever possible to reduce our carbon footprint across those missing markets that I described to those three, clean energy materials, transport, logistics, carbon removal puts the net in net zero. And so, we're using that in 2030 plus on an annual basis sparingly towards achieving and then sustaining our 2030 target. We also have, like I said, this 2050 target that of course coincides where carbon removal is necessary.

And I think the reason we're taking this approach is Microsoft is following the science. So, we're looking at what the UNFCCC says, we're looking at the IPCC. We know that we need gigatons of carbon removal to meet broader world climate targets. And when we announced our 2020 target, we embrace that science within our own program, noting that we're going to need a broader tool set within those missing markets as first a backstop and then to make the climate math pencil out. And so that's where we started on this journey in the VCM and in carbon removal specifically.

Mike Toffel:

Got it. Okay. Let's head down this road of voluntary carbon markets and Greg will be able to get your voice in more actively here. So, the, as I understand it, the big relationship boost that your two companies engaged in was back in January, 2025, when you announced one of the world's largest deals in carbon removal, where you'd be generating over the period of 25 years, about 7 million tons of carbon removal credits that result from forest plantings in the southern US in a couple of states. Big numbers, 60,000 acres, 35 million trees eventuallye. That's a big deal and I wonder if you could provide a little bit of the backstory into how you got that deal. So, as I understand it, this is a result of the expansion from a pilot. Why don't we just start a little bit with context setting?

So, Brian, again, you're responsible for trying to help with a team at Microsoft figure out the voluntary carbon market strategy. So, there's lots of hazards in this market. There are questions of additionality, questions of permanence, questions of over-crediting, terms that we've covered in some of our prior episodes on the voluntary carbon market.

So, one has to tread carefully in this space to make sure that there's not a reputation backlash, that there's not a scandal that ends up with your name on the headlines when you're trying to help do the right thing here by reducing carbon emissions and achieve this carbon negative strategy, the goals you mentioned. So, if you can talk us through a little bit about how do you do the due diligence and think through the different choices and how did that lead you to working with Greg at Chestnut Carbon?

Brian Marrs:

Sure. And I think you're right. It can be a scary place out there for buyers in the carbon market. Credibility is the product when it comes to buying carbon removal credits and carbon removal within the VCM is a newer space. And in fact, it's less than 5 % of the entire VCM transaction. So, we should maybe underscore that, that this is a subset of a subset that we think needs to grow over time. When we embarked on a global RFP (request for proposal) launch, within the last three years to receive projects. We coupled that with a multi-stage gate process to diligence all projects anywhere in the world with third-party engineering advisors. So, the one that's most public in association with Microsoft is Carbon Direct. And part of that is because Carbon Direct supports us in publishing our science and quality diligence criteria, which is on the website. Any developer can look at that anywhere in the world. And we really narrowed our process really to three key principles.

So, the first is we build a portfolio. We buy from nature-based, engineered solutions. We're qualifying for over a dozen to 15 individual CDR (carbon direct removal) pathways ranging from direct air capture, bioenergy, carbon capture and storage, enhanced rock weathering. We could list them all if we needed to, but that's just a flavor of that. And the goal there is to balance the cost per ton, the time to market and the ultimate scale potential in that portfolio.

The second is that we sign long-term deals. So, we think the quality and the commitment over time are related. And so, we want to have a forward demand signal for innovation to signal to the chestnuts of the world what Microsoft is looking for and what good looks like.

And the last is we build the markets we buy from. So, we publish our quality criteria like I just described. We have anchored a buyer's coalition called the Symbiosis Coalition with other companies in the market that are navigating the VCM the same way we are. So that helps developers see a single demand signal. And, and we're active on publishing our learnings online because we don't pretend to have all the answers, but what we are willing to do is, is turn science into action. And I think that's a difficult translation process, but we have set up a stage gate to do that at scale now.

Mike Toffel:

Got it. And so, you're investing in a common niche. So, the portfolio approach means you've got lots of different irons in the fire. You're exploring a lot of different technologies. Are you also buying credits available today as well as investing in new projects like this one? Or are you trying to focus mostly on new ones? How does that piece of the portfolio work?

Brian Marrs:

Great question. So, we have four, what we think of as science and quality north stars. And the first one is additionality. So new projects are the emphasis. And that's very similar to how we have navigated the carbon-free energy space where additionality is a core principle in our book. Another is permanence. So, we want to make sure that we're buying CDR that stretches its permanence over the course of our goals and then even longer. Measurability. So, we need to be able to measure the climate impact that we're looking for consistently and accurately. And then the last one is community benefits and making sure that communities benefit from these projects and that there's no creation of harm. And so, when you look on the website for our science and quality diligence criteria, all those four principles or those north stars are brought to life with more details with each CDR pathway that we've looked at considered.

Mike Toffel:

Okay, great. So, Greg, let's get you into the conversation here. How did you engage first with Microsoft and how does the Microsoft relationship relate to the broader strategy of Chestnut Carbon?

Greg Adams:

Thanks. So, prior to me joining Chestnut in August of 2023, some of our colleagues had responded to an RFP from Microsoft, I think in February 2023, and that started the journey. And you mentioned earlier a pilot program, and we signed our first contract with Microsoft in December 2023 from land that we had planted as a pilot program, in Arkansas and Alabama, and built that project under the Gold Standard registry. It's a forestation, so we are buying marginal pastureland, marginal farmland, planting trees where there were no trees for at least 10 years and building a conservation level forest, multi-species, biodiverse, native species in those areas. And so that's what touch point with Microsoft was and that was the contract we signed back in December 2023.

And shortly thereafter we got a call from Brian who said, hey, we like what you guys are doing. Can you do more and bigger at scale? Right? Because at the end of the day it’s doing this in a lab or a pilot program itself doesn't really help anybody. It doesn't help us as developers, doesn't help Microsoft, it doesn't help the market grow.

Working in partnership with Microsoft, we embarked on this larger project that we started in earnest May of last year and culminated in the signing of the contract back in January of this year.

Mike Toffel:

So the deal that you're doing with Microsoft, how does that fit within the broader portfolio of your organization?

Greg Adams:

So, we have two business lines today. One is approved forest management where we are working with third party landowners, third party forest owners to help them with long-term conservation of their land and help to pay them from keeping their forest standing.

And there's another part is the afforestation, which I mentioned before, where we buy land, plant trees, and sell carbon credits to companies such as Microsoft. For us, it's foundational. The relationship with Microsoft is obviously catalytic. We've been around for three years as an organization. The space is obviously nascent, too. And both Brian and I share experiences in the power space. And so, for both Brian and me, it was pretty obvious that as much as the space is new, and there's probably a tendency to try

reinvent the wheel in every part of this space, why don't we leverage technologies that have been employed successfully in other asset classes, namely power. And that's the language that Brian and I both speak. And so, we really tried to make these contracts, especially the one we just finalized in January, akin to a power purchase agreement. Obviously, there's going to be some nuances that are unique to nature projects in the Southeast US, but otherwise we can find threads of commonality from existing asset class.

We do so for a lot of reasons, A, we don't have to create a new language, we can utilize a language that's already spoken and understood between buyer and seller, but also the market broadly, right? And those other different stakeholders, capital providers, as we look to utilize what we're doing here between Microsoft and Chestnut as hopefully a template for how we as a buyer and a seller could build a more sustainable business model, financial model for the market more broadly, right?

In terms of this evolution of where we are today, I think we, Microsoft and Chestnut, have equally aligned vision of where we need to go and what we need to do to get there. And I think the starting point for us is long-term contracts, take or pay contracts that are reminiscent of what you saw at LNG 15 years ago and taking that technology and applying it here to start to de-risk it and start to resemble concepts that are well understood in other asset classes applying them here versus just having to reinvent the wheel just for the sake of doing so.

Mike Toffel:

Got it. So, what are some examples of the analogy that you bring to bear with from the energy market here into the carbon credit space?

Greg Adams:

Well, I think for example, the LNG market 15 years ago was very, very nascent and there was no forward curve, no liquidity to speak to. In order to get these massive infrastructure projects up and running and get the financing, you needed to anchor them with long-term off-take contracts with investment-oriented customers. Power purchase agreements, no different, right? I'm not going to go build a power plant. It was 20 years ago. Our market started to evolve in different areas. But if you're building these assets and the infrastructure and all the cost and time it takes to build them, you want to have long-term contracts at least underpinned to get them off the ground. You can augment them with spot merchant, but it's taken a long time, 20 years for the power market to evolve where there are still, I would say, I don't know the numbers, but a vast majority of power plants that being built today are utilizing power purchase agreements as their underlying framework, and then they're topping it up with merchant. There may be a handful that are using merchants only, but those tend to be the exception, not the rule.

Whereas today there is no merchant to speak to, it's very liquid and it's very heterogeneous and so from our perspective it's critical to lay the foundation with a long-term contract again reminiscent of what you know in other asset classes in part because when we buy our land, plant our trees, it's about four and a half five years between when we buy a land plant trees and we get our first cash flow right and so, that's a long time.

Again, our model at Chestnut here is we are conservation for profit. We believe our model, we happen to be planting trees for a living, but really, it's natural infrastructure. So, the same methodology, same model that we apply. So, whether we're building an LNG export terminal or a power plant or a forest, we're utilizing the same framework. And so that really is underpinned by a long-term take or pay contract with a customer such as Microsoft that really will enable us and others to be able to bring a lower cost of capital to that space to ourselves, to our projects. And frankly, without that contract, I don't see any of that happening today or in the near term.

Mike Toffel:

So, this whole offtake agreement, just to summarize what I think I'm hearing - the idea is get a buyer to commit for the long run that they're going to purchase from you, which de-risks the investment in the first place, which allows you to get lower cost of capital. Is that the essential of it?

Greg Adams:

Absolutely, buyer or buyers, right? Could be a coalition or could be a single buyer. But it's no different if I were building a power plant, I'd want a utility to be at the other end like Microsoft, right? So, I’ll be able to get the capital that I need to build that project and service that project over time. So, our model is no different. There are going to be some nuances but otherwise treat it like a long-life asset like a long-infrastructure asset and you're going to have a contract that is similar.

Mike Toffel:

So, tell us a little bit about the timing of this type of project. So, when you're doing an afforestation project or a tree planting project, in other words, you take some land, you prepare it, you seed it, you grow trees. Those trees start taking carbon from the atmosphere, putting it into the actual tree itself and into the soils. This takes time, as you mentioned, four or five years, I think you said. And you've also mentioned a 10-year time frame, I think. And then, there's a 25-year relationship here. So, help us understand the 5-year, the 10-year, the 25-year.

Greg Adams:

Right. And so, our approach, today we're in eight states in the Southeast United States. We have a quarter of our team who are registered foresters. And so, we want to be what good looks like in this space. And so, we are buying marginal pastureland, marginal farmland in the Southeast U.S. in areas where there's availability of land.

Trees grow quicker in the southeast U.S. than they do in northeast, not surprisingly. But we also want to make sure we have the availability of native seedlings. It's important for us and for our customers and also for the Gold Standard that we're planting native seedlings. We're not planting a seedling that's from Seattle and moving it down to Arkansas, for example. So if you were to take a time machine and go back, say 100 years, if we're compared to what we're building today, the expectation is that we're building something that is reflective of what would have been there prior to having been clear cut for a farm or a cattle pasture. And so, I'll give you an example. We will plant tens of millions of trees to support the project that we signed with Microsoft over 7 to 10 states in the southeast United States, over a several-year period. It is a very curated process.

Because we were backed by a private equity firm called Kimmeridge, we have developed with Kimmeridge a tool called the Chestnut Land Explorers Tool, which is a proprietary tool. Within 10 minutes, we can assess any parcel of land in the United States for the suitability of a carbon project. And 10 minutes is very quick, but it took us two years to develop it. It’s a pretty remarkable tool because it takes into account public and private data that enables us to be very quick and assess what is that particular parcel of land suitability from a what type of trees would we plant that we'd be native to that area, what dollar per acre would we pay to achieve both lever and unlevered return, what's the salinity of the soil, all these other things that go into what a good carbon project would look like. And we utilize that tool together with our land team to then down select and make sure that we're prosecuting land acquisitions effectively and efficiently. And we do that and then we work with our foresters to make sure that when we close out land, we're curating and building these projects that are again all with our customer requirements, with Gold Standards requirements, and the Forest Stewardship Council guidelines. So, it's not just green side up when you plant trees. Obviously from a financial perspective, you want to maximize carbon yield. By the same token, you want to make sure you're building what is reflective of a natural native forest.

Because at the end of the day, the building of long-term healthy forest primes, one of the main points for Microsoft is duration. And one of the criticisms of nature compared to other solutions in the carbon removal space is about duration, and the way we do that is we own the land where we're operating, and so we own the land in United States, and so if I'm saying to Microsoft, I'm going to stand behind a hundred year carbon credit, I can say that because I own the land in the United States, that is my land, and so I own that land in perpetuity. And so again, it's a very curated model that we have a little shy of 60,000 acres today, and we continue to expand our footprint.

Mike Toffel:

For a piece of land that you plant, you said it won't issue credits until a few years out. For how long does it issue credits? I don't think it's in perpetuity.

Greg Adams:

So, yeah, the reason for the four and a half, not five years is obviously tree when we plant our seedlings in the ground, already a year old. We get them from our nurseries and obviously all the while they're always capturing CO2. That's what they do, right? That's photosynthesis 101. But to be worth it from an economic standpoint to bring the third-party auditors and the registry out there to do the measurement, they need to be at a certain height, certain width to have critical mass, biomass, to justify that expense. And it's usually four and a half years.

From a Gold Standard perspective, it's a 50-year crediting period, and different registries have different crediting periods. And so, we sold Microsoft for a 25-year contract, but the ultimate crediting process under Gold Standard for this methodology and for the projects that we're standing up is 50 years. But we go back to buying our land. And so, Mike you mentioned earlier about the importance of a long-term contract. You know, for us, we think the land ownership is critical to help tie everything in a bow, in terms of my ability to go to Microsoft and Brian say 100 years and quality and all the things that go with it because the quality and integrity is our north star and it's reinforced by the fact that we own that land but the ownership of land obviously requires a larger capital infusion earlier on.

Mike Toffel:

Now, Chestnut Carbon in its own name with Chestnut being a tree and the description of the projects you mentioned forest preservation as well as conservation as well as afforestation. Is that the scope of the types of projects that you offer?

Greg Adams:

We are all about conservation, right? So whether that's the improved forest management business where we're working with existing landowners to incentivize them not to cut down their trees or to work with them to create more sustainable harvesting practices or in the case of a forestation where we started from two states in Arkansas and Alabama and we're now in eight states right and going to these areas where there were trees a long time ago but they were cut down for farming reasons or for cattle pasture reasons and now we are working in partnership with customers such as Microsoft to reforest those areas.

And we say afforestation simply because the nomenclature is if it was within, if there were trees within 10 years, that's considered reforestation, afforestation is more of a Gold Standard. If it's longer than 10 years, it's afforestation. But the punchline is the same. You're planting trees where there haven't been trees there. And our perspective is conservation for profit. Not only do we have a customer like Microsoft and we're selling them carbon credits under a long-term contract by the same token, but we’re also building this forest, right? So, this forest has so many other co-benefits.

So yes, it's the mass balance in the tree where a ton is a ton is a ton, but in addition to that, it is improving the water quality, improving the air quality, improving the communities in which we're operating. And all of that, Microsoft is helping to support that and underwrite that.

Mike Toffel:

Now, you've mentioned Gold Standard a few times. I just want to unpack that. So, when you say Gold Standard, that's one of the carbon credit standards that are out there that provides the methodology on what you need to do, what paperwork you need to file, what calculations you need to compute in order to validate the process with third parties who come on site to, as you mentioned, measure and inspect. There are other ones out there like VERRA and a whole bunch of others. Do you only work with one, the Gold Standard, or does it depend on the project? And how do you think through that as a developer side? I've never really heard someone talk about how they choose the carbon credit standards that they work with.

Greg Adams:

Well, to be fair, I'm a finance person, as Brian knows, but I think there are actually 60 registries that are there about today, so it's a massive number. This is a voluntary market, right? So, we have a team of scientists and folks that understand carbon accounting much better than I do and what it looks like and how do we create highest quality projects in which we're operating, whether it's improved forest management or afforestation.

Our team chose Gold Standard for afforestation because we believe that it holds us to the highest standard. It's more than just a name. At the end of the day, we want to oblige ourselves too, we want to be what good looks like, and we really want to make sure that we are raising that bar because ultimately that's what our customers want and require and we believe that's the only path forward. And so, we use Gold Standard for our reforestation, and we use VERRA for improved forest management today.

Mike Toffel:

Okay, great. So, some of each, it depends on the project it sounds like. So, this long-term contract that you both engaged in, in this example, suggests that you have faith in your forecasting of supply and demand in this rather uncertain market because you're coming up with some price strategy that you can agree on for 25 years, which in the end, reflects where you think your prices are compared to what you think the market prices will be. And there's an analogy to the energy market as well if you're going to procure these many kilowatt hours for this many years at some price or at least some index of a price that also involves forecasting what the supply and demand will be. So, I wonder if you can just shed some light on how you think about that forecasting process?

Greg Adams:

Well, I'll jump in first and I think we're not going to talk about price per se. It's a bilateral contract and there is no liquid market. So, one of us is going to be wrong, but we recognize that. I mean, from Chestnut's perspective, again, we are a conservation for profit. And so, we work with our customers such as Microsoft. We are very transparent in terms of what our return requirements are.

At the end of the day, we've got nothing to hide. We think, A, it's critical for that relationship, that credibility between ourselves and our customers, but also where this market is, it's even that much more essential. But we are very vocal about a risk-adjusted return, what we think from an unlevered and levered perspective. And that reflects itself in the price that we ultimately agree on. That's my perspective. I don't know, Brian, if you have a different one.

Brian Marrs:

Yeah, I think Microsoft’s stance here is we're really solving for the next 25 years. So, when we think about the supply demand forecast that we have, and when we set the carbon negative by 2030 target in 2020, noting that we had a decade sprint and then a 25-year project, we knew we were going to be long on this market.

So when I mentioned the climate math earlier, we, our business, continue to evolve. There are new technologies that come into the fray. know there will be things that shift over time. But the details in the plan are less important than the planning process itself.

So that's how we actualize supply and demand over time. And that means we're not solving sustainability report to sustainability report. We're solving out for 5, 10, 15 years. And that affords us the space to say we're going to take a 25-year position on a deal with an innovative company like Chestnut Carbon because we have that confidence that we're buying for two targets: our in-year target, which starts in 2030, and then our historic target. And when we look at that confidence here, this is the largest carbon removal deal signed in the United States. 7 million tons, 35 million trees that need to be planted. And we view that as confidence, not just in the specific project or counterparty, but the overall market that needs to evolve.

Because if we're serious about net zero across the fortune 500, we will need more tools, including carbon removal to get there. And we need the quality of those tons to be high. And we need to demand signals out to push quality and, and, um, business model innovation going forward. So, the PPA market here, I think, is a great analogy. It's not perfect. It rhymes. But I think putting project finance, which is an incredible tool to balance the future against value today.

Putting that at the heart of the VCM is going to yield better projects. And we need that to co-evolve with a lot of the standards. Greg was mentioning VERRA and Gold Standard. That is all necessary as well. So, it all must co-evolve together, but I think project finances is the area that I would put more emphasis on going forward in the VCM.

Mike Toffel:

Yeah, so if you can just unpack it a little bit, because I understand from a developer's perspective that whether you're developing a new generating capacity in the energy market or here you're investing in tens of thousands of acres, that de-risking from a developer's perspective is attractive because you get lower cost of financing, you have more assurance of demand. I think it's less obvious from the buyer's perspective of why lock yourself into long-term contracts as opposed to just seeing what is available on the market from year to year and adjusting as you go. So can you just help unpack?

Brian Marrs:

Microsoft has a two-prong strategy when we think about finance in the sustainability space. So, I mentioned the Climate Innovation Fund earlier. So that's the investment side. That’s the push factor. We're pushing capital into the market into solutions that can help solve those four missing markets, including carbon removal that we discussed.

And then we have this procurement engine that we've built that manages technical due diligence, translates science into commercial contracts. And then we procure tonnage over these longer-term contracts. We call this invest-to-procure. And this market is a virtuous cycle. And the strategy has helped us, I think, to access markets that didn't really exist before. And so, I think that if you're taking a leadership position on climate, which is what we've done in 2020 when we signaled this carbon negative by 2030 target, we must be willing to build markets even slowly, which means we can't perfectly predict the future. But we've already seen results in our clean energy book, which suggests this invest-to-procure cycle lowers costs, improves time-to-market and boost scale.

And so, you get bankable, repeatable, scalable processes and deals, and it radically lowers the costs of clean energy. We're seeing similar trends here in carbon removal. So, we've seen this movie before. It's not a perfect sequel here. With carbon removal, there are some big barriers in the market that still exist, but what we've seen is that if we can get the project engine around the financing spinning, a lot of good things can happen and you can get faster projects at scale, at lower cost and iterate. Because the alternative is no market. And I think that's the paradox here that we must solve if we're going to have meaningful action on climate.

Mike Toffel:

No market because the current market is unlikely to succeed. Is that what you mean?

Brian Marrs:

It will either have quality or volume issues. And again, we're solving for Microsoft's goals, but a sub-goal of ours is not to create a unicorn program that only Microsoft could use, but to publish our learnings, inspire action beyond the company, and make sure that we're lowering transaction barriers for other buyers in the way we're structuring our deals, such that we welcome the smallest carbon removal buyer in the world, because that means that this market would have succeeded and expanded and that we're addressing climate more systematically.

Mike Toffel:

So, you're in a way involved in a demonstration project here. What else needs to happen to fix this voluntary carbon market, which is currently troublesome. There's been controversies over whether the accounting is done correctly, for example, or whether a ton is really a ton. And it just takes an enormous amount of effort to do due diligence.

So what else is needed to really unleash a stable, growing carbon market of the size that we need. Because the alternative is, as you mentioned, no market.

Brian Marrs:

We could have a very long discussion about this, but maybe I'll just boil down to what Microsoft's most focused on in the next year to two years. One is lowering commercial transaction barriers to entering carbon removal deals for other buyers. So, I mentioned Symbiosis Coalition, we're a founding member of that, that brings buyers together to work out commonalities and due diligence, to have a highly aligned contracting structure.

That in turn helps developers, right? Because you have a pool of buyers, you're not responding to individual RFPs in terms of rationalizing that demand signal and projecting it into the future. That's a good tool for doing that.

So that's one area I'd say. The other is positioning our tools, AI to support project development and lower transaction barriers. Greg mentioned Chestnut Carbon, some of the proprietary tools that they have for land evaluation, we've seen AI and other digital and cloud-based tools really support the projects in our portfolio to be able to move faster, better, cheaper, and provide higher quality P50 to P90 underwriting standards when we're evaluating the economics of the deal. And that's really, important. So P50 to P90 meaning the probability curves of delivery so we can better forecast the future.

And then the last thing here, when we talk about putting project finance at the core of the market, I do think there's a role for some entity that would look more like a carbon utility to help rationalize it and essentially bring together buyers and sellers more consistently. So we have some developer clubs, and we have some buyer clubs. There's probably room for an entity in the middle there to help coordinate projects and really help us reach scale. So, we could talk on and on about standards and all the other things that need to co-evolve. But I think from a buyer's seat, these are the things that we're most focused on using our voice and action to help develop.

Mike Toffel:

Great. And Greg, what about from your perspective?

Greg Adams:

I think you go back to the point about the long-term contract. If Microsoft were only buying spot, then first, who knows what those prices will be and what the volumes will be and whether it's going to meet their requirements. First, they have more control if they sign long-term contracts. The same reason as they’re not just buying all their power spot either, right? And that's obviously a much more mature market. We believe that the framework that we're building here could be hopefully replicable in the market.

Obviously, it's going to be helpful for Chestnut, but we see ourselves playing a broader role in the market. Can we work with someone like Microsoft, a foundation, build a framework that others can replicate, and we can build hopefully a flywheel, which is basically what Brian was indicating earlier, where our goal is to build a strong, sustainable financial model here that is indicative of other asset classes that's going to bring and draw in lower cost of capital, enables us to scale and grow and continue to lower our cost down for Microsoft and others. And so that contract framework is essential.

The challenge in this space today is there's a lot of things that are all new and nuanced, and I don't accept the fact that just because everything is new and nuanced, we must apply a new and nuanced approach to everything. So, utilize analogs from other asset classes, there are special cases for sure, but there's a lot of harmonization that needs to be done.

I think Symbiosis is good in that regard. Finding ways to demystify this for buyers. Not every company is going to have the benefit of a Microsoft balance sheet to have this large, thoughtful team that's buying carbon credits. We as part of this ecosystem need to do a better job to help these buyers become less reticent and more confident in what they're buying.

Today, there's this heterogeneity in this space and in what constitutes carbon credit, there's a size for everybody in that. That's part of the problem. I can only speak for Chestnut, but we really want to lead by example. We're selling carbon credits to Microsoft and they're voluntary. They don't have to do it. They choose to do so. So, for us, we're effectively selling reputation risk insurance to our customers. So it's really important that we address the concerns of our customers, our employees, our community, and our stakeholders all simultaneously.

Mike Toffel:

Great, great. So let me turn to my last question that I always ask our guests, which is for advice for those who want to learn more, either on the production side, the supply side or development side of carbon credits, or on the buy side of carbon credits. What advice do you have for how they can learn more about it, whether it be attending conferences or newsletters or websites?

Greg, why don't we start with you? If someone comes up to you and says, “I want to be the next Greg in a few years, what's the path that you'd recommend for them to get there?

Greg Adams:

There's plenty of conferences. It's a question of what's going to have the best return on your investment. The Carbon Unbound series, which I think both Brian and I are fans of. There are the climate weeks in San Francisco, London, New York. They're not a conference per se, but they're a disparate group of people meeting together in a respective city. I think from my perspective, I've been in space for two and a half years, and I was in the power space. I was a project developer and a finance person, what I would encourage people is to find yourself in these conferences or environments where there are lots of different stakeholders, not just buyers, not just developers, but broader, not just academics either, right? So, there's a lot of different stakeholders here to give yourself an opportunity to get a good cross-section of this ecosystem, because it's also constantly evolving.

Mike Toffel:

Yep, great. Brian, how about yourself?

Brian Marrs:

I certainly second Greg there on the conference list. I might add Bloomberg New Energy Finance. They've had great coverage on carbon management and then also CERAWeek, which is hosted by S&P Global. It's a premier energy conference but increasingly has more CO2 management focus over the years,. I think also I would look at the transactions that are happening in the market. Look at the web pages of the various climate tech VCs, who they're funding, who's buying from those companies, who's breaking ground on projects. So, there's a lot of great indices, including Microsoft’s website, but also other buyers in the Symbiosis Coalition and also Frontier Climate. So those are great ways to plug in and be more aware over time as to how this space is evolving.

Mike Toffel:

Great and we'll put links to all those resources in the show notes for this episode. Well, Brian and Greg, it's been a real pleasure to hear from you and to learn your perspectives and really appreciate you spending time with us here on Climate Rising.

Brian Marrs:

Thanks so much.

Greg Adams:

Thank you, Michael. I appreciate it.